JUDGMENT
Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1978-79, the following questions of law have been referred at the instance of the Revenue :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the order of assessment passed under Section 143(3) read with Section 144B is an order of the Inspecting Assistant Commissioner of Income-tax and in that view was correct in cancelling the order of the Commissioner of Income-tax made under Section 263 as lacking jurisdiction to direct the inclusion of Rs. 6,60,000 as income from dividend for the assessment year 1978-79 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that an order of assessment merged with the appellate order in all respects irrespective of the subject-matter of appeal, and, in that view, was correct in holding that the Commissioner of Income-tax lacked jurisdiction under Section 263 for the assessment year 1978-79 directing the inclusion of Rs. 6,60,000 as income from dividend ?”
2. At the instance of the assessee, the following questions have also been referred :
“1. Whether, on the facts and in the circumstances of the case, and in view of the finding of the Tribunal that the Commissioner of Income-tax, West Bengal-V, had no jurisdiction to pass an order under Section 263 of the Income-tax Act, 1961, the Tribunal was legally justified in giving its decision on merits as to whether the sum of Rs. 6,60,000 is liable to be included in the assessment of the assessee-company for the assessment year 1978-79 and also in upholding the order of the Commissioner on merits ?
2. Whether, on the facts and in the circumstances of the case and on a true and proper construction of the order of the Calcutta High Court dated May 12, 1977, passed in Company Petition No. 16 of 1977 connected with Company Application No. 304 of 1976, the Tribunal was justified in law in holding that the order of the Calcutta High Court amounted to a declaration of dividend within the meaning of Section 8 of the Income-tax Act, 1961, and further holding that the dividend must be held to have been paid to the assessee-company on August 24, 1977, when the accounts were finalised within the meaning of Section 8 and as such the said amount was liable to be included in the assessment of the assessee-company for the assessment year 1978-79 ?”
3. The facts leading to this reference are that, under a scheme of amalgamation, Messrs. Associated Power Co. Ltd., a wholly owned subsidiary of the assessee-company was amalgamated with the assessee-company with effect from March 31, 1977, i.e., the last day of the accounting period relevant to the assessment year 1977-78. In the accounting year ending on March 31, 1977, a sum of Rs. 6,60,000 was proposed as gross dividends by Messrs. Associated Power Co. Ltd. During the assessment proceedings for the assessment year 1978-79 for which the relevant accounting year ended on March 31, 1978, it was contended on behalf of the assessee that, in that year, no dividend income accrued to or was received by the company during the relevant previous year and as such no dividend income was shown in that year. It was also pointed out that since Messrs. Associated Power Co. Ltd. was amalgamated with the assessee-company with effect from the close of the business on March 31, 1977, the company was not in a position to hold the annual general meeting where the dividend for the accounting year ending on March 31, 1977, could be declared. It was thus contended that, according to the provisions of Section 8 of the Income-tax Act, 1961, no dividend income accrued to
the company. It was also submitted that since no dividend income was declared by Messrs. Associated Power Co. Ltd., during the accounting year ending on March 31, 1978, the question of payment of any dividend to the assessee-company also did not arise. Thus, no dividend arose in the hands of the assessee on receipt basis also. The sum of Rs. 6,60,000 was not included by the Income-tax Officer in the assessment for the assessment year 1978-79. The assessment was framed by the Income-tax Officer under Section 143(3) read with Section 144B.
4. The Commissioner of Income-tax initiated proceedings against the assessee-company under Section 263 of the Income-tax Act, 1961. In response to a show-cause notice issued by the Commissioner of Income-tax, appearance was put in on behalf of the assessee and two legal objections were raised on its behalf. It was contended that, since the assessment for the assessment year 1978-79 was made by the Income-tax Officer under Section 143(3) read with Section 144B, the Commissioner of Income-tax cannot have jurisdiction under Section 263 inasmuch as the assessment order ceased to be an order made by the Income-tax Officer after giving effect to the order of the Inspecting Assistant Commissioner under Section 144B(4). The other legal objection raised by the assessee was that, since the assessment order was appealed against and the appellate order was passed on December 8, 1982, the order of assessment passed by the Income-tax Officer got merged with the order of the Commissioner of Income-tax (Appeals) and that, for this reason, the Commissioner of Income-tax could not assume jurisdiction under Section 263. On the merits, it was contended on behalf of the assessee before the Commissioner of Income-tax that there was no error on the part of the Income-tax Officer in not including the sum of Rs. 6,60,000 in the assessment of the assessee for the assessment year 1978-79. It was submitted that though dividend payment of Rs. 6,60,000 was recommended by the board of directors of Messrs. Associated Power Co. Ltd., yet the said dividend could not be declared by the shareholders of the company since the annual general meeting in respect of the year ending on March 31, 1977, could not be held. It was, therefore, submitted that the sum of Rs. 6,60,000 could not, in any sense, be considered to be dividend and, therefore, it was rightly not included in the assessment by the Income-tax Officer.
5. The Commissioner of Income-tax repelled both the legal objections raised on behalf of the assessee. While dealing with the merits of the case, the Commissioner of Income-tax relied upon the order of the Calcutta High Court dated May 12, 1977, in Company Petition No. 16 of 1977,
connected with Company Application No. 304 of 1976 in coming to” the conclusion that the sum of Rs. 6,60,000 being a sum representing dividend payable to the assessee-company, was clearly to be included as income in the total income of the assessee for the assessment year 1978-79. The Income-tax Officer was, accordingly, directed to give effect to the order of the Commissioner of Income-tax expeditiously.
6. Aggrieved by the decision of the Commissioner of Income-tax, the assessee came up in appeal before the Tribunal. The two legal objections raised on behalf of the assessee before the Commissioner of Income-tax were reiterated before the Tribunal. The order of the Commissioner of Income-tax was also assailed on merits. It was reiterated that the sum of Rs. 6,60,000 cannot be considered to be dividend for the assessment year under appeal for the reason that no dividend was declared for the accounting year ending March 31, 1977, by the shareholders of Messrs. Associated Power Co. Ltd. It was also contended that the dividend for that accounting year was neither distributed nor paid to the assessee-company and, therefore, on receipt basis also, the sum of Rs. 6,60,000 could not be treated as dividend income in the hands of the assessee-company. It was also submitted on behalf of the assessee that, after amalgamation of Messrs. Associated Power Co. Ltd. with the assessee-company with effect from March 31, 1977, the sum of Rs. 6,60,000 proposed as dividend remained with the assessee-company in its capacity as a custodian-bailee. It was thus submitted that, for the assessment year under appeal, there was no accrual of dividend income in favour of the assessee-company. It was further submitted that the order of the Calcutta High Court dated May 12, 1977, a portion whereof has been extracted by the Commissioner of Income-tax in his order, does not amount to declaration, distribution or payment of dividend within the meaning of Section 8. In this connection, the attention of the Tribunal was also invited to Circular No. 3/1/ 24/75-CLV, dated November 22, 1976, issued by the Department of Company Affairs, Government of India, which says that the Department agrees that the dividend becomes a liability only when it is approved by the shareholders in the annual general meeting.
7. While considering the submissions made on behalf of the parties regarding the merits of the case, the Tribunal extracted the following portion of the order of the Calcutta High Court dated May 12, 1977, passed in Company Petition No. 16 of 1977 connected with Company Application No. 304 of 1976 :
“It is further directed that instead of the directors of the Associated Power Company Limited, the director of Dishergarh Power Supply Company Limited shall arrange for the preparation and audit of the Associated Power Company Limited’s accounts for the year ended March 31, 1977, and will retain such sum of money out of the profits for that year of the Associated Power Company Limited so as to pay a dividend not exceeding 13 per cent. (after deducting tax) to the shareholders of the Associated Power Company Limited for the said year and they shall sign the balance-sheet and profit and loss account of the Associated Power Company Limited which is a wholly owned subsidiary will be dissolved without winding up pursuant to this order the annual general meeting of the members of the Associated Power Company Limited to consider, inter alia, the accounts for the year ended March 31, 1977, need not be held. The petitioner’s advocates on record to furnish the requisite stamp for filing the report by May 14, 1977.”
8. The Tribunal held that the order of the Calcutta High Court amounts to a declaration of dividend within the meaning of Section 8. It was further held that the dividend must be said held to have been paid to the assessee on August 24, 1977, when the accounts were finalised and that this amounted to payment of dividend to the assessee-company. A sum of Rs. 6,60,000 was declared and paid as dividend to the assessee-company within the relevant accounting year with the result that it was liable to be included in the assessment of the assessee-company for the assessment year 1978-79.
9. On these facts, the questions set out hereinbefore have been referred to this court.
10. The questions which have been referred at the instance of the Revenue are admittedly concluded by the decision of this court in Income-tax Reference No. 9 of 1984 (CIT v. Malchand Bagri).
11. Following the said decision, we answer both the questions referred to us at the instance of the Revenue, in the negative and in favour of the Revenue.
12. We shall now deal with the questions which have been referred at the instance of the assessee. A contention was raised by Mr. Sunil Mitra, learned advocate for the Commissioner, that the questions which have been referred at the instance of the assessee, cannot be referred at all as the assessee did not file any independent reference application but, in the respondent’s reply, such questions have been raised. He has, therefore,
submitted that the court cannot decide these questions and should decline to answer these questions. On the other hand, Dr. Pal, learned advocate appearing for the assessee, submitted that the questions suggested by the assessee were properly referred by the Tribunal in view of the decision of the Supreme Court in CIT v. V. Damodaran [1980] 121 ITR 572. As a matter of fact, this contention was also raised before the Tribunal and the Tribunal, following the aforesaid decision of the Supreme Court in V. Damodaran’s case [1980] 121 ITR 572, came to the conclusion that the questions suggested by the assessee in the respondent’s reply could be referred to the court. The Supreme Court in V. Damodaran’s case [1980] 121 ITR 572, observed as follows (at page 578) :
“Section 256(1) of the Income-tax Act, 1961, entitles the assessee or the Commissioner, as the case may be, to apply to the Appellate Tribunal to refer to the High Court any question of law arising out of the order made by the Appellate Tribunal under Section 254. A period of limitation for making such application is prescribed. If the application is rejected by the Appellate Tribunal, the applicant is entitled to apply to the High Court, again within a prescribed period of limitation, and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and refer it. It is clear that the statute expressly contemplates an application in that behalf by a party desiring a reference to the High Court. The application has to be filed within the prescribed period of limitation. If the application is rejected by the Appellate Tribunal, it is the applicant thus refused who is entitled to apply to the High Court. If the Appellate Tribunal allows the application made to it, Section 256(1) requires it to draw up the statement of the case and refer it to the High Court. The statement of the case is drawn up on the basis of the application made by the applicant, who in that application must specify the questions of law which, he claims, arise out of the order of the Appellate Tribunal made under Section 254. The form of reference application prescribed by Rule 48 of the Income-tax Rules, 1962, specifically requires the applicant to state the questions of law which he desired to be referred to the High Court. He may, in appropriate cases, be permitted by the Appellate Tribunal, to raise further questions of law at the hearing of the reference application. But, in every case, it is only the party applying for a reference who is entitled to specify the questions of law which should be referred. Nowhere in the statute do we find a right in the non-applicant (a phrase used here for convenience) to ask for a reference of questions of law on the application made by the applicant.
In this connection, two categories of cases can be envisaged. One consists of cases where the order of the Tribunal under Section 254 has decided the appeal partly against one party and partly against the other. This may be so whether the appeal consists of a single subject-matter or there are more than one independent claim in the appeal. In the former, one party may be aggrieved by the grant of relief, even though partial, while the other may be aggrieved by the refusal to grant total relief. In the latter, relief may be granted or refused with reference to individual items in dispute, and accordingly one party or the other will be aggrieved. In either case, the party who is aggrieved and who desires a reference to the High Court must file a reference application for that purpose. It is not open to him to make a reference application filed by the other party the basis of his claim that a question of law sought by him should be referred. The second category consists of cases where the order made by the Appellate Tribunal under Section 254 operates entirely in favour of one party, although in the course of making the order the Appellate Tribunal may have negatived some points of law raised by that party. Not being a party aggrieved by the result of the appeal, it is not open to that party to file a reference application. But on a reference application being filed by the aggrieved party it is open to the non-applicant, in the event of the Appellate Tribunal agreeing to refer the case to the High Court, to ash for a reference of those questions of law also which arise on its submissions negatived in appeal by the Appellate Tribunal. It is, as it were, recognising a right in the winning party to support the order of the Appellate Tribunal also on the grounds raised before the Appellate Tribunal but negatived by it.”
13. In view of the aforesaid decision, we are afraid that we cannot accept the contention of the Revenue that the questions suggested by the assessee in the respondent’s reply were not properly referred to this court. The assessee was not the aggrieved party who could have sought reference under Section 256(1) of the Act. The assessee succeeded in the appeal. The appeal was wholly allowed though only on the point of jurisdiction, the Tribunal held that the Commissioner had no jurisdiction to pass an order under Section 263 of the Act and accordingly the appeal was allowed. In such a case, the assessee, not being aggrieved, could not prefer any application for a reference. It was only after the Commissioner made an application for reference, the assessee could ask for a reference on the issues decided against it. If the Commissioner did not apply for reference, the question of the assessee making any application would not have arisen as the assessee was not aggrieved. When the Commissioner makes an
application and the assessee is asked to submit the respondent’s reply, ordinarily the time to make an application under Section 256(1) of the Act would expire. Accordingly, at that stage, when the assessee filed the respondent’s reply, he can only ask for reference on the question on which it might feel aggrieved in the event the reference of the Revenue was ultimately allowed. We are, therefore, of the view, that the Tribunal was justified in referring the questions as suggested by the assessee in the respondent’s reply.
14. On the merits, the contention of Dr. Pal, learned counsel for the assessee, is that, after the amalgamation of the Associated Power Company with the assessee-company with effect from March 31, 1977, the Associated Power Company has ceased to exist. In that view of the matter, it cannot be said that the assessee-company has made any payment of dividend to itself. The payment necessarily implies the existence of two distinct persons. A man cannot make a payment to himself.
15. The dividend can also not be said to have been declared because the director cannot distribute a dividend but can only recommend the quantum in the general meeting. Till the company, at the annual general meeting, accepts the recommendation and declares the dividend, the report of the director in that regard is only a recommendation which may be withdrawn or modified. It is submitted that, after the amalgamation of the Associated Power Company with the assessee-company with effect from March 31, 1977, there cannot be any declaration or distribution or payment of dividend.
16. In any event, Section 8 of the Income-tax Act, 1961, provides that, for the purposes of inclusion in the total income of an assessee, any dividend declared by a company or distributed or paid by it within the meaning of Sub-clause (a), (b), (c), (d) or (e) of Clause (22) of Section 2 of the Act shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case may be. Section 2(22) of the Income-tax Act, 1961, is an inclusive definition which only extends the meaning of dividend.
17. The word “includes” is often used in interpretation clauses in order to enlarge the meaning of the word or phrase occurring in the body of the statute. When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also those things which the interpretation clause declares that they shall include.
18. It is, therefore, submitted that Section 8 of the Income-tax Act is applicable only in cases where Section 2(22) of the Act, by an inclusive definition, extends the meaning of the expression “dividend”. It is submitted that none of the sub-clauses of Section 2(22) of the Act is applicable in the present case. The Tribunal also has not held that any of the sub-clauses of Section 2(22) of the Act is applicable. Section 56(2) of the Act provides that dividend income is assessable under it. The dividend, therefore, in order to be assessable, must be paid during the relevant accounting year. As, during the relevant accounting year, the Associated Power Company Limited has been amalgamated with the assessee-company, the question of any payment of dividend does not arise as, in order to constitute payment, there must be existing two distinct persons, the payer and the payee. A man cannot make a payment to himself.
19. It is also his contention that the order of the High Court in the case of the company petition merely directs that instead of the directors of the Associated Power Company Limited, the directors of Dishergarh Power Supply Company Limited (the assessee-company) shall arrange for the preparation and audit of the Associated Power Company Limited’s accounts for the year ending March 31, 1977, and will retain such sum of money out of the profits for that year of the Associated Power Company Limited so as to pay dividend not exceeding 13 per cent. to the shareholders of the Associated Power Company Limited for the said year and they shall sign the balance-sheet and profit and loss account of the Associated Power Company Limited for the year. The order of the court merely directs the directors of the assessee-company to retain the sum of money out of the profits of the year of the Associated Power Company Limited so as to pay the dividend not exceeding 13 per cent. Mere retention of the money as directed by the Calcutta High Court does not constitute either declaration or payment of the amount to the assessee-company because, the payment can be made only if there are two parties, the payer and the payee existing on the date of the payment. In fact, there is no finding that the said amount has been paid to the assessee-company.
20. We are, however, unable to accept the contentions of learned counsel for the assessee. We have already extracted the order of the company court allowing the amalgamation. It has been specifically provided that the Associated Power Company would not be required to hold the annual general meeting for the year ending March 31, 1977. A specific direction was given to the assessee-company for audit of the accounts of the
Associated Power Company Limited and to retain out of the profits of that year such sum so as to pay dividend not exceeding 13 per cent. after deduction of tax to the shareholders of the company for the said year. In such a case, it was not necessary, nor was it possible for the Associated Power Company Limited to hold any annual general meeting for the purpose of formal declaration of dividend on the basis of the recommendation of the board of directors. On the basis of the directions contained in the scheme of amalgamation, the dividend must be deemed to have been declared but retained by the assessee-company. On the facts and in the circumstances of the case, it must be held that the dividend must be deemed to have been declared, distributed and paid to the assessee within the meaning of Section 8 of the Income-tax Act, 1961. As a matter of fact, the accounts of Messrs. Associated Power Co. Ltd. were finalised on August 24, 1977, and in the balance-sheet for the assessment year ending March 31, 1977, a sum of Rs. 6,60,000 was shown as proposed dividend. Messrs. Associated Power Co. Ltd. was amalgamated with the assessee-company with effect from March 31, 1977, and, therefore, the sum of Rs. 6,60,000 remained with the assessee-company.
21. The dividend in this case was payable only to the assessee-company and to none else. The order of the company court, in our opinion, amounts to a declaration of dividend within the meaning of Section 8, and in view of the order, the holding of the annual general meeting of the members of the Associated Power Co. Ltd., for the year ended March 31, 1977, was dispensed with. Holding of the annual general meeting was dispensed with not only for consideration of accounts for the said year but also for other purposes including declaration of dividend.
22. As a matter of fact, after the accounts had been finalised on August 24, 1977, the sum of Rs. 6,60,000 which was lying with the assessee-company and retained by it acquired the character of dividend in the hands of the assessee-company, on and from the said date which was fully within the accounting year relevant to the assessment year ; dividend must be held to have been paid to the assessee on August 24, 1977, when the accounts were finalised and, with effect from that date, the assessee ceased to hold the money as a custodian or bailee or trustee and from that date it belonged to the assessee as and by way of dividend. This amounted to payment of dividend to the assessee-company of a sum of Rs. 6,60,000 within the meaning of Section 8.
23. For the reasons aforesaid, the questions which have been referred to us at the instance of the assessee are answered in the affirmative and in favour of the Revenue.
24. There will be no order as to costs.
Shyamal Kumar Sen, J.
25. I agree.