LexBHARAT FIRE AND GENERAL INSURANCE CO. LTD. NEW DELHI versus THE COMMISSIONER OF INCOME TAX, NEW DELHI
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J964 ..4.pril 2 626 SUPREME COURT REPORTS (1964] BHARAT FIRE AND GENERAL INSURANCE CO. LTD. NEW DELHI v. THE COMMISSIONER OF INCOME TAX, NEW DELHI [K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.J Inco-rne Tax-Dividend declared out o.f premitl1ns on shares receii;ed hu a company--Amount vJhether receipt o.f dividend- Whether tuxab!e-What is dividend-Effect of s. 78. Companie• Act, 1956-Indian Income-tax Act. 1922, s. 2(6A). The Rohtas Industries Ltd. i'5ued in 1945 shares at a pre- mium and the share premiums so received were kept separate under the head Capital Reserve. In the calendar year ending Decemb2r 31, 1953, the company peid a sum of Rs. 50,787/- as dividend to the apn2llant company, For the year 1954-55, th's sum was taxed in the hands of appellant as dividend by the In- come-tax Officer. The Appellate Assistant Commissioner set aside the order of the Income-tax Officer, but the same was re- stored by the Income-tax Appellate Tribunal. The Tribunal re- ferred to the Punjab High Court the question whether on the facts and in the circumstances of the case, the receipt cf Rs. 50,787 /- was a receipt of dividend and was taxable under the Indian Income-tax Act. The High Court answered the question against tho appellant and the latter appealed this Court with special leave. Dismissing the appeal. Heid: The receipt of Rs. 50,787 /- was a receipt of dividend and "'as taxable under the Indian Income-tax Act, 1922. It was well-established before the Companies Act, 1956, that premiums received on the issue of shares were profits available for distribution and the word "profits" in Re- gulation 97 of Table A of Companies Act 1913 should be under- stood to include share premiums also. S. 78 of the Companies Act does not in any way change the taxability of dividends declared out of premiums on shares received by a Company before the Act of 1956 came into force. If it was taxable; apart from s. 78, it remains so taxable. Re Hoare & Co. Ltd., (1904) 2 Ch. 208; Drown v. Gaumint- British Picture Corporation, (1937) Ch. 402; re Duff's Settlements. National Provincial Bank Ltd., vs. Gregson, (1961) 1 Ch. 923; Land Revenue Commissioners v. Reids Trustees, (1949) 1 All E.R. 354, referred to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 613 / 1963. Appeal by special leave from the judgment dated December 12. 1960, of the Punjab High Court in Income-tax Reference No. 2 of 1958. S. K. Kapur, K. K . . Jain, Bishambar Lal Khanna and S. Murthy, for the appellant. C.K. Daphtary, Attorney-General, R. Ganapathy Iyer and R.N. Sachthey, for the respondent. 7 S.C.R. SUPREME COURT REPORTS 627 April 2, 1964. The Judgment of the Court was delivered 1964 ~ ~-~~ General Insurance SIKRJ, J.-The appellant is a Joint Stock Company, here- co. Ltd .• inafter referred to as the assessee, having its registered office in New Del/ii Delhi. It held 11950 'B' Preference shares in another com-The oom~·;.,,;on., pany, called Rohtas Industries Ltd., in the previous year of l;icome Ta•, (calendar year ending December 31, 1953). The latter com- l.cu•Ddhi pany paid a sum of Rs. 50,787 /- as dividend on the said Pre- Sikri, J. ference Shares to the assessee, and for the assessment year 1954-55. this sum was taxed in the hands of the <issessee as dividend, within s. 2(6A) of the Indian Income Tax Act, 1922, ~ by the Income Tax Officer. The Appellate Assistant Commis- sioner, 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 s. 66A(2) of the Income Tax Act. obtained special leave from this Court and now the appeal is before us for dis- · posal. The question referred to the High Court is as follows:- "Whether on the facts and in the circumstances of the case, the receipt of Rs. 50,787 /- was a receipt of dividend and is taxable under the Indian Income Tax Act." The facts and circumstances referred to in the questicn are as follows. Rohtas Industries Ltd .. hereim1ft·~r referred to as the declaring company. had in the year 1946 issued shares at a premium and th
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