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TMI Blog1967 (8) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... ken to be --- (1) the value of the shares received as dividend as fixed in the resolution declaring the dividend, or (2) the market value of the shares on the date of declaration of dividend, or (3) the market value of the shares on the date on which the dividend was actually received by the assessee company ?" The Pilani Investment Corporation Ltd. (hereinafter referred to as the Pilani company) passed a resolution at its general meeting held on 18th November, 1958, declaring dividend on its shares in the following terms : "Resolved that the dividend on 35,15,000 ordinary shares of the company for the year ended 31st March, 1958, as proposed by the directors be and the same is hereby approved and made payable to those shareholders who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilani company had acquired the shares it distributed as dividend paying Rs. 10 per share for the Gwalior Rayon and Rs. 125 per share for the Hind Cycles Ltd. The resolution dated 18th November, 1958, no doubt gave an option to the shareholders of the Pilani company to receive the dividend either in cash or in specie ; but it is an admitted position that before despatching the dividend warrants for shares and/or cash, the Pilani company never ascertained from the shareholders the way in which they preferred to exercise the option. In its return of income for the assessment year 1959-60, the assessee-company showed Rs. 1,11,484.40 as its income from dividend on its shares in the Pilani company. The assessee valued the shares of the Gwalior R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need not be distributed in money ; it may be distributed by delivery of property or right having monetary value". The controversy in this reference centres round the question of the monetary value in the hands of the assessee of the shares of the Gwalior Rayon and the Hind Cycles Ltd. which it received as dividend. In our opinion, by the resolution of 18th November, 1958, the Pilani company distributed by way of dividend out of its profits a part of its assets, namely, the shares to which it was entitled in the Gwalior Rayon and the Hind Cycles Ltd. This distribution, which was both in form and substance a release by the Pilani company of its assets to its shareholders, was clearly dividend within the ordinary meaning of the word "dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pilani company put down in the resolution dated 18th November, 1958, or in its books. The value of the shares in question to the Pilani company was not the value which that company set down in its resolution dated 18th November, 1958, or in its books but the value which it would have obtained if it had sold the shares in the market on 18th November, 1958. If the Pilani company had thus sold the shares, it could have secured for itself not merely the par value of the shares entered in its books or the valuation put on the shares in the resolution dated 18th November, 1958, but it would also have been able to obtain a premium. Instead of doing so, the Pilani company diverted into the pockets of its shareholders the equivalent value of the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the price which might have been prevailing subsequently. It is, therefore, altogether fallacious to say that the equivalent money value of the shares which the assessee received should be computed on the basis of the market price prevailing on the day when it actually received the shares as dividend. It is worthy of note that the resolution dated 18th November, 1958, gave an option to the shareholders of taking dividend either in cash or in the form of shares. A shareholder exercising the option and deciding to take shares as dividend does so taking the risk of the shares which he may obtain as dividend rising or falling in value. In the present case, it was not enquired of the assessee-company whether it would like to have the dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the shares were of greater value. The employees there had to pay the sum required, which was charged at par value ; and it was held in those cases that the employees were taxable on the difference between the par value and the actual value of the shares. In other words, they were taxed on the value of that which they received. The principle that runs through these two cases can be legitimately applied here for holding that the assessee-company is liable to be taxed on the shares received by it as dividend not according to the value set down in the resolution dated 18th November, 1958, but according to the actual market value of the shares. That market value, as pointed out earlier, would be as on 18th November, 1958. For all these rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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