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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 ..... e assessee, Ujjain General Trading Society (P.) Ltd., Gwalior. The question which has been referred to us for decision is : "Whether, on the facts and in the circumstances of the case, the dividend income of the assessee-company should be taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 1958. It was common ground that, on the date of declaration of the dividend, the market value of one ordinary share of the Gwalior Rayon was Rs. 14.60 and the market value of one ordinary share of the Hind Cycles Ltd. was Rs. 128.50. The Pilani 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 prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as dividend on the shares held by the assessee-company in the Pilani company. This position was in accord with the decision of the Supreme Court in Kantilal Manilal v. Commissioner of Income-tax, where it has been held that "dividend 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 entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their market value on the date of the declaration of the dividend was higher, then clearly the value of the shares which the assessee received as dividend was their market value as assets of the Pilani company and not the valuation which the 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e resolution dated 18th November, 1958, what the shareholders received as dividend in the form of shares were the shares of the Gwalior Rayon and the Hind Cycles Ltd. having that market price which was prevailing on 18th November, 1958, and not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t some guidance is obtainable from the cases of Weight (H. M. Inspector of Taxes) v. Salmon and Ede (H. M. Inspector of Taxes) v. Wilson. In both those cases, the employees of two companies were allowed to acquire at par value certain shares 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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