KANTILAL MANILAL AND ORS. versus THE COMMISSIONER OF INCOME-TAX, BOMBAY

Citation: [1961] 2 S.C.R. 584 · Decided: 22-11-1960 · Supreme Court of India · Bench: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

584 
SUPREME COURT REPORTS 
(1961] 
'960 
therefore allow the petition, and declare that the 
n. Hingir-
Orissa Mining Areas Development Fund Act, 1952, is 
Rampu• coal co., beyond the constitutional competence of the Orissa. 
Lid. & Othm Legislature to pass it. The whole Act must be struck 
v. 
down because there will be very little left in the Act 
Th• Stat• 01 ifs. 4 falls as it must. The legislature would never 
Orissa ©- Otlurs have passed the Act without s. 4. 
Wanchoo J. 
BY COURT. In accordance with the majority Judg-
ment of the Court, the Writ Petition is dismissed with 
costs. 
r960 
November aa. 
KANTILAL MANILAL AND ORS. 
v. 
THE COMMISSIONER OF INCOME-TAX, 
BOMBAY 
(J. L. KAPUR, M. HIDAYATULLAH and J. c. SH;\H, JJ.) 
'• 
Income-tax-Distribution of new shares at half the market 
value-If amounts to distribution of dividend-Assessment-Re-
opening of-The Indian Income-tax Act, r9a2 (II of r9zz), ss. a(6A) 
(a), 66(r). 
The appellants were shareholders of a company known as 
Navjivan Mills ltd. which held a large number of shares of the 
Bank of India. The Bank with the object of increasing their 
share capital offered some more shares to the Mills for a price 
including premium which was about half the market value. The 
Mills purchased a small number of the shares so offered with 
their own funds and distributed their right to acquire the 
remaining shares to their shareholders in the proportion of two 
shares of the Bank for one share held by them. The assessment 
of the appellant was reopened by the Income Tax Officer under 
s. 34(1)(a) of the Income-tax Act on the footing that the release 
of the right to the shares of the Bank of India amounted to 
distribution of dividend. 
Appeals against the order of the 
Income Tax Officer having failed, the High Court at the instance 
of the appellants framed the following question:-
"Whether on the facts and circumstances of the case, the 
diskibution of the right to apply for the shares of the Bank of 
India by Navjivan Mills Ltd. in favour of the assessees amount-
ed to a distribution of "dividend"? 
-. 
2 s.c.R. SUPREME COURT REPORTS 
585 
The High Court answered the question in the affirmative. On 
r960 
appeal with a certificate of the High Court, 
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e , t at t e view ta en y t e 
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ourt was correct. 
.,. Others 
The distribution to the shareholders of the Mills of the 
v. 
right to obtain two shares of the Bank of India for each share The Commissioner 
held by them at half the market value amounted to distribution 
of Income-lox, 
of "dividend" which was liable to be taxed.. 
Bombay 
r 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 
• 
364 of 1957. 
Appeal from the judgment and order dated Februa-
ry 22, 1956, of the former Bombay High Court in 
I.T.R. No. 31/1955. 
· 
N. A. Palkhivala and I. N. Shroff, for the Appel-
lants. 
A. N. Kripal and D. Gupta, for the_ Respondent. 
1960. November 22. The Judgment of the Court 
was delivered by 
· 
SHAH, J.-This is an appeal by seven appellants 
with leave granted by the High Court of Judicature 
at Bombay certifying that it involves a question of 
importance. 
The appellants held 570 out of a total issue of 800 
shares of the Navjivan l\Iills Lt<l., Kaloi, a public 
limited company-hereinafter referred to as the Mills. 
Between the years 1943-4 7, the l\Iills purchased 5,000 
shares of the Bank of India Ltd. At an extraordinary 
general meeting of the shareholders of the Bank of 
India held on l\Iay 6, 1948, a resolution was passed 
increasing the share capital of the Bank and for that 
purpose off~ring new shares to the existing . sharehol-
ders in the proportion of one new share for every 
three shares held by the shareholders. The face value 
of the new shares was to be Rs. 50, but the shares 
were issued at a premium of Rs. 50. The sharehol-
ders had to pay Rs. 100 for ea.oh new share. The Mills 
as the holder of 5,000 shares became entitled to receive 
l,666i shares of the Bank of India at the rate of 
Rs. 100 per share. The Bank of India communicated 
its resolutio1~ by letter dated l\Iay 25, 1948 and enclos-
ed therewith three forms, form A for acceptance, form 
Shah j. 
586 
SUPREME COURT REPORTS 
[1961] 
196o 
B for renunciation and form C which may compen-
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.1 1 diously be called a form for allotment to nominees. 
anfilal Mani a 0 
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n rece1vmg 
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v. 
Mills passed the

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