JUDGMENT (Per T. D. Sugla, J.) In this reference relating to the assessee's assessment year 1969-70, the Tribunal has referred to this Court at the instances of the assessee the following question of law for opinion under section 56(1) of the Income-tax Act, 1961 : "Whether on the facts and in the circumstances of the case the Tribunal erred in law in holding that the sum of Rs. 2,14,250/- declared as dividend by erstwhile Gagalbhai Jute Mills Pvt. Ltd. on 2.9.1968, was liable to be taxed as income in the hands of the assessee company ?" The assessee is a company. Relevant previous year is financial year ending 31.3.1969. On 2.9.1968 Messrs Gagalbhai Jute Mills Pvt. Ltd. (for short 'Jute Company') declared dividend. The assessee company being that company's major shareholder received Rs. 2,14,250/- as dividend. However, even before this date negotiations were going on between the assessee company and the Jute Company for amalgamation. Eventually on 16.9.1968 both the assessee company and the Jute Company presented applications in this Court for approval and sanction of the share of amalgamation of Jute Company with the assessee company. On 20.9.1968, the Court directed both parties to convened meeting of their shareholders and obtain their approval with the requisite majority. Both the assessee and the Jute Company held separate meetings of their shareholders on 4.11.1968 and obtained from them the necessary approval. A final petition for the amalgamation was filed by both thereafter and on 6.1.1969 the Court passed its order sanctioning the amalgamation as prepared and agreed to by the parties. Under the order of this Court, the amalgamation was to take effect from 1.4.1968. As regards the period from 1.4.1968 till the date of the sanction of the Court for amalgamation or until the amalgamation was completed, the Jute Company was deemed to have carried on business in trust for the assessee company. There is no dispute that the profit and loss account and the balance sheet of the assessee company for the financial year 1968-69 reflects the sales, profits, assets and liabilities etc. of both the companies as on 31.3.1969 on which date the amalgamation was certainly complete if not earlier. However, in the return filed for the year, the assessee disclosed the amount of Rs. of both the companies as on 31.3.1969 on which date the amalgamation was certainly complete if not earlier. However, in the return filed for the year, the assessee disclosed the amount of Rs. 2,14,250/- as its dividend income even though with effect from 1.4.1968 it had ceased to be a shareholder of the Jute Company in view of the order of amalgamation. The assessment was made accordingly. The objection of the inclusion of the aforesaid dividend income was raised before the Appellate Assistant Commissioner by way of an additional ground. However, the Appellate Assistant Commissioner rejected the objection on merits observing that the dividend was received before the sanction order of the Court dated 6.1.1969. The Tribunal has considered rival contention in great detail in paragraph 21 of its order. In particular, it referred to section 8(a) of the Income-tax Act, 1961 and the Supreme Court decision in the case of Kishinchand Chellaram and others v. CIT, Bombay, 46 ITR 640 and held that dividend having been received by the assessee when it was a recorded shareholder, dividend was assessable as the assessee's income and that the subsequent events were of not such consequence. Copy of the amalgamation order with Schedule I is annexed to the statement of the case as Annexure 'D'. The High Court had power and has sanctioned the impugned scheme of amalgamation under section 394(1) of the Companies Act, 1956. Sub-section (2) of section 394 provides as under : "S. 394. Provisions for facilitating reconstruction and amalgamation of companies : (1) ....................................... The High Court had power and has sanctioned the impugned scheme of amalgamation under section 394(1) of the Companies Act, 1956. Sub-section (2) of section 394 provides as under : "S. 394. Provisions for facilitating reconstruction and amalgamation of companies : (1) ....................................... (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and these liabilities shall be transferred to and become the liabilities of, the transferee company and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect." Having regard to the above provision and the provision in the order of amalgamation that from 1.4.1968 until the amalgamation is complete the Jute Company would be deemed to carry on the management of the company in trust for the assessee company, the position in law on and from 1.4.1968 is to be taken as if the Jute Company had become nonexisting company and the assessee company had naturally ceased to be shareholder of such a company after 1.4.1968, though functionally on 2.9.1968 the Jute Company was in existence and the assessee company did receive from it the amount in dispute as dividend. We have heard the learned counsel on two sides of length. In sum, the case of the assessee is that the legal effect of the order of amalgamation with effect from 9.4.1968 is that the Jute Company was not in existence as a separate legal entity from that day and that the assessee company has not, rather could not be, a shareholder of such a nonexistent company thereafter and that the amount of Rs. 2,14,250/- apparently received by the assessee as dividend from that company was, in fact, and to law, a receipt of its own money. To put it differently, it was a receipt by left hand from the right hand and could not, thus, constitute income assessable in its hands. 2,14,250/- apparently received by the assessee as dividend from that company was, in fact, and to law, a receipt of its own money. To put it differently, it was a receipt by left hand from the right hand and could not, thus, constitute income assessable in its hands. The case of the department, on the other hand was that Jute Company was in existence on 2.9.1968 when it declared and distributed dividend and the assessee company did receive the same as a shareholder and that no order of Court could deprive the Department of its right to tax the income in the hands of the assessee company. The Department, it was stated, acquired a vested right to tax the income on the day of declaration of dividend. Dr. Balasubramaniam stated that the Department was not a party to the amalgamation proceedings and that the Supreme Court decision in 46 ITR 540 (supra) was an authority for the proposition that once dividend was declared, it had to be taxed on such. Subsequent sum collection thereof for any reason whatsoever could not alter the legal position. Profit and Loss Account and Balance-sheet of the assessee company for the financial year 1968-69 was taken on record with the consent of the parties. The Directors' report to shareholders on the issue of amalgamation is - "Pursuant to the scheme of amalgamation approved by the members and sanctioned by the High Court of Bombay, vide order dated 6th January, 1969, Messrs, Gagalbhai Jute Mills Private Ltd. has been amalgamated with the Company, with effect from 1st April, 1968. The Statement of Accounts, therefore, includes the assets and liabilities of the amalgamated company and the working of the year under review reflects the working of the Company as well as the working of the said amalgamated company, and as such the previous year's figures shown in the Balance-Sheet and the Profit and Loss Account are not comparable." Though the Profit and Loss Account and the Balance-sheet of the Jute Company for the earlier financial year is not on record, it can be reasonably assumed that that company must have discharged its income-tax liability for that and earlier years and declared dividend out of its profits and reserves. Dividends are undoubtedly assessable in the hands of the shareholders as laid down in section 8(a) of the Income-tax Act, 1961. Dividends are undoubtedly assessable in the hands of the shareholders as laid down in section 8(a) of the Income-tax Act, 1961. What has happened in this case is that as result of order of this Court dated 6.1.1969, the assessee company has ceased to be a shareholder of the Jute Company with effect from 1.4.1968. The Jute Company, from that date, became a part and parcel of the assessee company. It is trite law that a company cannot hold shares of its own company. As a natural corollary, it cannot receive dividend out of its own profits. Thus, a complicated situation has arisen in this case. Factually, the amount in dispute was received as dividend. Legally, it could not be so as that is the legal effect of the order of amalgamation. The question is what is the legal position in such a case. For this purpose, we consider it desirable to refer to the following provisions which have some bearing on the question before us. The Company Court, it may be stated, passed order mentioning the scheme of amalgamation under section 394(1) on the application made under section 391 of the Companies Act. While sanctioning the scheme, the Court has power to make provision for all or any of the six matters mentioned in sub-section (1) of section 394. Clause (vi) of sub-section (1) of sec. 394 refers to - "(vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out." For this purpose, it is necessary to bear in mind that there are six heads of income as provided in section 14 of the Income-tax Act. One such head is "Income from other sources". That head of income is dealt with in section 56 of the Act. Sub-section 2(1) thereof refers to dividends. The expression 'dividend' is defined in section 2(22), but we are not concerned with that definition in this reference. Section 8(a) which is relevant to this regard, reads - "8. One such head is "Income from other sources". That head of income is dealt with in section 56 of the Act. Sub-section 2(1) thereof refers to dividends. The expression 'dividend' is defined in section 2(22), but we are not concerned with that definition in this reference. Section 8(a) which is relevant to this regard, reads - "8. For the purpose of inclusion in the total income of an assessee, - (a) any dividend declared by a company or distributed or paid by it within the meaning of sub-clause (a) clause (b) or sub-clause (c) of clause (d) or sub-clause (e) or sub-clause (22) of section shall be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the case say be." Evidently, dividend is made taxable as the income of the previous year in which it is declared. The dividend income, thus, accrues as income of the previous year in which it is declared as distinct from income of the day on which it is declared. If something happens during the previous year due to which the declaration of dividend is cancelled and the amount paid as dividend is directed to be treated as loans or payment of a part of capital, it is possible to conceive that at the end of the year there will not be accrual of income by way of dividend despite factual declaration. Similarly, if by operation of law the declaration of dividend becomes illegal, inoperative or invalid during the previous year itself, it is possible to conceive a situation in which an assessee would be conflicted to say that no income by way of dividend accrued to him during the previous year. What is important is that something factual or legal should have happened during the previous year in which the dividend is declared. We are not, for the present, considering a situation where that something happened after the end of the previous year in which the dividend was declared and consequently became income of that previous year under section 8(a) of the Act. In the present case, the High Court passed the sanction order for the amalgamation of Jute Company with the assessee company on 6.1.1969 with effect from 1.4.1968. Dividend was declared by the Jute Company on 2.9.1968. In the present case, the High Court passed the sanction order for the amalgamation of Jute Company with the assessee company on 6.1.1969 with effect from 1.4.1968. Dividend was declared by the Jute Company on 2.9.1968. It had at this stage become income of the assessee for the previous year 1968-69 financial year. But before the end of the year on 6.1.1969, as a result of sanction order, the Jute Company became a part of the assessee company from the commencement of the previous year which meant that provision for the distribution of the dividend in the hands of Jute Company became a provision for dividend in the hands of the assessee company as on 1.4.1968. This also meant that the assessee ceased to be a shareholder of the Jute Company as on that day as it is inconceivable that a company holds its own shares. Thus, the legal position was that neither could the Jute Company declared nor could the assessee company receive dividend from Jute Company after 1.4.1968. If factually any such thing happened as it did happen in this case, the legal effect of the order of sanction for amalgamation was that all that becomes impermissible and illegal. It is for this reason we are inclined to accept Shri Dwarkadas's submission that the amount of Rs. 2,14,250/- could not be taxed in the hands of the assessee as income by way of dividend received from Jute Company. It was the assessee's own money which it received and it could not certainly be of income nature. The same view, it may be stated, was taken by our Court in the case in CIT, Pune I v. Swastik Rubber Products Ltd., 140 ITR 304. In that case, sanction of the High Court for amalgamation with effect from 1.7.1971 was obtained on 31.12.1971. It was held - "The ITO held that the date of amalgamation for the purpose of sec. 170 was December 31, 1971. On appeal, the Tribunal took the view that the approval of the Controller of Capital was a mere formality in view of the order of the High Court that the amalgamation was to be effective from July 1, 1971. Moreover, for the purpose of income-tax, what was crucial was the date on which the assets and liabilities vested in the assessee. Accordingly, the Tribunal held that the date of amalgamation was July 1, 1971. Moreover, for the purpose of income-tax, what was crucial was the date on which the assets and liabilities vested in the assessee. Accordingly, the Tribunal held that the date of amalgamation was July 1, 1971. On a reference under sec. 236(2) of the I.T. Act, 1961. Held, clause (13) of the scheme of amalgamation could not alter the legal effect or the order sanctioning the scheme of amalgamation passed by the High Court. Moreover, as per clause (5) of the said scheme, with effect from July 1, 1971, the transferor was deemed to have been carrying on the business on account of the assessee. In view of these there was no reason to direct the Tribunal to refer the questions of law sought to be referred by the Department." Gujarat High Court explained the effect of the scheme of amalgamation in the case of Jitendra B. Sukhadia v. Alembic Chemical Works Company Ltd., 66 Company Cases 206, but that case does not have a direct bearing on the question before us. Dr. Balasubramaniam for the Revenue had also relied on the Supreme Court decision in the case of Kedarnath Jute Mfg. Ltd.6 v. CIT (Central), Calcutta, 82 ITR 363. We have carefully gone through that decision and do not find any relevance so for as the question in this reference is concerned. This takes us to the Supreme Court decision in the case of Kishinchand Chellaram and others v. CIT, Bombay, 46 ITR 640 (supra) which was strongly relied upon by the Tribunal as well as Dr. Balasubramaniam. In that case, a company had declared dividend and the amounts payable to the shareholders as dividend had been credited or paid to the shareholders as dividends. After few years, however, it was found that the company could not have declared and distributed dividend in law. Accordingly, the company passed an extra-ordinary resolution declaring that dividend were inadvertently declared and should, therefore, be treated as loans. The question arose whether in the years in which the dividend had been declared and distributed, they were assessable as income in the hands of the shareholders. Since the extra-ordinary resolution by which the dividend declared were directed to be treated as loans was passed long after the end of the previous year in that case, that case is distinguishable. The question arose whether in the years in which the dividend had been declared and distributed, they were assessable as income in the hands of the shareholders. Since the extra-ordinary resolution by which the dividend declared were directed to be treated as loans was passed long after the end of the previous year in that case, that case is distinguishable. We would like to make it clear that we are concerned in this case with a situation when the declaration of dividend on a matter of fact as well as the change in the legal position to the effect that it could not have been declared as dividend have happened during the one and the same previous year. Section 8(a), which has been referred to above, in our judgment, clearly contemplates the situation when a dividend declared has become invalid during the course of the previous year itself. Accordingly, we answer the question referred to us in the affirmative and in favour of the assessee. There will be no order as to costs.