TMI Blog1936 (5) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal was pending, the Commissioner, of his own motion, made the present reference to the High Court, asking the following questions of law, viz:- First Question.-The assessee being in his own name and through nominees the holder (a) of the whole of the share capital of companies as specified in the case, and (b) together with two trustees in their individual capacity, of the whole of the share capital of one company as specified: these companies being investment companies of the nature described in the case: and the said companies having issued to the assessee by way of bonus, debentures which have subsequently been paid off through the transaction specified in the case.....................(quaere) was there by these transactions any income, profits or gains which accrued or arose to or were received by the assessee, within the meaning of Section 4 of the Act? Second Question.-If any such income did arise, when did it so arise? Third Question.-If any such income did arise was its quantum an amount corresponding (a) to the full amount of the debentures or (b) to such part only as derived from the received and accumulated revenue profits of the companies, and exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as may be declared by the company in general meeting, but so that the ordinary shares shall not be entitled to any dividend in any year unless and until at least 5 per cent. has been declared on the preferred ordinary shares for that year. The said preferred ordinary shares shall have no further right to participate in profits or surplus assets in a winding-up. (b) The date from which such shares shall rank for dividend shall be the 1st day of January 1930, or such later date as the secretaries shall think fit. Of these 725 preferred ordinary shares, 629 were allotted to the respondents, as trustees of the estate of the late Sir David Yule, and the residue (96) partly to one trustee and partly to another. At the same time the Calcutta Discount Company, Limited, adopted a new Article as article 126 of its articles of association, from which the following is an extract:- 126. The company in general meeting may at any time and from time to time pass a resolution that any sum not required for the payment or provision of any fixed preferential dividend and (a) for the time being standing to the credit of any reserve fund or reserve account of the company, including prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inary meeting of the Calcutta Discount Company held on March 24, 1931, the following resolutions were passed:- (1) That it is desirable to capitalise a sum of ₹ 1,45,00,000 being part of the amount standing to the credit of the reserve fund and accordingly that a special capital bonus of ₹ 1,45,00,000 free of income-tax be declared and such capital bonus be applied on behalf of the persons who on the 24th day of March 1931, were the holders of the 725 issued preferred ordinary shares of the company in payment in full for ₹ 1,45,00,000 of debentures of the company carrying interest at 3 per cent. per annum from the first day of January 1931 (and to be charged upon the whole undertaking of the company). (2) That to the above resolution the Secretaries be and they are hereby authorised to create and issue such debentures as a special capital bonus free of income tax credited as fully paid and to distribute the same to the holders registered on the 24th day of March 1931, of the 725 preferred ordinary shares in the company's capital in proportion to the number of such shares held by them respectively in full satisfaction of such capital bonus as aforesaid. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the issue of the debentures. The High Court decided against the claim of the Crown, holding that the case was governed by the principles laid down by the House of Lords in the cases of Inland Revenue Commissioners v. Blott and Commissioners of Inland Revenue v. Fisher's Executors. They rejected an argument of the Advocate-General directed against the validity of the proceedings of the companies, upon the ground that it was not open on the case as stated by the Commissioner, which proceeds on the footing that the transactions of the companies are unimpeachable. This argument was not pressed at the hearing before their Lordships. The question being whether, by the transactions in question, any income, profits or gains accrued or arose to or were received by the assessees within the meaning of Section 4 of the Indian Income Tax Act, the Crown maintained (first) that the decisions in the cases of Blott and Fisher (supra), which were under the Imperial Income Tax Act, were not applicable, and that the decision of this Board in Swan Brewery Company, Ltd. v. Rex applied in the present case, and (second) that, in any event, the facts in the present case rendered it distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be no doubt that the new shares were distributed and were not the same things as the old ones. They certainly were supposed to be advantages to the members of the company, none the less that the making of the issue was probably an advantage to the company also. In so flourishing a business doubtless they really were advantageous. The new shares were credited as fully paid, and, what is more, they were fully paid, for after the allotment the company held 101,450 as capital produced by the issue of those share and for that consideration, and no longer as an undivided part of its accumulated reserve fund. True, that in a sense it was all one transaction, but that is an ambiguous expression. In business, as in contemplation of law, there were two transactions, the creation and issue of new shares on the company's part, and on the allottees' part the satisfaction of the liability to pay for them by acquiescing in such a transfer from reserve to share capital as put an end to any participation in the sum of 101,450 in right of the old shares, and created instead a right of general participation in the company's profits and assets in right of the new shares, without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quivalent in substance to a payment by the company to the shareholders, and by them back to the company. It may have been so, and without a fuller knowledge of the facts in the case and of the local law than the report discloses, it is difficult to be quite sure about the point, but what is clear is that the wide character of the word 'advantages' was a primary consideration in what was said by their Lordships who took part in advising His Majesty. I therefore, do not feel embarrassed by the decision in that case. Lord Finlay (at p. 199) thought that the reasoning in the Swan Brewery Company case was inconsistent with the decision of the House of Lords in Bouch v. Sproule. Lord Cave (at p. 202) said that the decision in the Swan Brewery Company case was no doubt fully supported by the definition clause in the Western Australia Act, but that, otherwise, he would hold it to be inconsistent with Bouch v. Sproule. Lord Dunedin, who dissented in Blott's case stated (at p. 203) that the Swan Brewery Company case was a decision upon an Australian statute in the words of which if anything became an advantage it would fall within the tax. Lord Sumner, who also dissented in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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