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TMI Blog1964 (4) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... December 31, 1953). The latter company paid a sum of Rs. 50,787 as dividend on the said preference shares to the assessee, and for the assessment year 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression 'accumulated profits' wherever it occurs in this clause shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948". Lastly, he urges that in any event, section 78 of the Companies Act, 1956, has placed this sum beyond the reach of the revenue. Before adverting to the arguments addressed to us, it is necessary to reproduce the relevant statutory provisions. Section 2(6A) of the Income-tax Act defines "dividend" as follows: ": "(6A) ' dividend' includes- (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capitalised or not, entails the release by the company to its shareholder of all or any part of its assets, it is dividend. It is not disputed that the distribution of Rs. 50,787 entails the release of the assets of the declaring company. But it is contended that there was no distribution of accumulated profits, because by virtue of regulation 97 of Table A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g partly of premiums received on the issue of preference shares. It, having incurred a loss arising from the depreciation in the value of the public houses below the amount stated in the company's balance-sheet, applied for sanction of the court to a scheme for reduction of capital whereby the company, while retaining a small portion of the reserve, attributed to the reserve more than its rateable proportion and to capital account less than that of its rateable proportion. Buckley J. apparently held that these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that the English law was different inasmuch as what was prohibited in English law was payment of dividends out of capital and that it did not enjoin directors to pay dividends out of profits. This case refutes Mr. Kapur's contention. In Duff's Settlements : National Provincial Bank Ltd. v. Gregson [1951] 1 Ch. 923, which is strongly relied on behalf of the appellant, and which we will advert to in detail later, Jenkins L.J. says at page 926 : "The share premiums would have been profits available for distribution (see Drown v. Gaumont British Picture Corporation [1937] Ch. 402)". It was thus well-established before the Act of 1956 and the corresponding English Act that premiums received on the issue of shares were profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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