Allowed

M/S. Shri Gopal Paper Mills Co. Ltd. v. Commissioner of Income Tax, Central Calcutta

Supreme Court21 Apr 19701970 INSC 99 · [1971] 1 S.C.R. 3231970 INSC 99

Case brief

AI extract

What is this about?

An assessee company capitalised accumulated profits into fully paid bonus shares by a general meeting resolution dated December 30, 1954. The Supreme Court held the shares became shareholders' property from that date and that issue of share certificates is not required for shares to be 'issued', so the tax rebate reductions wrongly made by the department were unjustified.

What did the court decide?

Questions referred answered in favour of the assessee; costs awarded against Revenue.

What the court decided

M/S. Shri Gopal Paper Mills Co. Ltd. versus Commissioner of… — Income Tax | Supreme Court (1971)

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323

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M/S. SHRI GOPAL PAPER MILLS CO. LTD.

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COMMISSIONER OF INCOME TAX, CENTRAL CALCUTI'A April 21, 1970

[J.C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.)

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Finance Act, 1956 Suh-els. (a) and (h) cl. (l) Second Proriso f'arngraph D Part JJ-Re.\·o/utio11 hy t·o111pllny capiul/ising unclivided profits in the fonn of fully paid· up bonus s'1ares-JVhe1her the bonus shares <:oulcl he 111clucled in the paid up capital of tile asseJ".'ee-Share-ho/ders t'ntitled to dh•idends fi·o111 Jcuruary 1., J955-Whetlier honu.'I shares can he .'aid to lu1'Jle been i.'iJlled on rite .c/ate of re.\·o/u!ion i.e. Dece111ber 30, 1954-./f can he said to Ju1l'e heen is.\·ued ·within the 111ea11ing of Second PrOl'i.vo IP Para D of Parr JJ-'Al/ot' 'distribute', 111eaning.

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The appellant company-assessee-at a general meeting on December 30, 1954 passed a resolution to the effect that a portion Of the accumulated undivided profits "be capitalised and distributed amongst the- holders of the ordinary shares in the company on the footing that they became entitled thereto as capital and the capital was to be divided into bonus •hares and allotted to the ordinary shareholders on the basis of their shareholdings and by clause (b) of the resolution the directors of the company were directed to "issue allot and ·distribute" the new shares, credited as fully paid up amongst the persons whose names- arc registered as uch in the books of the company on lst January 1955. The shareholders were entitled to get dividends on those shares only as from !st JaAuary J9S5. For the asse§Sment year 1956-57 the .relevant accounting period ending on December 31, 1955, the Income-tax Officer determined the total income of the company and in computing the Corporation tax due in respect of the income reduced the rebate to which the appellant company was entitled on two counts; first under sub-cl. (a) and secondly under sub<!. lb) of cl. ( J ) to the sond proviso to paragraph D of Part II of the Finunce Act 1956. As a result of proceedings before authorities under the Act, the following questions were reFet'J'ed to the High Court :

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( i) Whether on the facts and in the circumstances of the case the bo~us shares Of the face value of Its. 50.07,500 should be included in the paid up capital of the assessee within the meaning of that term in ourouance of sub-section (I) of the explanation and oaraaraph D of Part IT of the Finance Act 1956 for the relevant year and;

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(ii) Whether on the' facts and in the circumstances of the case the honus shares in question can be said to have been issued within the meaning of the second proviso to oaragraph D of Part JI of the Finance Act 1956, to the shareholders by the assessee during the accountinR year ended 3 lst December 1955 relevant for the assessment year 1956-57.

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The High Court answered both the questions in favour of the departmeot. In appeal to this Court,

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HELD : (i) The company had· ittlt~wers to convert its 'accumulated undivided profit. into bonus shares and ·it was not "Pen to the ordinarv shareholders to refuse to accept those shares when allotted. Under the resolution a portion of the accumulated undivided profits were .converted

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SUPREME COURT REPORTS

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[1971] I S.C.R.

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.324

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into capital: that capital ·was divided into fully paid up bonus shares ano allotted to the ordinary shareholders on the basis of their share-holdings. The shares so allotted became the property of the shareholders as from the date of the resolution, namely, December 30, 1954 subject to the qualilication that they were entitled to get dividends on those shares only from Isl January 1955. The expression "be capitalised and distributed" in the resolution only means ''is hereby capitalised and distributed". The authori:ies under the Act and the High Court have placed undue emphasis on the<e clauses of the resolution which lay down the procedure to be adopted in the matter of carrying into 'effect the decision of the general meeting. They do not in any manner cut down the nmbit of that resolution. The High Court as well a< the Tribunal were under the erroneous ir11pression that a share cannot be said _to have been issued to a person untii a share certificate is given to him. Merely because in cl. (b) of the resoll1tion the l)irectors of the Company were directed to issue bonu~ shares it cannot be said that the bonus shares had not passed to the shareholders on December 30, 1954. The meaning of. the words "allot" and '·distribute' should be gathered from the context in which they were used . .. Allotment" means the appropriation out of the previously unappropriated capital of a company of a certain number of share:' to a person. The \Vord "distribute" found in cl. (b) of the resolution in the context means iO record the distribution of the shares in the books of the company. [330 H: 3H A-F: 332 G-H; 333 G]

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There \'as thcr_efore no justification in reducing the rebate firStly under sub-cl. (a) of cl. (I) of the second proviso of paragraph D of Part JI and secondly under •ub-cl. (b) of cl. (I) of the first proviso to paragraph O pf Part II, of the Finance Act. [334 B•CJ

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.r/ Gop11I 111/011 t1nd !;,, v. Calcutta Stock E:xclia1111t A.froclt1/i11n Lui.I. f 1964] 3 S.C.R. 698, Bulli's ct1at, L.R. IX Ch. D. 554, Rt : Htaton's Str..t 1i111I lr1111 Comp1111y, [ 1876-77] 4 Ch. 0. l40 D11/w11 Tim• Loe Co111pa11.1· v. D11/to11, 66 L.T. 704, Re : F/oru11cr Lant/ 11111/ Public Works Company. ( 1885) L.R. 29, Ch. D. 421 and Mos/ti' v. /('offyfcmtaln Ml11r.1· L11/, ( 191 I) L.R. Ch. 73, referred to.·

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C1v1t APPELLATE JURISDICTION : Civil Appeal No. 1669 of 1966. . Appeal from the judgment and order dated February S, 1965 of the Calcutta . High Court in Income-tax Reference Nb, 32 of 1961. A. K. $en, T. A. Ramachandran and D. N. Gupta, for the appellant. .

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. B. Sen, s. K. Aiyar, B. D. Sharma and R. N. Sachthey, for the respondent. ·

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The Judgment of the Court was delivered by

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H~, J. This appeal is by a certificate under s. 66A(2) of IF the lndmn Income.Tax Act, 1922 (which will hereinafter be called 'the Act') issued by the High Court of Calcutta. It arises out of the judgment and order of that High Court dated February 5, 1965

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GOPAL PAPER MILLS v. c.I.T., CALCUTTA (Hegde, I.) 325

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A III a reference under s. 66 ( 1) of the Act. In the reference mentioned earlier, two question of law were referred to the High Court for its opinion. They are : ·

"(l) Whether on the facts and in the circumstances of the case the bonus shares of the faee value of RS. SQ,07,500/- should be included in the paid up capital of the ·assessee Within the meaning of that term in pursuance. of sub-section ( 1) of the explanation to paragraph, (D) of Part II of the Fina;nce Act, 1956 for ihe relevant assessment year?

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(2) Whether on the facts and in the circumstances of the case the bonus sbares in question can be said to have been issued within the meaning of the second proviso to paragraph (D) of Part Il of the Finance Act, 1956 to the shareholders by the assessee during the account¥ig year ended 31st December, 1955 relevant for the assessment year 1956-57 n

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The facts relevant for the purpose of deeiding .this appeal may now be stated : The aJ?PCllant is a company incorporated under the Indian Companies Act. . It carries on business of manufacturi: E of paper. On December 30, 1954, it passed the followmg resolution unanimouslf at a General Meeting held on that date :

(a) That a sum of Rs. 50,07,500/(Rupees fifty lakhs seven thousand and five hundr~ being part of the undivided profits of the Company standing to the credit of General Reserve as on 30th Jt1ine, 1954, be capitalised and distributed amongst the holders of the ordinary shares in the Company on the footing that they became entitled thereto as capital and that the said capital be applied on behalf of such Ordinary Shareholders in payment in full for 5,0Q,750 Ordinary shares of Rs. 10/- each, in the Company and that such 5,00,750 New Ordinary Shares ol Rll. 10/- each, credited as fully paid up shall rank in all respects pari passu with the existing Ordinary Shares, save and except that the holders thereof will not participate in 'any dividend in

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· respect of any period ending on or before 31st December 1954 and that the same shaU1be treated for all purposes as an increase. ¥ the I1.9minal .amount of the capital of the Company held ~

L12Su).Cl/70-7

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(1971] 1 S.C.R

SUPREME COURT REPORTS

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326

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	each of suchOrdi;naryshareholders and notas income.	A
(b)	That pursuant to theab)veresolutionandin satisfactionofthe interest of.thesaid Ordinary Shareholders in the capitalised sum,heDirec-. tors be and they are hereby directed to issue'· a!loi and distribute the said 5,00, 750NewOrdi- nary Shares ofRs.10/- each, creditedasfully paid up amongst the personswhosenames are registeredassuch in the booksofthe Company ason 1st day ofJnuary1955, in proportion o{one suchnewordinary share for each ordinary share already held by them on that date, provided that no allotment ofslraresissuedasaforesaid· shal!be made to non-resident shareholders till approyalofthe Reserve Bank of Indiaisobtain, ed for the same.
(c)	That the Draft of the Agreement providing for the allotmel)t of saidNewOrdinary sharesirt satisfaction or the said capitai bonus and sub- miUedtothismeeting and signed in the margin by 'the Chairman, bywayof identification, be . and the sameishereby approved and that the DirectorbeauthorisedtoaffixtheComp~ny's seal to duplicate endorsement of such Agreement asand when the same shall have been signed on behalf of the members holding Ordinary shares	E
•	in the company on1stJanuary, 1955, bysome person to . be appointed by the Directors in that behalf, whichthe.Directors be and are hereby authorised to do."	F

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There is no dispute as regards the validity of that resoluiio.n. It was passed. in accordance with the Articles of Association of the Company. For the assessment year 1956-67, the relevant accounting period ending on December 31, 1955, the Income-tax Officer had detennined by• his order dM,ted September 29, 1958. the total income of the company at Rs;· 42,73,176/-. In com-• G putirtg the Corporatio.n Tax due in respect of the said income, the Income-tax Officer reduced the rebate to which the appellantcompany was entitled on two counts; firstly in accordance with sub-cl. (a) ·of cl. (l) to second proviso to s. D of Pt. II of the Finance Act, 1956, he reduced the rebate at the rate of 2 annas a rupee on 'Rs. 50,07,500 which according to him represented- the face value .Qf the bonus shares issued by the appella,nt. company to its share-holders during the previous year with a view to increaf°ng its paid up capital. Seco11dly he excluded those bonus

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GOPAL PAPER MILLS v. c.1.r., CALCUTTA ('Hegde, J.) 327

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A shares from the paid up capital·of the company as on 1st January,. 1955 for the purpose of determining the excess diVidends !JVer 6 per cent of the paid up capital on which the rebate was to be reduced at the rate of 2 annas· in a rupee according to sub-cl. (b) of cl. (1) of the secQD.d proviso to s. D of Pt. ll of the Finance Act, 1956. The reduction of the rebate on the first count was

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B Rs. 6,25,937 /50 P. and on the second count it was Rs. 1,48,127 /31 P. The company appealed to the Appellate Assistant Commissioner and claimed that the bonus shares were in fact issued in the year preceding the previous year relevant to the· assessment year 1956-57, therefore, did not come withln thQ mischief of sul>cl. (a) of cl .. ( 1) of the second proviso to ~. D of

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c Pt. II. It also' contended that 'the bonus shares were part of the paid-up capital of the company as on January 1, 1955 and, theremore, its case came within the $cope of sub-cl. (b) of the second proviso to s. D of Pt. II of the Finance Act, 1956. The Appellate · Assistant Commissioner rejected the first contenti0)1 of the company but accepted the second contention. According to him, as the bonus shares were to be credited· as fully paid up amongst persons

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D whose names were registered as such in the books of the company as on January ~. 1955, the issue could not possibly take place· before that date. But at the same time he took the view that the· shareholders have ~ put ilito possession of the bonus shares on· January 1, 1955 ·and that the shares were actually .issued on Janu-· ary l, 1955. Hence lie held that from that date the ordinary

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E shareholders became the owners of the bonus shares. He, therefore, included the face value of The bonus shares in the paid up capital of the company as on 1st day of the accounting year for the purpose of sub-cl. (b) of ch (1) of the 2nd proviso to s. D of Part Il of the Finance Act, 19 5 6. Both the company as well a.~ tlJ,e department appealed against the order of the Appellate Assis-

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F tant Commissioner to the extent it went against them. · The Tribun'al rejC:ted the contention of the assessee and accepted that of the

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· depaqment. Thereafter at the, instance of the assessee, i_t stated a case. to the High Court. . The High Court answered both the questio)18 referred to it in .fayour of die depariment. .

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The Finance Act, 1956 presyribed the rate of sutier tax in Part G II Paragraph ',D'. That part reads :

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Rate

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"D. In the case of every company.On the whole • of total income ..... . Siir !lllnas and nihe pies ·in the rupee. .

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Provided· that-'

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(i) a rel>ate at the rate· of five annas per rupee of the·

[1971] I S.C.R..

SfEME COURT REPORTS

328

total incomt; ~hall be aJ\qwed in the case of any cqpipany which"· (a) in respect of its profits '1i11ble to tax unaer the · lncome-tax Act.for the year endi,qg on the 31st day c.f March, 1957, has made the prescribed· arrangements for the declaration and payment within the territory.of ]india, of the dividends payable, out of such profits and for the deduction of super-tax from dividends in accordance with the provisions of sub-section (3D) of sectio.n 18 cf that Act, and

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( b) is a public company with total income not ex. ceedmg Rs. 25,000/- to which the provisions ot section 23A cannot be made applicable; (ii) a rebate at the rate of four annas per rupee ot the total income shall be allowed in the case of any company which. satisfies condition (a) but not condition (b) of the preceding clause; and

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(iii} a rebate at the rate of three annas and six pies per rupee on so much of the total income as consists of dividends from a subsidiary Indian company, and a rebate at the rate of one anna per rupee on any other income included in the total income shall be allowed in the case of any company not entitled to a rebate under either of the preceding ch1uses :

Provided further that-

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(i) if the amount of the rebate under clause (i)' or clause (ii), as the case may be, of the preceding proviso shall be reduced by the sum, if any, equal to· the amount or the aggregate of the amounts, as the case be, computed ·as hereunder :-

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(a) on the amount representing the face value of any bonus shares -or the amount of any bonus issued to its shareholders during the previous year with a view to increasing the paid-up ea]ilital, except to the extent to which such bonus shares or bonus have been issued out of premiums received in cash oil the at the rate of two issue of its shares; and annas per rupee.

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'' . GOPAL PAPER MILLS v. C.l.T., CALCUTTA (Hegde, J.) 32!>

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(b) in addition, in the case of a company referred to in clause (ii) of the preceding proviso which has 0istributed to its shareholders during the previous year dividends ii) excess of six per cent of its paid up capital, not being dividends payable · at a fixed rate-

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on that part of the said dividends which exceeds 6 per cent, but does not exceed 10 per cent of the paid at the rate of tw<> c up capital; annas per rupee.

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on that part of the said dividends which exceeds 10 per cent of the at the rate of three paid up capital; annas per rupee.

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(ii) where the sum arrived at in accordance with subclause (b) or both the sub-clause of clause (i)

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of this proviso exceeds the amount of the rebate arrived at in accordance with clause (i) or clause (ii) as the case may be, of the preceding proviso, o,nly so much of the amounts-

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(a) issued as bonus ·shares or as llonus, and

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(b) distributed as dividends,

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as is sufficient, in· that order, in accordance with the rates specified in clause (i) of tl).is proviso, to reduce the rebate to nil, shall be deemed to have been taken into account for the purpose :

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Provided further that the super-tax payable by a company the total income of which exceeds Rs. 25,000 shall not exceed the aggregate of-

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(a) the super-tax which would have been payable by the compainy if its total income had been Rs. 25,000, and

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(b) half of the amount by which its totai income exceeds Rs. 25,000.

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[1971] l S.C.R.

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SUPREME COURT REPORTS

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330

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Expla,n .(i)	ation.-For the purposes of paragrapn D of thisPart- the ex)Jression ·paid up capital' means the paid- upcapital (other than capital entitledtoadivi- dend at a th.ed rate) of the companyason the first day of the previous year relevanttothe assessment for the year ending on the 31st day of March, 1957, increased by any premiums received in cash by the company on the issue of itsshares, standing to the credit of the share premium accountason the fifst day of the pre- vious year aforesaid;
(ii) (iii)	the expression 'dividend' shall be deemedto include any distribution included_in_the expres- sion 'dividend'asdefinedinclause (6A)ofsec- tion 2 of the Income-tax Act; where any portion of the profitsaindgains of the comp~yisnot included in its total incomeby reason of such portion being exempt from tax under any provision of the Income-tax Act, the amount of the 'paid-up capital' of the company, the amount distributedasdividends(illotbeing dividends payable at afixedrate), the amount representing the face value of any bonus shares and the amountofany bonus issued to the share- holders, shall each be deemed tobesuch propor- tion thereofasthe total income of the company for the previous year bears to its total profits and gains for that year other than capital gains or capital receipts reduced by such· allowancesas may be admissible underthe.Income-tax Act which have not been taken into account by the company initsprofit andlossaccount for that year."
Inthe F rebate and r adopted. . The first bonus shares the date of t namely Dec remembered no question Association o holders to re pany had ful	inance Act, 1957, also a similar scheme of according eduction thereofinconditions set outin1956 Actwas question that arises for decision·isasto when the became the property of theshareholder&?Is it on he resolution of the General Meeting of the company ember 30, · 1954oron any later date? ·Itmay be that for the allotment of the bonus shares, therewas of calling for applications. Under the Articles of f. the Company itwasnot open to the ordinary share- fuse to accep, those. shares when allotted. The com- l powers.ioconvertitsaccumulaied undivided profits.

Expla,n
.(i)

ation.-For the purposes of paragrapn D of thisPart-
the ex)Jression ·paid up capital' means the paid-
upcapital (other than capital entitledtoadivi-
dend at a th.ed rate) of the companyason the
first day of the previous year relevanttothe
assessment for the year ending on the 31st day
of March, 1957, increased by any premiums
received in cash by the company on the issue of
itsshares, standing to the credit of the share
premium accountason the fifst day of the pre-
vious year aforesaid;

(ii)
(iii)

the expression 'dividend' shall be deemedto
include any distribution included_in_the expres-
sion 'dividend'asdefinedinclause (6A)ofsec-
tion 2 of the Income-tax Act;
where any portion of the profitsaindgains of the
comp~yisnot included in its total incomeby
reason of such portion being exempt from tax
under any provision of the Income-tax Act, the
amount of the 'paid-up capital' of the company,
the amount distributedasdividends(illotbeing
dividends payable at afixedrate), the amount
representing the face value of any bonus shares
and the amountofany bonus issued to the share-
holders, shall each be deemed tobesuch propor-
tion thereofasthe total income of the company
for the previous year bears to its total profits and
gains for that year other than capital gains or
capital receipts reduced by such· allowancesas
may be admissible underthe.Income-tax Act
which have not been taken into account by the
company initsprofit andlossaccount for that
year."

Inthe F
rebate and r
adopted.
. The first
bonus shares
the date of t
namely Dec
remembered
no question
Association o
holders to re
pany had ful

inance Act, 1957, also a similar scheme of according
eduction thereofinconditions set outin1956 Actwas
question that arises for decision·isasto when the
became the property of theshareholder&?Is it on
he resolution of the General Meeting of the company
ember 30, · 1954oron any later date? ·Itmay be
that for the allotment of the bonus shares, therewas
of calling for applications.
Under the Articles of
f. the Company itwasnot open to the ordinary share-
fuse to accep, those. shares when allotted.
The com-
l powers.ioconvertitsaccumulaied undivided profits.

GOPAL PAPER MILLS' l'. C'.LT .. CALCUTTA/ Hegde, !.) :l3 l

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A into bonus shares. The resolution passed at the General Meeting specifically says that those ac~umulated undivided profits of 1he oompany standing to the credit of the general reserve as on June 30, :1954 "be capitalised and distributed amongst the holders of the ordinary shares in the Company on the footing that they had become entitled thereto as capital and that the said capital be applied on B behalf of such Ordinary shareholders in payment in full for 5,00,750 Ordinary shares of Rs. 10/- each, in the Company and that such 5,00,750 New Ordinary shares of Rs. 10/- each, credited as fully paid up shall rank in all respects pari passu with the exist. ing Ordinary shares .. , . "

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From this part of the resolution it is clear that the ordinary c shareholders became owners of the bonus sha'res to which they were entitled· under the' resolution as from the date of the resolution. _The expression "be capitalised and distributed" in tire resolution means "is hereby capitalised and distributed''. In fact the whole tenor of the resolution shows that the distribution of th~ bonus shares became effective as from 30th December, 1954. If ·n the ordinary sharesholders became the owners of the bonus shares on January I, 1955 or on some later date, the statement in the resolutien "save and except that the holders thereof will not partidpat.~ in any dividend in respect of any period ending on or before 31st December, 1954" becomes meaningless. The authorities under the Act and the High Court placed undue emphasi! on E els. (b) and ( c) of the resolution. Those clauses lay down the procedure to be adopted in the matter of carrying into effe<:t the decision of the General Meeting embodied in cl. (a). They do not in any manner cut down the ambit of that resolution.

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The High Court as well· as the Tribunal were under the erro-

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neous impression that a share cannot be held to have been issued to a person until a share certificate is given to him. This misconception appears to have resulted from the decision in Bush's case('). In Buckley 'On the Companies Acts' 13th Edn. p. 129, the law on the point is stated thus : · .

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"It was supposed to have bee111 decided in Bush's

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case that by the 'issue' of shares was meant the issue of the certificates for the· shares. But this is a misappre-

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. hension. The expression 'issue' with regard to shares may bear various meanings according to the context. It is not necessarily either' the allotment of the share or the issue of the certificate thai constitutes the issue of the share. The question may be whether the shareholder has

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H or has not been put completely in possession of his share, and this may be so, although some formal act may not (I) L.R. IX Ch. fl. 554.

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[1971] l S.C.R.

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SUPREME COURT REPORTS

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332

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have been completed. Thus. shares may have been issued which have been allotted, but for which no certificates have ever been issued, and on the other hand shares as to which a resolution to allot has· been made may ·not have been issued.

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Shares for which the memorandum of association has been subscribed are 'issued' when the company is registered."·

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Tn re Heaton's Steel and Iron Company('), the Court of Appeal held that the issue of certificates is not necessary to the issue of shares within section 25 of the English Companies Act, 1867. In that case Brett J. observed:

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"that in Bush's case(") the issue of certificate was merely taken as evidence of the time when the shares were issued, but this must not be taken to mean that shares are not issued until the certificates are issued."

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James L.J. observed :

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"I think it is desirable to say, as the Appellant appears to have been misled by the marginal note to Bush's case(') that the notion that shares are only issued when the certificates are issued is a blunder which could hardly be. attributed to us."

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In Dalton Time Lock Company v. Dalton("), the Appeal Court observed that the share for which the defendant had subscribed in the memorandum of association, must be held to have been issuecl to him upon the registration of the company and hence he must be held liable to pay the share money. We are unable to agree with the contention of the Revenue that merely because in clause (b) of the resolution of the General Meeting, the Directors of the company were directed to issue bonus shares, the property in the bonus shares had not passed to the ordinary shareholders on December 30, 1954! The words 'allot' and 'distribute' found in cl. (b) of the resolution do not carry the matter further. Their meaning should be gathered from the context in which they were used. Clauses (b) and (c) of the resolution must be read harmoniously with cl. (a). The word "allotment" has not been defined in the Companies Act. The meaning. of the word "allot" or "allotment" will have to be gathered from the context in which those words · are used. This Court considered the meaning of the word '"allotment" in Sri Gopal Jalan and Co. v. Cal,:utta Stock Exchange Association.Ltd.(') Therein it referred to a large number of

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(I) 11876"77) 4, Ch. D.4. 140. (3) 66, L.T. 704.

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(2) L.R. IX Ch. D. SS4 (4) [1964] 3, S.C.R. p. 698.

GOPAL PAPER MILLS v. C.I.T., CALCUTTA (Hegde, J.)

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333"

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A English decisions which have considered the meanipg of that :word. In that decision this Court referred to the observations of Chitty J in Re Florence Land and Public Works Company(') : '

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"To my mind there is no magic whatever in the term allotment' as used in these circumstances. It is said. B that the allotment is an appropation of a specific number of shares. It is an appropriation, not of specific sares, but of a certain number of shares".

In Gopa/ lalan's case(") (supra) Sarkar J. (as he then was) quatedl with approval the following passage from Farwell L.J. in Mosley: v. Koffyfontain Mines Ltd. (⁸ )

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"As regards the construction of these particular articles, it is plain that the words 'creatiol', 'issue' ~d 'allotment' are used with the three different meanings familiar to business people as well as to lawyers. There are three steps with regard to new capital; first, it is created; till it is created the capital does not exist at all. When it is created it may remain unissued for years, as indeed it was here; the market did not allow of a favourable opp.ortunity of placing it. When it is iss.ued it may be issued on &uch terms as appear for the moment expedient, Next comes allotment. To take the words of Stirling J. in Spltzel v. Chinese Corporation, 80 L.T. 347, 351, he says: 'What is an allotment of shares? Broadly speaking, it is an appropriation by the directors or the managing body of the company of-shares to 11 particular person'."

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¶159

After exam.ming the various dicisions, Sarkar J. observed :

¶160

¶161

"It is beyond doubt from the authorities to which we have earlier referred, and there are m11«1y more which could be cited to show the same position, that in Company law 'allotment' means the appropriation out of the· G previously unappropriated capital of a company of a certain number of shares to a person. Till .such allotment the shares do not exist as such. It is on allotment in this sense that the shares come into ~xistence."

¶162

The word "distribute" found in cl. (b) o{ the resolution in the· context means to record the, distribution of the shares in the booh H of the company. If the.resolution passed at the General Meeting:

¶163

(I) (1885) 2 LR. 29, Ch. D. 421. (2) [l964] 3 S.C.R. 698 (3) (19Ll) LR. Ch. 73, 84.

¶164

[1971) l S.C.R.

¶165

SUPREME COURT REPORTS

¶166

J 3 .j

¶167

of the company on December 30, 1954 is read as a whole, there is no doubt that on that day a portion of thel accumulated undivided profits were converted into capital; that capital was divided into bo'nus shares and allotted to the ordinary shareholders on the basis of their share holdings. The shares so aJlotted became the property of the shareholders as from' that date subject to the qualiJication that they are entitled to get dividends on those shares only as from !st January 1955: Under els. (b) ard (c) of the resolution, certain directions were given to the Directors in the matter of implementation of that resolution. Hence there was no justification in reducing the rebate firstly under sub-cl. (a) of cl. i J ) of the second proviso to Section D of Part II of the Finance Act, J 956 and secondly under sub-cl. (b) of cl. ( 1) of the second proviso to Section D of Part II of the Finance Act, 1956.

For the reasons mentioned above, we a!low this appeal and answer the questions referred to the High Court in favour of the assessee. Revenue shall pay the costs of the assessee both in this Court and in the High Court.

¶172

R.K.P.S.

¶173

Appeal allowed.

M/S. Shri Gopal Paper Mills Co. Ltd. v. Commissioner of Income Tax, Central Calcutta

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M/S. Shri Gopal Paper Mills Co. Ltd. v. Commissioner of Income Tax, Central Calcutta

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