Law: Income Tax Act, 1922

Section: 16(2),49(c)(2)(iii)

Income-tax Act, 1922 -- Sections 16(2), 49(c)(2)(iii) (after amendment in 1956) -- Dividend -- Company -- Declaration of dividend by company -- Whether dividend becomes income of shareholder on the date of declaration -- Held yes -- Subsequent resolution treating amounts of dividend as bonus shares of shareholders -- Whether affects liability of dividend to be taxed as such -- Held no -- Company -- Dividends -- Assessable in year of declaration; when these became encashable or effectively payable -- Company's subsequent resolution to issue bonus shares in lieu of dividends amounts to appropriation of dividend income- Change in character of payment not permissible -- No change in law effected by 1956 amendment -- Corresponding Sections: Income-tax Ordinance, 1979 -- Section 12(11) - ORDER The order was passed by A. MANNAN, Judicial Member.---This appeal is at the instance of department and relates to assessment year 1960-61. The only ground that the department has taken up in this appeal is that: "The Appellate Assistant Commissioner was not justified in deleting the dividend income of Rs. 1,00,000 from the total income of the assessee". For the relevant year the assessee filed a return showing income at nil. The Income-tax Officer remarked: "In the previous year the assessee filed the return on 4th March 1960 showing income at Rs. 1,00,000. This income included net dividend amounting to Rs. 1,00,000 received from Messrs. P Limited. The assessee filed dividend warrants dated 31st May 1959. These dividends were issued subject to the approval of the extraordinary general meeting of the Board of Directors held on 4th July, 1959. As the dividend was neither payable nor paid within the accounting year ended 31st May, 1959 it was not brought into taxation in the assessment of 1959-60......Messrs. P Limited declared dividend amounting to Rs. 4,00,000 on 30th May, 1959 profit and loss appropriation account was debited by Rs. 4,00,000. The shareholders' accounts were credited to the same extent. The Company also issued dividend warrants on 31st May, 1959 to shareholders. There are contradictions in assessee's dealings...... I hold that the dividend warrants must have…

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