TMI Blog1964 (4) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1954-55 this sum was taxed in the hands of the assessee as dividend, within section 2(6A) of the Indian Income-tax Act, 1922, by the Income-tax Officer. The Appellate Assistant Commissioner, on appeal by the assessee, held it not to be taxable. The Income-tax Appellate Tribunal, on an appeal by the department, however, agreed with the Income-tax Officer and allowed the appeal. On the application of the assessee, the Appellate Tribunal stated a case for the opinion of the Punjab High Court. The High Court upheld the contention of the department and answered the question referred to it against the assessee. The assessee, after failing to get a certificate under section 66A(2) of the Income-tax Act, obtained special leave from this court and now the appeal is before us for disposal. The question referred to the High Court is as follows : Whether, on the facts and in the circumstances of the case, the receipt of ₹ 50,787 was a receipt of dividend and is taxable under the Indian Income-tax Act ? The facts and circumstances referred to in the question are as follows : Rohtas Industries Ltd., hereinafter referred to as the declaring company, had in the year 1945 issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. (2) The share premium account may, notwithstanding anything in sub-section (1), be applied by the company- ( a )in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares ; ( b )in writing off the preliminary expenses of the company ; ( c )in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company ; or ( d )in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company. (3) Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act : Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company's reserves within the meaning of Schedule VI, shall be disregarded in determining the sum to be included in the share premium account. It is evident from the definition of the word dividend that if a distribution of accumulated profits, whether capitalise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premiums were not profits in the strict sense ; and, on appeal, the counsel for the company contended before the Court of Appeal that this was wrong. Romer L.J. disposed of this contention in the following words [1904] 2 Ch. 208, 213: The surplus which was carried to the reserve fund represented that which might have been properly applied at the time, if the company had so thought fit, in paying further dividends to the shareholders, and no person could have complained if they had done so. Thus, Romer L.J. thought that there was nothing objectionable in utilising premiums received on the issue of shares for the purpose of declaring dividend. In Drown s case ( supra ) a company proposed to pay a dividend on its preference shares and utilise in part premiums received by the company on the issue of shares, which had in fact been invested in the assets of the company. The plaintiff asked for an injunction to restrain the company from paying the dividend. Clauson J. held that part of a reserve fund consisting of moneys paid by way of premiums on shares, unless set aside in some particular fund which has been wholly spent, is available for dividend purposes. We are not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium account were paid-up capital of the company. Sub-section (2) then provides how the share premium account may be applied. It is said that it impliedly provides that it cannot be used for the purpose, of paying dividends. Sub-section (3) then deals with the issue of shares at a premium before the commencement of this Act. It deems them to have been issued after the commencement of the Act and applies the provisions of section 78. The effect of this would be that a company which had issued shares at a premium before the commencement of this Act would by virtue of section 78 have to open a share premium account and transfer to it the premium so received. What is to happen if before the commencement of the Act the company had already dealt with the premium in such a way that they had ceased to remain as an identifiable part of the company's reserves? The sub-section says that in that event the premiums so dealt with shall be disregarded in determining the sum to be included in the share premium account. If such premiums are to be disregarded for the creation of the share premium account, it means that they fall outside the purview of section 78. It has no application to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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