B.V. Venkatesam Chetty Vs. Commissioner of Income-tax, Andhra Pradesh, Hyderabad and ors. - Court Judgment

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direct taxation - dividend - sections 2 (22) and 148 of income tax act, 1961 - whether dividend received by share-holder is taxable in his hands right on day of it being announced by company - dividend income is taxable in year in which its paid or credited to member - in regard to fact that assessee maintained a cash system of accounting dividend is taxable when cheque containing dividend amount reached him and not when it was declared by company. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no other grounds are available to it. the insurer is not allowed to contest the claim of the injured or heirs of the deceased on other grounds, which are available to the insured. if insurer is permitted to contest the claim on other grounds it would mean adding more grounds of contest to the insurer and will be negation of the intention of the legislature and annihilate mandate of the provisions of sections 170 and 149 of the act. the insured can pursue appeal only after giving up the insurer as the appellant and not otherwise. in the instant case, the insurer has not withdrawn from party array but has remained prosecuting the appeal with the insured on the grounds which are available only to the insured. therefore, the joint appeal as filed by the insured and the insurer is not maintainable. section 166: [v. gopala gowda & jawad rahim, jj] claim for compensation accident due to mechanical defect in the vehicle held, it is not in dispute that the claimant suffered injuries in an accident, which occurred during the course of his employment, albeit due to his negligence but law does not render him remediless. statutory right is conferred on him, accruing by virtue of his employment under insured to claim compensation under workmens compensation act. the insurer is statutorily duty bound to discharge the liability of the owner of the vehicle, to pay such compensation to the employee, as mandated under the provisions of section 149 of the act. the right of an injured employee or his dependents as the case may be to be compensated, when injury is suffered or death occurs during his employment, is recognised not only under workmens compensation act, but also under benevolent provisions under section 166 and 167 of the m.v. act. the right of driver to seek compensation is not restricted only to the workmens compensation act, it has been enlarged to enable such person to seek just compensation (sections 166 and 168), conferring upon him the right of election engrafted under section 167 of the act to choose either of the two forum. the only defence which the insurer could take is limit of its liability as enumerated under section 147 of the act, leading to contest, inter alia, only between insured and insurer and does not impact claimants right to recover the compensation determined by the tribunal which crystallizes into enforceable right against both. in the instant case, the claimant/driver has exercised right of election under section 167 of the act to seek compensation under section 166 of the act resulting in award passed by the tribunal. therefore, the insured and the insurer have no escape but to discharge the said award as directed. undisputedly, in this case as deduced for proved facts, the vehicle in question was not properly maintained by the owner and despite faulty brake system, the claimant had undertaken the hazardous journey to his peril at the behest of and at the instruction of the owner. the owner is therefore, tortfeasor. section 168: [v. gopala gowda & jawad rahim, jj] insurers limit of liability - held, it is well settled that the liability of the insurance company for payment of compensation can be statutory or contractual. is for the insurance company to show that the insurance policy was a statutory policy and not a contractual policy to restrict its liability. that issue was neither raised before the tribunal nor is raised in this appeal requiring decision. thus, if at all the insurer has any valid ground to restrict its liability, it can proceed against the insured but firstly it has to discharge the award as required under section 149 (1) of the act. where the owner/insured has failed to maintain the vehicle as per prescribed safety standards and has caused the claimant to drive the vehicle with mechanical defects, the owner would be the tortfeasor and the claimant can maintain a petition seeking compensation under the provisions of the act, instead of seeking compensation under the workmens compensation act. on facts, held, the material evidence on record, particularly, with regard to the income of the claimant, his age, medical evidence and the evidence relating to pecuniary loss has not been considered by the tribunal in the correct perspective, which has resulted in passing of the impugned award, disproportionate to the pecuniary loss and the loss of future income of the victim. the settled principles governing determination of compensation has been given a go-bye. compensation of rs.4,15,150/- awarded by the tribunal was enhanced to rs.8,20,000/-. 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.