# M/S. SHRI GOPAL PAPER MILLS CO. LTD v. COMMISSIONER OF INCOME TAX, CENTRAL CALCUTI'A

- **Citation:** [1971] 1 S.C.R. 323
- **Court:** Supreme Court of India
- **Decided:** 1970-04-21
- **Bench:** J.C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-shri-gopal-paper-mills-co-ltd-v-commissioner-of-income-tax-central-calcuti-a-5036
- **Pages:** 12

## Headnote

Finance Act, 1956 Suh-els. (a) and (h) cl. (l) Second Proriso f'arngraph 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 accumulated undivided profits "be capitalised and distributed amongst the- holders of
the ordinary shares in the company on the footing that they became entitled thereto as capital and the capital was to be divided into bonus •hares
and allotted to the ordinary shareholders on the basis of their shareholdings 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 meaning 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 departmeot.
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 resolution.
The High Court as well a< the Tribunal were under the erroneous
ir11pression that a share cannot be said _to have been issued t

## Text

,
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'arngraph 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 accumulated undivided profits "be capitalised and distributed amongst the- holders of
the ordinary shares in the company on the footing that they became entitled thereto as capital and the capital was to be divided into bonus •hares
and allotted to the ordinary shareholders on the basis of their shareholdings 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 meaning 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 departmeot.
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 resolution.
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 shareholders on December 30, 1954. The meaning of. the words "allot" and
'·distribute' should be gathered from the context in which they were used .
.. Allotment" means the appropriation out of the previously unappropriated
capital of a company of a certain number of share:' to a person. The \Vord
"distribute" found in cl. (b) of the resolution in the context means iO
record the distribution of the shares in the
books
of the company.
[330 H: 3H A-F: 332 G-H; 333 G]
There \\'as thcr_efore no justification in reducing the rebate firStly under
sub-cl. (a) of cl. (I) of the second proviso of paragraph D of Part JI
and secondly under •ub-cl. (b) of cl. (I) of the first proviso to paragraph
O pf Part II, of the Finance Act. [334 B•CJ
c
D
.~r/ Gop11I 111/011 t1nd !;,, v. Calcutta Stock E:xclia1111t A.froclt1/i11n Lui.I.
f 1964] 3 S.C.R. 698, Bulli's ct1at, L.R. IX Ch. D. 554, Rt : Htaton's Str..t
1i111I lr1111 Comp1111y, [ 1876-77] 4 Ch. 0. l40 D11/w11 Tim• Loe~ Co111pa11.1·
1:
v. D11/to11, 66 L.T. 704, Re : F/oru11cr Lant/ 11111/ Public Works Company.
( 1885)
L.R. 29, Ch. D. 421
and
Mos/ti' v. /('offyfcmtaln Ml11r.1· L11/,
( 191 I) L.R. Ch. 73, referred to.·
C1v1t APPELLATE JURISDICTION : Civil Appeal No. 1669 of
1966.
.
Appeal from the judgment and order dated February S, 1965
of the Calcutta . High Court in Income-tax Reference Nb, 32 of
1961.
A. K. $en, T. A. Ramachandran and D. N. Gupta, for the
appellant.
.
.
B. Sen, s. K. Aiyar, B. D. Sharma and R. N. Sachthey, for the
respondent.
·
The Judgment of the Court was delivered by
H~, J.
This appeal is by a certificate under s. 66A(2) of
the lndmn Income.Tax Act, 1922 (which will hereinafter be called
'the Act') issued by the High Court of Calcutta.
It arises out of
the judgment and order of that High Court dated February 5, 1965
G
IF
GOPAL PAPER MILLS v. c.I.T., CALCUTTA (Hegde, I.)
325
A
III a reference under s. 66 ( 1) of the Act. In the reference mentioned earlier, two question of law were referred to the High Court
for its opinion.
They are :
·
"(l)
B
c
(2)
D
Whether on the facts and in the circumstances of
the case the bonus shares of the faee value of
RS. SQ,07,500/- should be included in the paid
up capital of the ·assessee Within the meaning of
that term in pursuance. of sub-section ( 1) of the
explanation to paragraph, (D) of Part II of the
Fina;nce Act, 1956 for ihe relevant assessment
year?
Whether on the facts and in the circumstances
of the case the bonus sbares in question can be
said to have been issued within the meaning of
the second proviso to paragraph (D) of Part Il
of the Finance Act, 1956 to the shareholders by
the assessee during the account¥ig year ended
31st December, 1955 relevant for the assessment
year 1956-57
n
The facts relevant for the purpose of deeiding .this appeal may
now be stated : The aJ?PCllant is a company incorporated under
the Indian Companies Act. . It carries on business of manufacturi:
E
of paper. On December 30, 1954, it passed the followmg resolution unanimouslf at a General Meeting held on that date :
'
'
(a) That a sum of Rs. 50,07,500/-
(Rupees fifty
lakhs seven thousand and five hundr~ being
part of the undivided profits of the Company
standing to the credit of General Reserve as on
F
30th Jt1ine, 1954, be capitalised and distributed
amongst the holders of the ordinary shares in
the Company on the footing that they became
entitled thereto as capital and that the said capital be applied on behalf of such Ordinary Shareholders in payment in full for 5,0Q,750 OrdiG
nary shares of Rs. 10/- each, in the Company
and that such 5,00,750 New Ordinary Shares ol
Rll. 10/- each, credited as fully paid up shall rank
in all respects pari passu with the existing Ordinary Shares, save and except that the holders
thereof will not participate in 'any dividend in
H
· respect of any period ending on or before 31st
L12Su).Cl/70-7
December 1954 and that the same shaU1be treated
for all purposes as an increase. ¥ the I1.9minal
.amount of the capital of the Company held ~
i
~-J
326
SUPREME COURT REPORTS
(1971] 1 S.C.R
each of such Ordi;nary shareholders and not as
A
income.
(b) That pursuant to the ab\)ve resolution and in
satisfaction of the interest of .the said Ordinary
Shareholders in the capitalised sum, ~he Direc-.
tors be and they are hereby directed to issue'·
a!loi and distribute the said 5,00, 750 New Ordinary Shares of Rs. 10/ - each, credited as fully
paid up amongst the persons whose names are
registered as such in the books of the Company
as on 1st day of J~nuary 1955, in proportion
o{ one such new ordinary share for each ordinary
share already held by them on that date, provided
that no allotment of slrares issued as aforesaid·
shal! be made to non-resident shareholders till
approyal of the Reserve Bank of India is obtain,
ed for the same.
( c) That the Draft of the Agreement providing for
the allotmel)t of said New Ordinary shares irt
satisfaction or the said capitai bonus and submiUed to this meeting and signed in the margin
by 'the Chairman, by way of identification, be
. and the same is hereby approved and that the
Director be authorised to affix the Comp~ny's
seal to duplicate endorsement of such Agreement
as and when the same shall have been signed on
behalf of the members holding Ordinary shares
•
in the company on 1st January, 1955, by some
person to . be appointed by the Directors in that
behalf, which the. Directors be and are hereby
authorised to do."
There is no dispute as regards the validity of that resoluiio.n.
It was passed. in accordance with the Articles of Association of the
Company.
For the assessment year 1956-67, the relevant
accounting period ending on December 31, 1955, the Income-tax
Officer had detennined by• his order dM,ted September 29, 1958.
E
F
the total income of the company at Rs;· 42,73,176/-.
In com-• G
putirtg the Corporatio.n Tax due in respect of the said income, the
Income-tax Officer reduced the rebate to which the appellantcompany was entitled on two counts; firstly in accordance with
sub-cl. (a) ·of cl. (l) to second proviso to s. D of Pt. II of the
Finance Act, 1956, he reduced the rebate at the rate of 2 annas a
rupee on 'Rs. 50,07,500 which according to him represented- the
face value .Qf the bonus shares issued by the appella,nt. company
to its share-holders during the previous year with a view to
increaf°ng its paid up capital.
Seco11dly he excluded those bonus
•
GOPAL PAPER MILLS v. c.1.r., CALCUTTA ('Hegde, J.)
327
"
A
shares from the paid up capital·of the company as on 1st January,.
1955 for the purpose of determining the excess diVidends !JVer 6
per cent of the paid up capital on which the rebate was to be reduced at the rate of 2 annas· in a rupee according to sub-cl. (b) of
cl. (1) of the secQD.d proviso to s. D of Pt. ll of the Finance Act,
1956. The reduction of the rebate on the first count was
B Rs.
6,25,937 /50 P. and on the second count it was
Rs. 1,48,127 /31 P. The company appealed to the Appellate
Assistant Commissioner and claimed that the bonus shares were in
fact issued in the year preceding the previous year relevant to the·
assessment year 1956-57, therefore, did not come withln thQ mischief of sul>cl. (a) of cl .. ( 1) of the second proviso to ~. D of
c Pt. II. It also' contended that 'the bonus shares were part of the
paid-up capital of the company as on January 1, 1955 and, theremore, its case came within the $cope of sub-cl. (b) of the second
proviso to s. D of Pt. II of the Finance Act, 1956. The Appellate ·
Assistant Commissioner rejected the first contenti0)1 of the company
but accepted the second contention. According to him, as the
bonus shares were to be credited· as fully paid up amongst persons
D
whose names were registered as such in the books of the company
as on January ~. 1955, the issue could not possibly take place·
before that date.
But at the same time he took the view that the·
shareholders have ~
put ilito possession of the bonus shares on·
January 1, 1955 ·and that the shares were actually .issued on Janu-·
ary l, 1955. Hence lie held that from that date the ordinary
E
shareholders became the owners of the bonus shares. He, therefore, included the face value of The bonus shares in the paid up
capital of the company as on 1st day of the accounting year for the
purpose of sub-cl. (b) of ch (1) of the 2nd proviso to s. D of
Part Il of the Finance Act, 19 5 6.
Both the company as well a.~
tlJ,e department appealed against the order of the Appellate AssisF
tant Commissioner to the extent it went against them. · The Tribun'al rejC\:ted the contention of the assessee and accepted that of the
· depaqment. Thereafter at the, instance of the assessee, i_t stated a
case. to the High Court. . The High Court answered both the questio)18 referred to it in .fayour of die depariment.
.
The Finance Act, 1956 presyribed the rate of sutier tax in Part
G II Paragraph ',D'. That part reads :
H,
"D. In the case of every company.-
•
.
On the whole of total income .....
Provided· that-'
Rate
Siir !lllnas and nihe
pies ·in the rupee. .
(i) a rel>ate at the rate· of five annas per rupee of the·
328
S~f~EME COURT REPORTS
[1971] I S.C.R..
total incomt; ~hall be aJ\qwed in the case of any
cqpipany which-
"·
(a) in respect of its profits '1i11ble to tax unaer the
· lncome-tax Act.for the year endi,qg on the 31st day c.f
March, 1957, has made the prescribed· arrangements for
the declaration and payment within the territory.of ]india,
of the dividends payable, out of such profits and for the
deduction of super-tax from dividends in accordance with
the provisions of sub-section (3D) of sectio.n 18 cf that
Act, and
( b) is a public company with total income not ex-
. ceedmg Rs. 25,000/- to which the provisions ot section
23A cannot be made applicable;
(ii) a rebate at the rate of four annas per rupee ot the
total income shall be allowed in the case of any
company which. satisfies condition (a) but not
condition (b) of the preceding clause; and
(iii} a rebate at the rate of three annas and six pies
per rupee on so much of the total income as
consists of dividends from a subsidiary Indian
company, and a rebate at the rate of one anna
per rupee on any other income included in the
total income shall be allowed in the case of any
company not entitled to a rebate under either of
the preceding ch1uses :
Provided further that-
(i) if the amount of the rebate under clause (i)' or
clause (ii), as the case may be, of the preceding
proviso shall be reduced by the sum, if any, equal
to· the amount or the aggregate of the amounts,
as the case be, computed ·as hereunder :-
A
B
c
D
E
F
(a) on the amount representing
G
the face value of any bonus shares
-or the amount of any bonus issued
to its shareholders during the previous year with a view to increasing
the paid-up ea]ilital, except to the
extent to which such bonus shares
or bonus have been issued out of
premiums received in cash oil the
at the rate of two
issue of its shares; and
annas per rupee.
•
A
B
c
D
E
'' . GOPAL PAPER MILLS v. C.l.T., CALCUTTA (Hegde, J.)
32!>
(b) in addition, in the case of a
company referred to in clause (ii)
of the preceding proviso which has
0istributed to its shareholders during
the previous year dividends ii) excess
of six per cent of its paid up capital,
not being dividends payable · at a
fixed rateon that part of the said dividends
which exceeds 6 per cent, but does
not exceed 10 per cent of the paid
at the rate of tw<>
up capital;
annas per rupee.
on that part of the said dividends
which exceeds 10 per cent of the
paid up capital;
at the rate of three
annas per rupee.
(ii) where the sum arrived at in accordance with subclause (b) or both the sub-clause of clause (i)
of this proviso exceeds the amount of the rebate
arrived at in accordance with clause
(i)
or
clause (ii) as the case may be, of the preceding
proviso, o,nly so much of the amounts-
(a) issued as bonus ·shares or as llonus, and
(b) distributed as dividends,
F
as is sufficient, in· that order, in accordance with the rates
specified in clause (i) of tl).is proviso, to reduce the rebate
to nil, shall be deemed to have been taken into account
for the purpose :
G
H
Provided further that the super-tax payable by a
company the total income of which exceeds Rs. 25,000
shall not exceed the aggregate of-
(a) the super-tax which would have been payable
by the compainy if its total income had been
Rs. 25,000, and
(b) half of the amount by which its totai
income
exceeds Rs. 25,000.
330
SUPREME COURT REPORTS
[1971] l S.C.R.
Expla,nation.-For the purposes of paragrapn D of this Part-
. (i) the ex)Jression ·paid up capital' means the paidup capital (other than capital entitled to a dividend at a th.ed rate) of the company as on the
first day of the previous year relevant to the
assessment for the year ending on the 31st day
of March, 1957, increased by any premiums
received in cash by the company on the issue of
its shares, standing to the credit of the share
premium account as on the fifst day of the previous year aforesaid;
(ii) the expression 'dividend' shall be deemed to
include any distribution included in the expression 'dividend' as defined in clause (6A) of section 2 of the Income-tax Act;
(iii) where any portion of the profits aind gains of the
comp~y is not included in its total income by
reason of such portion being exempt from tax
under any provision of the Income-tax Act, the
amount of the 'paid-up capital' of the company,
the amount distributed as dividends (illot being
dividends payable at a fixed rate), the amount
representing the face value of any bonus shares
and the amount of any bonus issued to the shareholders, shall each be deemed to be such proportion thereof as the total income of the company
for the previous year bears to its total profits and
gains for that year other than capital gains or
capital receipts reduced by such· allowances as
may be admissible under the. Income-tax Act
which have not been taken into account by the
company in its profit and loss account for that
year."
In the Finance Act, 1957, also a similar scheme of according
rebate and reduction thereof in conditions set out in 1956 Act was
adopted.
. The first question that arises for decision· is as to when the
bonus shares became the property of the shareholder& ? Is it on
the date of the resolution of the General Meeting of the company
namely December 30, · 1954 or on any later date ? · It may be
remembered that for the allotment of the bonus shares, there was
no question of calling for applications.
Under the Articles of
Association of. the Company it was not open to the ordinary shareholders to refuse to accep, those. shares when allotted.
The company had full powers. io convert its accumulaied undivided profits.
/
A
B
c
D
E
F
G
H
)
A
B
c
·n
E
H
GOPAL PAPER MILLS' l'. C'.LT .. CALCUTTA/ Hegde, !.)
:l3 l
into bonus shares.
The resolution passed at the General Meeting
specifically says that those ac~umulated undivided profits of 1he
oompany standing to the credit of the general reserve as on June
30, :1954 "be capitalised and distributed amongst the holders of the
ordinary shares in the Company on the footing that they had become
entitled thereto as capital and that the said capital be applied on
behalf of such Ordinary shareholders in payment in full for
5,00,750 Ordinary shares of Rs. 10/- each, in the Company and
that such 5,00,750 New Ordinary shares of Rs. 10/- each, credited
as fully paid up shall rank in all respects pari passu with the exist.
ing Ordinary shares .. , . "
From this part of the resolution it is clear that the ordinary
shareholders became owners of the bonus sha'res to which they
were entitled· under the' resolution as from the date of the resolution.
_The expression "be capitalised and distributed" in tire
resolution means "is hereby capitalised and distributed''.
In fact
the whole tenor of the resolution shows that the distribution of th~
bonus shares became effective as from 30th December, 1954. If
the ordinary sharesholders became the owners of the bonus shares
on January I, 1955 or on some later date, the statement in the
resolutien "save and except that the holders thereof will not partidpat.~ in any dividend in respect of any period ending on or before
31st December, 1954" becomes meaningless.
The
authorities
under the Act and the High Court placed undue emphasi! on
els. (b) and ( c) of the resolution.
Those clauses lay down the
procedure to be adopted in the matter of carrying into effe<:t the
decision of the General Meeting embodied in cl. (a). They do
not in any manner cut down the ambit of that resolution.
The High Court as well· as the Tribunal were under the erroneous impression that a share cannot be held to have been issued
to a person until a share certificate is given to him.
This misconception appears to have resulted from the decision in Bush's
case('). In Buckley 'On the Companies Acts' 13th Edn. p. 129,
the law on the point is stated thus :
· .
"It was supposed to have bee111 decided in Bush's
case that by the 'issue' of shares was meant the issue of
the certificates for the· shares.
But this is a misappre-
. hension.
The expression 'issue' with regard to shares
may bear various meanings according to the context. It
is not necessarily either' the allotment of the share or the
issue of the certificate thai constitutes the issue of the
share.
The question may be whether the shareholder has
or has not been put completely in possession of his share,
and this may be so, although some formal act may not
(I) L.R. IX Ch. fl. 554.
332
SUPREME COURT REPORTS
[1971] l S.C.R.
have been completed.
Thus. shares may have been issued
which have been allotted, but for which no certificates
have ever been issued, and on the other hand shares as
to which a resolution to allot has· been made may ·not
have been issued.
Shares for which the memorandum of association has
been subscribed are 'issued' when the company is
registered."·
Tn re Heaton's Steel and Iron Company('), the Court of
Appeal held that the issue of certificates is not necessary to the
issue of shares within section 25 of the English Companies Act,
1867. In that case Brett J. observed:
"that in Bush's case(") the issue of certificate was
merely taken as evidence of the time when the shares were
issued, but this must not be taken to mean that shares
are not issued until the certificates are issued."
James L.J. observed :
"I think it is desirable to say, as the Appellant
appears to have been misled by the marginal note to
Bush's case(') that the notion that shares are only issued
when the certificates are issued is a blunder which could
hardly be. attributed to us."
In Dalton Time Lock Company v. Dalton("), the Appeal Court
observed that the share for which the defendant had subscribed in
the memorandum of association, must be held to have been issuecl
to him upon the registration of the company and hence he must be
held liable to pay the share money.
We are unable to agree with
the contention of the Revenue that merely because in clause (b) of
the resolution of the General Meeting, the Directors of the company
were directed to issue bonus shares, the property in the bonus shares
had not passed to the ordinary shareholders on December 30,
1954! The words 'allot' and 'distribute' found in cl. (b) of the
resolution do not carry the matter further.
Their meaning should
be gathered from the context in which they were used.
Clauses
(b) and (c) of the resolution must be read harmoniously with
cl.
(a). The word "allotment" has not been defined in the
Companies Act.
The meaning. of the word "allot" or "allotment"
will have to be gathered from the context in which those words ·
are used.
This Court considered the meaning of the word
'"allotment" in Sri Gopal Jalan and Co. v. Cal,:utta Stock Exchange
Association.Ltd.(')
Therein it referred to a large number of
(I) 11876"77) 4, Ch. D.4. 140.
(3) 66, L.T. 704.
(2) L.R. IX Ch. D. SS4
(4) [1964] 3, S.C.R. p. 698.
B
c
D
E.
F
G
H
'
GOPAL PAPER MILLS v. C.I.T., CALCUTTA (Hegde, J.)
333"
A
English decisions which have considered the meanipg of that :word.
In that decision this Court referred to the observations of Chitty J
in Re Florence Land and Public Works Company(') :
'
"To my mind there is no magic whatever in the term
allotment' as used in these circumstances. It is said.
B
that the allotment is an approp~ation of a specific
number of shares. It is an appropriation, not of specific
s~ares, but of a certain number of shares".
c
D
E
F
G
H
In Gopa/ lalan's case(") (supra) Sarkar J. (as he then was) quatedl
with approval the following passage from Farwell L.J. in Mosley:
v. Koffyfontain Mines Ltd. (8 )
"As regards the construction of these particular
articles, it is plain that the words 'creatiol\', 'issue' ~d
'allotment' are used with the three different meanings
familiar to business people as well as to lawyers. There
are three steps with regard to new capital; first, it is
created; till it is created the capital does not exist at all.
When it is created it may remain unissued for years, as
indeed it was here; the market did not allow of a favourable opp.ortunity of placing it. When it is iss.ued it may
be issued on &uch terms as appear for the moment expedient, Next comes allotment. To take the words of
Stirling J. in Spltzel v. Chinese Corporation, 80 L.T.
347, 351, he says: 'What is an allotment of shares?
Broadly speaking, it is an appropriation by the directors
or the managing body of the company of-shares to 11
particular person'."
After exam.ming the various dicisions, Sarkar J. observed :
"It is beyond doubt from the authorities to which we
have earlier referred, and there are m11«1y more which
could be cited to show the same position, that in Company
law 'allotment' means the appropriation out of the·
previously unappropriated capital of a company of a
certain number of shares to a person. Till .such allotment the shares do not exist as such. It is on allotment
in this sense that the shares come into ~xistence."
•
The word "distribute" found in cl. (b) o{ the resolution in the·
context means to record the, distribution of the shares in the booh
of the company. If the.resolution passed at the General Meeting:
(I) (1885) 2 LR. 29, Ch. D. 421.
(2) [l964] 3 S.C.R. 698
(3) (19Ll) LR. Ch. 73, 84.
'
J 3 .j
SUPREME COURT REPORTS
[1971) l S.C.R.
of the company on December 30, 1954 is read as a whole, there
is no doubt that on that day a portion of thel accumulated undivided profits were converted into capital; that capital was divided
into bo'nus shares and allotted to the ordinary shareholders on the
basis of their share holdings.
The shares so aJlotted became the
property of the shareholders as from' that date subject to the qualiJication that they are entitled to get dividends on those shares only
as from !st January 1955:
Under els. (b) ard (c) of the resolution, certain directions were given to the Directors in the matter
of implementation of that resolution.
Hence there was no justification in reducing the rebate firstly under sub-cl. (a) of cl. i J ) of
the second proviso to Section D of Part II of the Finance Act, J 956
and secondly under sub-cl. (b) of cl. ( 1) of the second proviso
to Section D of Part II of the Finance Act, 1956.
For the reasons mentioned above, we a!low this appeal and
answer the questions referred to the High Court in favour of the
assessee.
Revenue shall pay the costs of the assessee both in this
Court and in the High Court.
R.K.P.S.
Appeal allowed.
A
B
c