Judgment:
Raghuvir, J.
1. B.V. Venkatesam Chetty submitted a return for the assessment year 1970-71 under the I.T. Act, 1961. His assessment was finalised on January 13, 1971. The order was reopened later, for, in the return, Rs. 3,600, being dividend received by him from M/s. Aruna Roller Flour Mills Private Limited, Mandapaka, was not shown by him. Therefore, the ITO, under s. 148 of the Act, reopened the assessment and included the amount and taxed it. Venkatesam Chetty protested against the order. On appeal, the Commissioner of Income-tax, on April 29, 1976, confirmed the order and directed the ITO to suitably modify the assessment for 1971-72. Aggrieved thereby, Venkatesam Chetty has approached this court to quash all proceedings by which the assessment completed on January 13, 1971, was reopened.
2. It is argued, Venkatesam Chetty maintains account books under cash system, that he received on May 11, 1970, the dividend cheque and, therefore, he could not have shown Rs. 3,600 in the return for the assessment year 1970-71; consequently, he could not be assessed. This writ petition is resisted by the Revenue on the ground that Aruna Flour Mills declared the dividend on March 28, 1970, that therefore, from the stand point of 'declaration of dividend', the inclusion of the amount is proper.
3. The question raised is no more res integra. It is covered by, at least, three cases of the Supreme Court. In the first case, in Dalmia v. CIT : [1964]53ITR83(SC) , the distinction between 'interim dividend' and 'dividend' was elucidated. That distinction is not relevant in the instant case as Rs. 3,600 dividend is not an interim dividend which can be rescinded before payment was made. In that case, it was held that 'the expression 'paid' in s. 16(2) of the Act of 1922 did not contemplate actual receipt of the dividend by the member'. 'The Legislature has enacted an express provision making dividend income taxable in the year in which it is paid, credited or distributed or is to be deemed, so paid, credited or distributed'. The expression 'paid', among the three expressions, it was elucidated, '...in general, dividend may be said to be paid within the meaning of section 16(2) when the company discharges its liability and makes the amount of dividend unconditionally available to the member entitled thereto...' In another case in Benares State Bank Ltd. v. CIT : [1970]75ITR167(SC) , the distinction between 'paid' and 'distributed' was elaborated. The difference between the two expressions, it was pointed out, the latter necessarily 'involves the idea of division between several persons which is the same as payment to several persons'. It was held that when dividend is declared by a company, it is chargeable to tax as income of the year in which it is so declared. The fact that actual payment of the income is deferred is irrelevant. It was explained '...the Act does not make dividend income taxable in the year in which it becomes due : it is taxable only in the year in which it is paid, credited or distributed' and added, the decision of the Bombay High Court in CIT v. Laxmidas Mulraj Khatau [1948] 16 ITR 248; 18 Comp Cas 198 'in which it was held that then dividend is declared, liability arises on the part of the company to make that payment to the shareholder and with regard to the shareholder when the income represented by that dividend accrues or arises to him and that the fact that the actual payment of the income is deferred is immaterial and irrelevant.....' Another case in CIT v. Bikaner Trading Co. Ltd. : [1970]78ITR12(SC) , the emphasis in the distinction in the distinction in the words 'declaration', 'distribution' and 'paid' was brought out : '..... the Legislature had not made dividend income taxable in the year in which it became due; by express words of the statute, it was taxable only in the year in which it was paid, credited or distributed or was deemed to be paid, credited or distributed' and some relevant cases were cited to hold that 'in the absence of any evidence to show that the dividend warrants were handed over to the assessee within the years of account ending June 30, 1955, and June 30, 1956, it cannot be held that the assessee is liable to pay income-tax on the dividends received by it'. The discussion, in the three cases show that the expressions 'declared', 'distributed' and 'paid' have to be applied, as the case may be, relevant to the facts of a case. It is not that a dividend is declared, therefore, even, on facts, if it is more relevant to look to payment, that is to be skipped as has been done by the authorities of the Revenue, in the instant case, as shown below.
4. On March 28, 1970, the dividend was declared. Venkatesam Chetty maintains cash system of accounts. The cheque was received by him on May 11, 1970. The two aspects have to be juxtaposed, one he received the cheque in May, 1970, and the other he maintains cash system of accounts. The two aspects were not borne in mind by the income-tax authorities when they reopened the assessment. We are of the view, on the facts of this a case, may be, the dividend was declared on March 28, 1970. Having regard to the cash system adopted by the assessee and the fact that the cheque was received by him on May 11, 1970, we hold that the day when it was received is decisive of the issue raised, and not the date when the dividend was declared. The impugned orders of the income-tax authorities, for the aforesaid reasons, are unsustainable; accordingly, they are hereby quashed. The writ petition is allowed. No costs.