JUDGMENT MANCHANDA J. - This is a case stated under section 66 (1) of the Income-tax Act, 1922 (hereinafter referred to as the Act). The question referred is :
"Whether, within the meaning of section 2 (11) (a) of the Income-tax Act, read with section 23A of the Income-tax Act, the amount of Rs. 3,56,88 treated as deemed dividend income from Kanpur Agencies Private Ltd. and held to be in existence on February 27, 1953, be included in the assessment year 1953-54, or in the assessment year 1954-55 ?"
The material facts are these : The relevant year of assessment is 1954-55, the previous year being Asauj Sudi 9, Samvat 2010, corresponding to September, 1953. The assessee was a shareholder, inter alia, in Kanpur Agencies Private Ltd., to which the provisions of section 23A of the Income-tax Act, 1922, were applied. A general meeting having taken place on the 27th February, 1953, the assessees share of dividend deemed to have been declared was determined at Rs. 3,56,888. Besides this deemed dividend, the assessee had other dividend income which was actually received during the previous year ending on Asauj Sudi 9, Samvat 2010. The latter dividend income was entered in the books of account and duly returned as income from other sources, under the residuary head, section 12, for the assessment year 1954-55. In response to the notice under section 23 (3) in respect of the said sum of Rs. 3,56,888, the dividend deemed to have been distributed to the assessee was on the 27th February, 1953, the date of the general meeting of the aforesaid private limited company, the said amount fell to be assessed during the assessment year 1953-54, on the basis of the financial year and not on the basis of the previous year commencing in September, 1953, which the assessee had adopted and the department had accepted in respect of all other income including dividend income from other companies and not in the assessment year 1954-55. This submission was rejected by the Income-tax Officer on the ground that the record showed that even in respect of dividend income the assessee had been adopting the previous year ending Asauj Sudi 9, of the Samvat year and further that in the return for the relevant assessment year 1954-55, the assessee had himself returned the dividend income from other companies by adopting the previous year ending Asauj Sudi 9, Samvat 2010, and since the said date February 27, 1953, fell within the previous year relevant for the assessment year 1954-55, it fell to be assessed in that year and not 1953-54. The Appellate Assistant Commissioner confirmed the order. The second appeal to the Tribunal was also dismissed. It was held that, admittedly, the assessee had other income from dividends and for that source, the previous year adopted by the assessee and accepted by the department was the year ending Asauj Sudi 9, Samvat 2010. It was observed, "the assessees learned counsel sought to distinguish between real dividend and deemed dividend and deemed dividend. According to him, if the income in question had been the real income declared by Kanpur Agencies Private Ltd., on February 27, 1953, it would have been rightly includible in the assessment year 1954-55; but this being only a deemed dividend, it should be treated as a separate source for which only the financial year should be the previous year." The contention was rejected for the reason that no distinction could be drawn between real and deemed dividends, and dividends whether deemed or real could only be treated as one source for which the assessee shad already exercised the option regarding the previous year.
Mr. Mehrotra, the learned counsel for the assessee, has contended that the source of deemed dividend is a separate source, and unless an option is exercised in respect of that particular dividend, it will be assessable under the provisions of section 2 (11) (i) (a) of the Act on the basis of the financial year. Reliance for this proposition was placed upon the decision of the Calcutta High Court in Sushil Chandra Ghose v. Income-tax Officer, Commissioner of Income-tax v. P. Darolia & Sons. This contention cannot be acceded to. In the ultimate analysis, the question which falls to be considered, in a case such as this, is whether dividend deemed or otherwise from various companies can be said to be from different sources so as to enable the assessee to adopt different previous years for each one of such dividend income within the meaning of section 2 (11) (i) (a) of the Act.
In order to resolve this question it is necessary to advert to the provisions of the Act which have a bearing thereon. Section 2 (11) (i) (a) defines "previous year" the material portion thereof runs :
"Previous year means -
(i) in respect of any separate source of income, profits and gains -
(a) the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said 31st day of March, then, at the option of the assessee, the year ending on the date to which his accounts have been so made up :
Provided that where in respect of a particular source of income, profits and gains an assessee has once been assessed... he shall not, in respect of that source or, as the case may be... exercise the option given by this sub-clause so as to vary the meaning of the expression previous year as then applicable to him except with the consent of the Income-tax Officer and upon such conditions as the Income-tax Officer may think fit to impose."
Section 3, is the charging section which enacts that tax shall be charged for any year at the rates specified in the Finance Act subject to the provisions of the Act in respect of the total income of the previous year of every individual, etc. Section 4 again provides for bringing to tax the total income of any previous year of any person from whatever source derived. Section 23A (1), as it stood at the relevant time, before its amendment by the Finance Act of 1955, made it obligatory upon the Income-tax Officer to make an order in writing declaring that, where less than 60% of the assessable income of the company, as reduced by the income-tax and super-tax payable by the company has not been distributed, it shall be deemed to have been so distributed as dividend amongst the shareholders as at the date of the general meeting, and such dividend income shall be included in the total income of such shareholder for the purpose of assessing his total income. The enactment of section 23A, as is well-known, was to prevent avoidance of super-tax by shareholders for a private company in which the public are not substantially interested, by refusing to declare dividend and by accumulating such income in the hands of the company and subsequently distributing it as capital in the shape of bonus shares which are not assessable as income in the hands of the shareholders and on which neither the company nor the shareholders paid any super-tax. If the conditions laid down in section 23A were satisfied, then there was no option left with the Income-tax Officer but to make an order thereunder, unless he was satisfied that, having regard to losses incurred by the company in the earlier years, or to the smallness of profit made, the payment of dividend or a larger dividend than that declared would be unreasonable. Therefore, a shareholder and particularly a major shareholder of a private limited company would, undoubtedly, know at all times that there was accumulated profit of the company which had not been distributed, and the Income-tax Officer would invoke the provisions of section 23A and distribute the undistributed profits as dividend income. In such a case, it cannot be said that the source of such deemed dividend income was one which was wholly unknown to the assessee. It was undoubtedly a known source declared by statute. It was again a source which like dividend from any other company could have been anticipated. There is also no dispute in the present case that such dividend could have been declared by the Income-tax Officer under section 23A of the Act. The dispute only is as to which year the deemed dividend income so declared fell to be assessed in.
Section 16 (2) makes a specific provision for the previous year in which the deemed income has to be included. This reads :
"For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is... deemed to have been paid, credited or distributed to him..."
According to section 23A, the previous year in which the deemed dividend income will be deemed to have been distributed is the date of the general meeting at which such dividend should have been declared. The deemed dividend income declared under section 23A would have to be included in the total income of the assessee in his previous year. If the previous year of the assessee referred to in section 16 (2) is the previous year which he has adopted for all his other income, then the previous year for deemed dividend income will also be that previous year. But if, on the other hand, the previous year referred to in section 16 (2) merely refers back to the definition of previous year in section 2 (11), then it may be open to assessee to contend that the particular dividend income, unless he has exercised the option, should be assessed on the basis of the financial year. Therefore, again we come back to the same point - as to whether a person who has dividend income from various companies and is returning his dividend income on the basis of a previous year other than the financial year and such returns have been accepted in the past by the department can he claim that in respect of dividend income from one particular company he had not exercised his option, and, therefore, it was assessable on the basis of the financial year ? The answer to the question will depend on whether the dividend income is in itself a source or each separate dividend declared is to be treated as from a different source ? It is no doubt true that there can be separate heads of income and under each head the income can be from different sources. To take an example, there may be several business and for each business it may be open to the assessee to adopt different previous years for them. Similarly, under the head "other sources" in section 12 of the Act, it may be possible for the assessees to have different sources such as fees as director of various companies, mining rents, income from fisheries, grazing and earth removing rights, etc. So also dividends from all companies is a different source from any of the above-mentioned sources. It is, however, difficult, if not impossible, to conceive of every company being really a different source of dividend income. The Judicial committee in Rhodesia Metals Ltd. v. Commissioner of Taxes at page 52 observed :
"Their Lordships incline to the view quoted with approval from Mr. Ingrams work on Income-tax by Mr. Justice de Villiers : Source means not a legal concept but something which a practical man would regard as a real source of income; the ascertaining of the actual source is a practical hard matter of fact."
Therefore, what has to be seen is whether any man of the world would consider dividend income received from each company to be a separate source of income ? Applying this practical test it may be difficulty to find a hard-headed businessman who would be prepared to treat every dividend received by him as being from a different source. The source of dividend income is the shares held in various companies. Therefore, when a business man talks of a source of dividend income he obviously refers to his shareholdings in various companies which result in dividend income to him. Each separate company is not considered by him as a different source of dividend income in the real sense of that word. A money-lender would not dream of treating every client of his as being the source of interest earned by him but that source would be one from the loaning of capital to various constituents for the return in the shape of interest. So also the source of dividend income would be the shareholding in the various companies. A practical man would not ordinarily regard each company as the real and separate source of his dividend income.
It is, however, contended that the meaning so attributed to source would make the use of the word "separate" before "source of income" in sub-clause (i) of section 2 (11) and the word "particular" before "source of income" in the proviso to section 2 (11) (i) (a) meaningless. We cannot agree. The words "separate" and "particular" must be read not disjunctively but in the context in which they appear. It is no doubt true that for a separate source of income, an option of a different previous year can be exercised. But, there is a condition which must be complied with. The requirement is that separate accounts for that particular source should have been maintained for such year. Under sub-clause (a) of section 2 (11) (i), the ordinary rule is that, in the absence of any option exercised, the financial year will be the previous year. But if accounts are made up to a date other than the financial year. The word "particular" in the proviso thereto again stresses that if option has been exercised in respect of a particular source and the assessee has been assessed then that option cannot be changed. The particular source here in the instant case would be the source from which the dividend income is received. Income from this source, i.e., "dividend" having been returned and assessed in the past on the basis of the previous year opted for by the assessee, it will not be open to him to change that option, without the permission or consent of the Income-tax Officer and without maintaining accounts on the basis of a year different from what had already been opted.
The authority relied upon by learned counsel for the assessee in Sushil Chandra Ghose v. Income-tax Officer is clearly distinguishable. In that case, though the assessee had returned some income under the head "other sources", nevertheless, when the Income-tax Officer brought to assessment income from an altogether different source, which was wholly undisclosed and not even referred to in any manner whatsoever in the return, it was held by the Calcutta High Court that the source was a separate one, and, therefore, in the absence of an option exercised by the assessee, such income from an undisclosed source required to be assessed on the basis of the financial year and not on the previous year opted by the assessee in respect of all other income derived by him. This decision is that of a learned single judge and he has specifically restricted the decision to the facts of that case. In doing so he has stressed that the other source must be wholly undisclosed and no reference to it in any manner whatsoever should have been made in the return. Further, it was held that the income from other sources which had been disclosed had nothing whatsoever to do with the impugned sum of Rs. 60,395 which was distributed to the shareholders including the assessee as preincorporation assets of the limited company. Reliance was also placed by the learned single judge on two decisions of the Patna High Court is Commissioner of Income-tax v. Meghu Sao Jhandu Sao and Commissioner of Income-tax v. P. Darolia & Sons for holding that if the source was wholly unknown then the previous year would be the financial year. These two cases of the Patna High Court were in respect of cash credits which were added as income from a wholly undisclosed source, and, in those circumstances, it was held that the previous year in which such income could be taxed would be the financial year. The Calcutta and the Patna cases have little or no relevance to the point which arises for decision in the present case. In the instant case the deemed dividend income was from a known source and not from a wholly undisclosed source and, as such, there can be no justification for invoking the proviso to section 2 (11) (i) (a) of the Act and in holding the assessee as not bound by the previous year opted by him and on the basis of which all other dividend income for the relevant year of income was returned by him.
The decision in Commissioner of Income-tax v. Chunilal B. Mehta does not also advance the assessees case in any way. In that case the question was whether a person resident in British India, carrying on business here and controlling transactions abroad was liable to tax on the profits of such transactions, even if such profits had not been brought into British India. It was held that the source of the profit did not necessarily determine the place where the profit arose and the profit of each particular business was to be computed wherever and by whomsoever the business is carried, but only on condition that they are profit accruing, arising or received in British India or deemed to be such. No such point arises in the present proceedings.
Having regard to the general scheme of the Act and in particular the proviso to section 2 (11) (i) (a) of the Act, the conclusion is irresistible that where the assessee has himself been returning dividend distributed, under the Act it will not cease to be dividend income. To hold otherwise would be to do violence to be well-settled interpretation which is to be given to a deeming provision of a statute. In State of Bombay v. Pandurang Vinayak Chaphalkar the Supreme Court laid down :
"When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion."
Again in commissioner of Income-tax v. S. Teja Singh the following observations of Lord Asquith in East End Dwelling Co. Ltd. v. Finsbury Borough Council were approved :
"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state a certain state of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs."
What the learned counsel for the assessee wants this court to do is to hold that the income was not dividend income but only deemed dividend which is something illusory. To do so would indeed be to boggle the imagination and not to take the deeming clause to its logical conclusion. The deemed dividend income for the purposes of the Income-tax Act is as real as if the company had itself declared such income. If it was real income in law to be treated as such, a fortiori, it must be dividend income and, therefore, there can be no warrant for making any distinction between such deemed income and real dividend income which the assessee himself had returned in the relevant assessment year. The view that we are taking is supported by a decision of the Punjab High Court in Bharat Fire and General Insurance Ltd. v. Commissioner of Income-tax. The only criticism levelled by the learned counsel against that decision was that no reasons have been given for coming to the conclusion that the previous year opted for that source of income would also be the previous year for the purpose of deemed dividend. It is though they may not have been elaborated. The ratio was that, where a company was being taxed in the relevant year as well as in earlier years on dividend income and it had filed a return adopting the period ending December 31 as the previous year, the deemed income also fell to be assessed in the same assessment year.
For the reasons given above, the question referred is answered by saying that the deemed dividend income has rightly been assessed in the assessment year 1954-55. The question is answered against the assessee. The assessee will pay the costs of this reference which we assess at Rs. 250. Counsels fee is also assessed at Rs. 250.