(1.) THIS reference under S. 66(1) of the Indian IT Act, 1922, has been made by the Tribunal, Delhi, at
the instance of the 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 ?"
(2.) THE Pilani Investment Corporation Ltd. (hereinafter referred to as the Pilani company) passed a resolution at its general meeting held on 18th Nov., 1958, declaring dividend on its shares in the
following terms :
"Resolved that the dividend on 35,15,000 ordinary shares of the company for the year ended 31st March, 1958, as proposed by the directors be and the same is hereby approved and made payable to those shareholders whose names stand on the register of members on the 19th day of Nov., 1958, @ 00.40 nP. per share (free of income -tax) in the shape of : one ordinary share of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. for every 35 shares of the company at the rate of Rs. 10 each plus one ordinary share of Hind Cycles Ltd. for every 1,100 shares of the company at the rate of Rs. 125 each plus balance in cash. Further resolved that all the shares of the above -noted companies will be distributed in complete unit and fractions, if any, will be paid in cash. The shareholders will also have the option of taking cash instead of shares."
The assessee -company as holder of 2,78,711 ordinary shares of the face value of Rs. 10 each became entitled to receive Rs. 1,11,484.40 as dividend in cash or the equivalent number of shares
of the Gwalior Rayon and Silk Mfg. (Wvg.) Co. Ltd. and Hind Cycles Ltd. plus cash for the balance.
It, however, received on 2nd Jan., 1959, as dividend 7,963 share of the Gwalior Rayon and Silk
Mfg. (Wvg.) Co. Ltd., 253 fully paid ordinary shares of the Hind Cycles Ltd., and Rs. 299.40 in
cash. The valuation of the shares of the Hind Cycles Ltd. was made at the rate mentioned in the
resolution dt. 18th Nov., 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 dt. 18th Nov., 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 preferred to
exercise the option.
(3.) IN its return of income for the asst. year 1959 -60, the assessee -company showed Rs. 1,11,484.40 as its income from dividend in the Pilani company. The assessee valued the shares of the Gwalior
Rayon and the Hind Cycles Ltd. at Rs. 10 and Rs. 125 per share, respectively, as per the resolution
dt. 18th Nov., 1958, of the Pilani company declaring dividend. The ITO, Gwalior, however, took the
view that the assessee's income from dividend from its shares in the Pilani company should be
calculated taking the market value of the shares of the Gwalior Rayon and the Hind Cycles Ltd. on
the date of the declaration of the dividend. On this calculation, the ITO added a sum of Rs. 37,515
to the dividend income declared by the assessee -company on its holdings in the Pilani company.
The decision of the ITO was confirmed in appeal by the AAC and by the Tribunal.;