Case: M/S. Shri Gopal Paper Mills Co. Ltd Vs. Commissioner Of Income Tax, Central Calcutta

has not been put completely in possession of his share, and this may be so, although some formal act may not 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."9. In re Heatons Steel and Iron Co., (1876) 4 Ch D 140, 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 Bushs case, (1874) 9 Ch A 554 (supra), the issue of certificates 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 Bushs case, (1874) 9 CH A 554, that the notion that shares are only issued when the certificates are issued is a blunder which could hardly be attributed to us."10. In Dalton Time Lock Co. v. Dalton (1892) 66 LT 704, the Appeal Court-observed that the share for which the defendant had subscribed in the memorandum of association, must be held to have been issued 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 share-holders 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. Calcutta Stock Exchange Association Ltd., 1964-3 SCR 698 = (AIR 1964 SC 250 ). Therein it referred to a large number of English decisions which have considered the meaning of that word. In that decision this Court referred to the observations of Chitty J. in In re Florence Land and Public Works Co., (1885) 29 Ch D 421 :"To my mind there is no magic whatever in the term "allotment" as used in these circumstances. It is said that the allotment is an appropriation of a specific number of shares. It is an appropriation, not of specific shares, but of a certain number of shares."In Gopal Jalans case, 1964-3 SCR 698 = (AIR 1964 SC 250 ) (supra), Sarkar J. (as he then was) quoted with approval the following passage from Farwell L. J. in Mosely v. Koffyfontain Mines Ltd., (1911) 1 Ch 73 at p. 84 :"As regards the construction of these particular articles, it is plain that the words "creation", "issue" and "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 opportunity of placing it. When it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment. To take the words of Stirling J. in Spitzel v. Chinese Corpn., (1899) 80 LT 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 ofshares to a particular person."After examining the various decisions, Sarkar J. observed :"It is beyond doubt from the authorities to which we have earlier referred, and there are many 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 share do not exist as such. It is on allotment in this sense that the shares come into existence."11. The word "distribute" found in cl. (b) of the resolution in the context means to record the distribution of the shares in the books of the company. If the resolution passed at the general meeting of the company on December 30, 1954, is read as a whole, there is no doubt that on that day a portion of the accumulated undivided profits were converted into capital;that capital was divided into bonus shares and allotted to the ordinary shareholders on the basis of their share holdings. The shares so allotted became the property of the shareholders as from that date subject to the qualification that they are entitled to get dividends on those shares only as from 1st January 1955. Under cls. (b) and (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-clause (a) of clause (1) of the second proviso to Section D of Part II of the Finance Act, 1956, and secondly under sub-clause (b) of cl. (1) of the second proviso to Section D of Part II of the Finance Act, 1956.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]7. From this part of the resolution it is clear that the ordinary shareholders became owners of the bonus shares to which they were entitled to under the resolution as from the date of the resolution. The expression "be capitalised and distributed" in the resolution means "is hereby capitalised and distributed" In fact, the whole tenor of the resolution shows that the distribution of the bonus shares became effective as from 30th December, 1954. If the ordinary shareholders became the owners of the bonus shares on and after January 1, 1955 or on some later date, the statement in the resolution "save and except that the holders thereof will not participate 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 have placed undue emphasis on cls. (b) and (c) of the resolution. Those clauses lay down the procedure to be adopted in the matter of carrying into effect the decision of the general meeting embodie in cl. (a). They do not in any manner cut down the ambit of that resolution.8. 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 persons until a share certificate is given to him.The word "distribute" found in cl. (b) of the resolution in the context means to record the distribution of the shares in the books of the company. If the resolution passed at the general meeting of the company on December 30, 1954, is read as a whole, there is no doubt that on that day a portion of the accumulated undivided profits were converted into capital;that capital was divided into bonus shares and allotted to the ordinary shareholders on the basis of their share holdings. The shares so allotted became the property of the shareholders as from that date subject to the qualification that they are entitled to get dividends on those shares only as from 1st January 1955. Under cls. (b) and (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-clause (a) of clause (1) of the second proviso to Section D of Part II of the Finance Act, 1956, and secondly under sub-clause (b) of cl. (1) of the second proviso to Section D of Part II of the Finance Act, 1956.