BHARAT FIRE AND GENERAL INSURANCE CO. LTD. NEW DELHI vs. THE COMMISSIONER OF INCOME TAX, NEW DELHI

CIVIL APPEAL No. 613/1963Supreme Court[1964] 7 S.C.R. 62602 April 1964Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI7 pages
AI SummaryDismissed

What were the facts?

The appellant, Bharat Fire and General Insurance Co. Ltd., received Rs. 50,787/- as dividend from Rohtas Industries Ltd. for the calendar year ending December 31, 1953. Rohtas Industries Ltd. had issued shares in 1945 at a premium, which was kept under 'Capital Reserve'. The Income-tax Officer taxed this amount as dividend for assessment year 1954-55. The Appellate Assistant Commissioner initially set aside the order, but the Income-tax Appellate Tribunal restored it. The Punjab High Court, on reference, held the receipt taxable as dividend, against which the appellant appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the receipt of Rs. 50,787/- was indeed a receipt of dividend and was taxable under the Indian Income-tax Act, 1922. The Court reasoned that it was well-established before the Companies Act, 1956, that premiums received on the issue of shares were profits available for distribution. The word 'profits' in Regulation 97 of Table A of the Companies Act, 1913, was understood to include share premiums. The Court also held that Section 78 of the Companies Act, 1956, does not alter the taxability of dividends declared out of premiums received by a company before the Act of 1956 came into force. If such a dividend was taxable apart from Section 78, it remained taxable. The Court found the case of Re Duff's Settlements to be irrelevant to the facts of the appeal. The appeal was dismissed.

What were the issues?

1. Whether, on the facts and in the circumstances, the receipt of Rs. 50,787/- was a receipt of dividend and taxable under the Indian Income-tax Act, 1922, specifically under Section 2(6A)? Assessee's contentions: - The sum received is not a dividend as defined in Section 2(6A) of the Income Tax Act. - Share premiums were not profits capable of distribution under Regulation 97 of Table A of the Companies Act, 1913. - The premium was a capital gain in the hands of the declaring company, and capital gains are excluded from the definition of 'dividend' by the explanation to Section 2(6A). - Section 78 of the Companies Act, 1956, places this sum beyond the reach of the Revenue. Revenue's contentions: - Not explicitly recorded, but impliedly argued that the receipt was a dividend and taxable.

Which sections of the Income-tax Act were involved?

Section 2(6A),Section 78

AI-generated summary — verify with the full judgment below

J964 ..4.pril 2 626 SUPREME COURT REPORTS (1964] BHARAT FIRE AND GENERAL INSURANCE CO. LTD. NEW DELHI v. THE COMMISSIONER OF INCOME TAX, NEW DELHI [K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.J Inco-rne Tax-Dividend declared out o.f premitl1ns on shares receii;ed hu a company--Amount vJhether receipt o.f dividend- Whether tuxab!e-What is dividend-Effect of s.

78.

Companie• Act, 1956-Indian Income-tax Act. 1922, s. 2(6A). The Rohtas Industries Ltd. i'5ued in 1945 shares at a pre- mium and the share premiums so received were kept separate under the head Capital Reserve. In the calendar year ending Decemb2r 31, 1953, the company peid a sum of Rs. 50,787/- as dividend to the apn2llant company, For the year 1954-55, th's sum was taxed in the hands of appellant as dividend by the In- come-tax Officer. The Appellate Assistant Commissioner set aside the order of the Income-tax Officer, but the same was re- stored by the Income-tax Appellate Tribunal. The Tribunal re- ferred to the Punjab High Court the question whether on the facts and in the circumstances of the case, the receipt cf Rs. 50,787 /- was a receipt of dividend and was taxable under the Indian Income-tax Act

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 78

All 44 judgments and leading authorities on Section 78 →

Recent GST High Court judgments

Search GST case law →