1924 (3) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Whether the transactions involving the issuance of bonus shares by Indo-Burma Petroleum Company Limited to Messrs. Steel Brothers & Company Limited constitute income, profits, or gains liable to supertax under the Indian Income-tax Act, 1922.

Detailed Analysis:

Issue 1: Nature of Bonus Shares as Income, Profits, or Gains

Robinson, J.:
1. The primary question is whether the bonus shares issued by Indo-Burma Petroleum Company Limited to Messrs. Steel Brothers & Company Limited represent income, profits, or gains within the meaning of the Indian Income-tax Act, 1922, and are thus liable to supertax.
2. The Indo-Burma Petroleum Company capitalized a sum of Rupees fifty-six and a half lakhs from their accumulated and current profits and issued bonus shares for this amount, with Messrs. Steel Brothers & Company receiving shares valued at Rupees twenty-eight and a quarter lakhs.
3. The resolutions passed by the company authorized the capitalization of profits and the issuance of bonus shares, which were distributed free of income tax among the shareholders.
4. The court examined prior decisions, including *Bouck v. Sproude*, *Swan Brewery Company, Limited v. The King*, and *Commissioner of Inland Revenue v. Blott*, to determine the applicability of these cases to the present matter.
5. The decision in *Swan Brewery* was considered binding if applicable, but it was noted that the case was decided under a special Act, and its principles might not directly apply here.
6. The court emphasized that the transactions were intended to transfer profits to capital, with no actual payment made to shareholders, thus not constituting income, profit, or gain under the Income-tax Act.
7. The argument that the transactions were equivalent to the transfer of shares in another company was rejected, and the court concluded that the shareholders did not receive any income or profits.

Heald, J.:
1. The Indo-Burma Petroleum Company increased its capital and authorized the capitalization of profits by issuing bonus shares.
2. The court reviewed the *Swan Brewery* case, where the Privy Council held that similar transactions were considered an "advantage" and thus taxable under a specific definition in the Western Australian Act.
3. The House of Lords in *Blott's case* decided that such shares were not income but an addition to capital, thus not assessable under the English Income-tax Acts.
4. The court noted the difficulty in reconciling these two decisions but decided to follow the decision of the House of Lords in *Blott's case*, as it was more applicable to the present case.
5. The court concluded that the shares did not represent "gains" within the meaning of the Indian Income-tax Act and thus were not liable to supertax.

Beasley, J.:
1. The key consideration was whether the court was bound by the decision of the Privy Council in the *Swan Brewery* case or could follow the judgment of the House of Lords in *Blott's case*.
2. The *Swan Brewery* decision was based on the specific wording of the Western Australian Act, which defined dividends to include "advantages."
3. The court found that the decision in the *Swan Brewery* case was not of general application but specific to the Act in question.
4. The court decided to follow the decision in *Blott's case*, where it was held that such an allotment of bonus shares did not constitute income or profits but was an addition to capital.
5. The court answered the question in the negative, concluding that the transactions did not involve the receipt of income, profits, or gains within the meaning of the Indian Income-tax Act.

Conclusion:
The court unanimously concluded that the transactions involving the issuance of bonus shares by Indo-Burma Petroleum Company Limited to Messrs. Steel Brothers & Company Limited did not constitute income, profits, or gains within the meaning of the Indian Income-tax Act, 1922, and were therefore not liable to supertax. The court relied on the reasoning of the House of Lords in *Blott's case*, distinguishing it from the *Swan Brewery* case based on the specific statutory context of the latter.