M/S. SHRI GOPAL PAPER MILLS CO. LTD. versus COMMISSIONER OF INCOME TAX, CENTRAL CALCUTTA

Citation: [1971] 1 S.C.R. 323 · Decided: 21-04-1970 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

, 
B 
c 
F 
G 
323 
M/S. SHRI GOPAL PAPER MILLS CO. LTD. 
v. 
COMMISSIONER OF INCOME TAX, CENTRAL CALCUTI'A 
April 21, 1970 
[J.C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.) 
Finance Act, 1956 Suh-els. (a) and (h) cl. (l) Second Proriso f'arn-
graph D Part JJ-Re.\·o/utio11 hy t·o111pllny capiul/ising unclivided profits in 
the fonn of fully paid· up bonus s'1ares-JVhe1her the bonus shares <:oulcl 
he 111clucled in the paid up capital of tile asseJ".\'ee-Share-ho/ders t'ntitled 
to dh•idends fi·o111 Jcuruary 1., J955-Whetlier honu.'I shares can he .\'aid to 
lu1'Jle been i.'iJlled on rite .c/ate of re.\·o/u!ion i.e. Dece111ber 30, 1954-./f can 
he said to Ju1l'e heen is.\·ued ·within the 111ea11ing of Second PrOl'i.vo IP Para 
D of Parr JJ-'Al/ot' 'distribute', 111eaning. 
The appellant company-assessee-at a general meeting on December 
30, 1954 passed a resolution to the effect that a portion Of the accumulat-
ed undivided profits "be capitalised and distributed amongst the- holders of 
the ordinary shares in the company on the footing that they became entitl-
ed thereto as capital and the capital was to be divided into bonus •hares 
and allotted to the ordinary shareholders on the basis of their sharehold-
ings and by clause (b) of the resolution the directors of the company 
were directed to "issue allot and ·distribute" the new shares, credited as 
fully paid up amongst the persons whose names- arc registered as ~uch in 
the books of the company on lst January 1955. The shareholders were 
entitled to get dividends on those shares only as from !st JaAuary J9S5. 
For the asse§Sment year 1956-57 the .relevant accounting period ending on 
December 31, 1955, the Income-tax Officer determined the total income of 
the company and in computing the Corporation tax due in respect of the 
income reduced the rebate to which the appellant company was entitled 
on two counts; first under sub-cl. (a) and secondly under sub<!. lb) of 
cl. ( J ) to the s~ond proviso to paragraph D of Part II of the Finunce 
Act 1956. As a result of proceedings before authorities under the Act, 
the following questions were reFet'J'ed to the High Court : 
( i) Whether on the facts and in the circumstances of the case the 
bo~us shares Of the face value of Its. 50.07,500 should be included 
in the paid up capital of the assessee within the meaning of that term in 
ourouance of sub-section (I) of the explanation and oaraaraph D of Part 
IT of the Finance Act 1956 for the relevant year and; 
(ii) Whether on the' facts and in the circumstances of the case the 
honus shares in question can be said to have been issued within the mean-
ing of the second proviso to oaragraph D of Part JI of the Finance Act 
1956, to the shareholders by the assessee during the accountinR year ended 
3 lst December 1955 relevant for the assessment year 1956-57. 
The High Court answered both the questions in favour of the depart-
meot. 
In appeal to this Court, 
ll 
HELD : (i) The company had· ittlt~wers to convert its 'accumulated 
undivided profit. into bonus shares and ·it was not "Pen to the ordinarv 
shareholders to refuse to accept those shares when allotted. 
Under the 
resolution a portion of the accumulated undivided profits were .converted 
.324 
SUPREME COURT REPORTS 
[1971] I S.C.R. 
into capital: that capital ·was divided into fully paid up bonus shares ano 
allotted to the ordinary shareholders on the basis of their share-holdings. 
The shares so allotted became the property of the shareholders as from 
the date of the resolution, namely, December 30, 1954 subject to 
the 
qualilication that they were entitled to get dividends on those shares only 
from Isl January 1955. 
The expression "be capitalised and distributed" 
in the resolution only means ''is hereby capitalised and distributed". The 
authori:ies under the Act and the High Court have placed undue emphasis 
on the<e clauses of the resolution which lay down the procedure to be 
adopted in the matter of carrying into 'effect the decision of the general 
meeting. They do not in any manner cut down the nmbit of that resolu-
tion. 
The High Court as well a< the Tribunal were under the erroneous 
ir11pression that a share cannot be said _to have been issued to a person 
untii a share certificate is given to him. 
Merely because in cl. (b) of the 
resoll1tion the l)irectors of the Company were 
directed to issue bonu~ 
shares it cannot be said that the bonus shares had not passed to the share-
holders on Decembe

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