TMI Blog1968 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... n Gopal Radhey Lal--hereinafter called the assessees--deal in shares and securities. They held in the relevant years as part of their stock-in-trade shares of certain companies. The assessees received from the companies at different times bonus shares proportionate to their equity holding. From time to time the assessees sold the bonus shares received by them. The Income-tax Officer brought to tax Rs. 55,607 in the assessment year 1946-47 ; Rs. 41,625 in the assessment year 1948-49 ; Rs. 1,43,050 in the assessment year 1949-50 and Rs. 33,170 in the assessment year 1950-51 being the sale proceeds of the bonus shares, holding that those receipts represented income of the assessees arising from their business in shares. The order of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... John Blott the House of Lords (by majority) held that bonus shares issued by a company in exercise of the power under the articles of association are not dividend and therefore not income of the shareholder. Viscount Haldane observed at page 126 : " . . . I think that it is a matter of principle within the power of an ordinary joint stock company with articles such as those in the case before us to determine conclusively against the whole world whether it will withhold profits it has accumulated from distribution to its shareholders as income, and as an alternative, not distribute them at all, but apply them in paying up the capital sums which shareholders electing to take up unissued shares would otherwise have to contribute. If this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s affirmed by the Judicial Committee in a case arising under the Indian Income-tax Act, 1922, Commissioner of Income-tax v. Mercantile Bank of India. Accordingly, bonus shares given by a company in proportion to the holding of equity capital by a shareholder are, in the absence of any express provision to the contrary, liable to be treated as capital and not income. We are unable to agree with the judgment of the Bombay High Court (to which reference was made by the Tribunal) in Commissioner of Income-tax v. Maniklal Chunnilal and Sons Ltd. (I.T. Reference No. 16 of 1948) that bonus shares received by a shareholder who carriers on business in shares and securities " ipso facto become accretion to his stock-in-trade. " Bonus shares would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of its conclusion and has made a cryptic statement which is not capable of the interpretation that the assessees had converted the bonus shares into their stock-in-trade. If there is no presumption that the accretion to the stock-in-trade necessarily gets incorporated into the stock-in-trade, says Mr. Chagla, in the absence of evidence showing that the bonus shares were treated by the assessees as stock-in-trade the finding of the Tribunal cannot be sustained. Counsel invited our attention to the supplementary statement of case in which the Tribunal recorded that in the copies of balance-sheets filed by the assessees as of February 14, 1948, March 8, 1949, and March 8, 1950, the shares did not find a place and that the sale, proceeds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of fact made by the Appellate Tribunal, and it is for the person who has applied for a reference to challenge those findings first by an application under section 66(1). If he has failed to file an application under section 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for one reason or another. The principle of that case applies here. It is not open to the assessees to contend on the question raised that the finding of the Tribunal is not supported by evidence. The answer recorded by the High Court is discharged. The answer to the question submitted is in the affirmative. No order as to costs of the appeal to this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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