Judgement Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India Appeal (No. 34 of 1935) from a judgment of the High Court at Calcutta (March 13, 1934), delivered upon a reference of questions of law under s. 66, sub-s.1, of the Indian Income-tax Act, 1922. The questions of law arose in the course of an assessment for supertax and surcharge made by the income-tax officer upon the respondents, as trustees of the late Sir David Yule, for the year ended March 31, 1932, in respect of Rs.5,71,30,000, being the nominal amount of certain bonus debentures issued to them in respect of their shareholding in certain companies in the year ended March 31, 1931. Sir David Yule died on July 3, 1928, leaving a very large estate which mainly consisted of holdings of shares in thirty companies, with twenty of which the present appeal is concerned, being the companies which issued the debentures in question. The circumstances in which the debentures came to be issued to the respondents or their nominees were stated by the High Court as follows "All the companies had very large accumulations of undistributed profits..... The trustees had to meet very heavy outgoings for duties both in the United Kingdom and in India in relation to the estate of the deceased, and it was to provide funds for such duties that a scheme was devised whereby accumulated profits would come into their hands and be available for the purpose of meeting such charges.....The proposal was to capitalize the companies reserves and make a distribution to the shareholders in the form of debentures on redemption of which the funds required would be available." That policy having been effected, the income-tax officer on August 5, 1933, made an assessment on the trustees for the year 1931-32 based on the financial year 1930-31 in respect of Rs.5,71,30,000 debentures received by them in 1930-31. The respondents appealed to the Assistant Commissioner, Calcutta, and while the appeal was pending the Commissioner, of his own motion, made the present reference to the High Court, namely " The assessee being in his own name and through nominees the holder (a) of the whole of the share capital of companies as specified in the case, and (b) together with two trustees in their individual capacity, of the whole of the share capital of one company as specified these companies being investment companies of the nature described in the case and the said companies having issued to the assessee, by way of bonus, debentures which have subsequently been paid-off through the transaction specified in the case . . . . (quaere) was there by these transactions any income, profits or gains which accrued or arose to or were received by the assessee, within the meaning of s. 4 of the Indian Income-tax Act, 1922." The procedure by which the debentures were allotted appears from the judgment of the Judicial Committee. The High Court (Buckland A.C.J., Costello and Panckridge JJ.) decided against the claim of the Crown, and answered the question in the negative. Buckland A.C.J., with whose judgment the other judges concurred, was of opinion that the case was covered by the reasoning and decision in Inland Revenue Commissioners v. Fishers Executors ([ 1926] A. C. 395.), and that the decision in Swan Brewery Co., Ld. v. The King ([ 1914] A. C. 231.) could be distinguished. 1936. March 27, 30. Dunne K.C. Gavin Simonds K.C., and Reginald Hills for the appellant. The question is what is the real nature of the transaction? The shareholder has had credited to him out of the accumulated profits fund the money which paid for the debentures, and he clearly comes within the principle in Swan Brewery Co., Ld. v. The King.([ 1914] A. C. 231.) The judgment in that case found that what was distributed was in effect a dividend, although it was not declared to be a dividend. Bouch v. Sproule (3) was the basis of the decision in Inland Revenue Commissioners v. Blott ([ 1921] 2 A. C. 171.), and the matter really turns on those two cases and the Swan Brewery Co.s case. (2) Law. Rep. 63 Ind. App. Bouch v. Sproule (3) was the basis of the decision in Inland Revenue Commissioners v. Blott ([ 1921] 2 A. C. 171.), and the matter really turns on those two cases and the Swan Brewery Co.s case. (2) Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 179 In Blotts case ([ 1921] 2 A. C. 171.) the whole of the accumulated profits were invested in other assets. The decision in the Swan Brewery Co.s case (2) governs this case. In Blotts case ([ 1921] 2 A. C.171.) Lord Dunedin came to the conclusion that the principle in the Swan Brewery Co.s case (2) was the correct one— that the real transaction must be looked at, and not merely, as in Bouch v. Sproule (( 1887) 12 App. Cas. 385), the statements of the company as to what they were doing. The Swan Brewery Co.s case (2) correctly states the true principle to be applied in construing the Indian Income-tax Act—has or has not the shareholder received a profit or a gain? Inland Revenue Commissioners v. Fishers Executors ([ 1926] A. C. 395) is on a different plane altogether here it is simply the Indian Act which is being dealt with. Whitmore v. Inland Revenue Commissioners (( 1925) 10 Tax Cas.645.) was heard after the Court of Appeal had decided Fishers case (10 Tax Cas.302.) but before it was heard in the House of Lords. [LORD MAUGHAM Whitmores case (2) is rather a serious case for you, unless you can distinguish it by a case in India.] Two cases, which proceeded on exactly the same footing as did Buckland A.C. J. in the present case—namely, that Blotts case ([ 1921] 2 A. C. 171.) concluded them for India—are Steel Brothers & Co., Ld. v. Government (( 1924) I. L. R. 2 R. 211.), and Income-tax Commissioner, Madras v. Binny & Co. (( 1924) I. L. R. 47 M. 837.). They were both cases of shares. "The object of the Indian Act is to tax income,’ a term which it does not define. It is expanded, no doubt, into income, profits and gains,’ but the expansion is more a matter of words than of substance" per Sir George Lowndes in Income-tax Commissioner v. Shaw, Wallace & Co. They were both cases of shares. "The object of the Indian Act is to tax income,’ a term which it does not define. It is expanded, no doubt, into income, profits and gains,’ but the expansion is more a matter of words than of substance" per Sir George Lowndes in Income-tax Commissioner v. Shaw, Wallace & Co. (( 1932) L. R. 59 I. A. 206, 212.) On the findings of fact it is found that this company never intended to capitalize this money for the purposes of the business, or to retain it for such purposes, but that what was done was effected in agreement with the shareholders for the purpose of getting the money distributed into the hands of the shareholders. In Bouch v. Sproule (( 1887) 12 App. Cas. 385.), Blotts case (4), and similar cases there was a real capitalization, intended to be such for the purposes of the company, and in most of them, if not all, the actual profits had been expended in matters of business for the purposes of the company. They were all mercantile businesses for purposes quite different from those of this company, which is merely an investment company to collect the moneys which come in upon investments. The machinery of the scheme between the company and its shareholders is adopted not for the purpose of doing something for the benefit of the company, but for the purpose of doing something for the benefit of the shareholders—to pass the money to them. That is absolutely different from a case where a company, presumably bona fide, enters into the transaction for the benefit of the business of the company, as in Bouch v. Sproule (i) and Blotts case.([ 1921] 2 A. C. 171.) From the point of view of the Indian Act, if what the shareholders received was a profit or gain it was income Swan Brewery Co. v. The King.([ 1914] A. C. 231) Under their articles of association the company could declare a bonus or a dividend. The question is whether Bouch v Sproule (12 App. Cas. 385.) and Blotts case ([ 1921] 2 . C. 171.) were binding in India, or whether the Swan Brewery Co.s case ([ 1914] A. C. 231.) applied. v. The King.([ 1914] A. C. 231) Under their articles of association the company could declare a bonus or a dividend. The question is whether Bouch v Sproule (12 App. Cas. 385.) and Blotts case ([ 1921] 2 . C. 171.) were binding in India, or whether the Swan Brewery Co.s case ([ 1914] A. C. 231.) applied. Bouch v. Sproule (1) and Blotts case ([ 1921] 2 A. C. 171.) do not apply; the Swan Brewery Co.s case ([ 1914] A. C. 231.) does it is an error to say that that case merely turned upon the definition clause in the Western Australian statute; that is not the real decision; it lays down that the real transaction must be looked at and analysed, and that is what Lord Sumner said, not only in that case, but also afterwards when referring to the Swan Brewery Co.s case ([ 1914] A. C. 231.) in Blotts case ([ 1921] 2 A. C. 171.). Looking at the real transaction here, there is undoubtedly a crediting to the shareholders the payment by the company is to be made on behalf of the shareholders, it is to be credited to them, they are to pay no further money, and that is the way in which it comes as a loan from the shareholders to the company. If that is so, the rule in the Swan Brewery Co.s case ([ 1914] A. C. 231.) is perfectly right and is applicable here. The Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 180 shareholders get that money precisely upon the footing of their right pro rata in the capital of the company. The source from which they are getting this is their investment as shareholders. The debenture stock is saleable in a company such as this, and if that be so, can it be said that it is no profit or gain to a shareholder to receive an allotment of a share of accumulated profits to be used for the purposes of a loan to the company upon debenture stock which is redeemed? That is the real problem which arises on the Indian Act if he makes a loan it must be on the hypothesis that the money is his. Gavin Simonds K.C. followed. That is the real problem which arises on the Indian Act if he makes a loan it must be on the hypothesis that the money is his. Gavin Simonds K.C. followed. The question is whether the Board, if it thinks fit, is, for the purposes of the Indian Income-tax Act, 1922, at liberty to adopt the analysis of such a transaction as the present one which was adopted by the minority in Blotts case ([ 1921] 2 A. C. 171.), and to adopt the reasoning in Swan Brewery Co. v. The King.(2) The reasoning of the majority in Blotts case ([ 1921] 2 A. C. 171.) and that in Fishers case ([ 1926] A. C. 395.) is not such as should be applied to a case where the transaction is really a blind, not representing the intention of the company to enlarge its capital, whether share or loan, but simply to provide a means of distribution of undistributed capital. The line of reasoning in the Swan Brewery Co.s case (2) and by Lord Dunedin in Blotts case ([ 1921] 2 A. C. 171.) is right. The majority of the House of Lords in Blotts case([ 1921] 2 A. C. 171.) did not give sufficient weight to the principle running right through income tax law, that it does not matter in the least whether a recipient receives money which has to be applied in a particular way, it is none the less income, profit or gain, even though he never gets it at all, if it is applied on his behalf; Mersey Docks v. Lucas (( 1883) 8 App. Cas. 891.); Roe v. Inland Revenue Commissioners.(( 1924) 8 Tax Cas. 613.) The present case is stronger than the latter of those cases, because it is the will of the shareholder himself that his money shall be applied in a particular way, without it ever reaching his hands. The logic of it is really unanswerable; it is the income of the shareholder which, by his direction, is applied in a particular way. [Reference was also made to Inland Revenue Commissioners v. Wright.([ 1927] 1 K. B. 333, 346.)] There is a substantial body of opinion which considers the reasoning in Blotts case ([ 1921] 2 A. C. 171.) and Swan Brewery Co. [Reference was also made to Inland Revenue Commissioners v. Wright.([ 1927] 1 K. B. 333, 346.)] There is a substantial body of opinion which considers the reasoning in Blotts case ([ 1921] 2 A. C. 171.) and Swan Brewery Co. v. The King ([ 1914] A. C. 231.) irreconcilable see observations of Lord Finlay ([ 1921] 2 A. C. 199.) and of Lord Cave (Ibid. 202.) in Blotts case. (1) If the Board is of opinion that the reasoning in the Swan Brewery Co.s case (2) is right, it is at liberty to follow it, and is not bound, on the Indian Income-tax Act, by the decision of the House of Lords. All that it is necessary to decide is that that which the subject receives is a profit or gain of an income character. The question is whether, even if Blotts case ([ 1921] 2 A. C. 171.) is right, still, looking at the present transaction as a whole, this is a case where the debentures do represent income of the shareholders, because the real intention of all parties was not that the loan capital of the company should be increased, but that the distributable profits should be distributed to the shareholder just as and when it was necessary for him to have them. Where the scheme is a mere cloak or device, not representing the needs of the company for the increase of its capital, loan or share, but simply aims at distributing to the shareholders the undistributed income in a particular way, then Blotts case ([ 1921] 2 A. C. 171.) has no application. Latter K.C., L. P. E. Pugh and J. B. Lindon for the respondents, were requested by the Board to confine their argument to the question whether the Board was entitled to look behind the acts of the company to the nature of the transaction. The first point is that neither the income nor the assets of the company are the income or the assets of the shareholders secondly, there can be no income to the shareholders until the company has released some of its assets to them thirdly, when it releases assets to them it may do so in the form of income or of capital, and it is the action of the company, and I stress the word " action,” which determines which it is. These are the three fundamental points. These are the three fundamental points. If these are the principles which underlie the two cases in the House of Lords, then what the shareholders meant to do when they caused the company Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 181 to go through these various acts, whatever they may have been, is not material, because the question is, what is the act of the company ? [Reference was made to Blotts case ([ 1921] 2 A. C. 171.), to Fishers case ([ 1926] A. C. 395.), and to Inland Revenue Commissioners v. Westminster (Duke).([ 1936] A. C. 1.)] If the act of the company represents the legal result, all speculation as to the intention of the shareholders becomes entirely irrelevant. In Blotts case([ 1921] 2 A. C. 171.) Lord Haldane said ([ 1921] 2 A. C. 182.) that the company could convert its accumulated profits into capital, and that the only question was "whether the company has really done so"; Lord Cave said ([ 1921] 2 A. C. 200.) that the most important document was the resolution of the company. In Fishers case (10 Tax Cas. 302.) Warrington L.J. said (Ibid. 322.) "the action of the company then being the determining factor,” and he inquires what the company did. In Wrights case([ 1927] 1 K. B. 333.) Lord Hanworth M.R. asked (Ibid. 342.) "What is the intention of the company, expressed and to be found in the terms of the resolution adopted....." Gavin Simonds K.C. replied. If the transaction as appearing from the documents is in effect merely cloaking another transaction, then it can be looked through to see what is the real transaction. This is the first case, apart from Whitmores case (10 Tax Cas. 645.), where a scheme of this kind has been devised, and where it is perfectly plain on the face of the documents that they do not tell the whole story—not that they are fictitious—and the whole story is that the moneys were required and were to be made available for the share holders it was not to supply any need of the company that this arrangement was made the substance of the transaction was that it was intended to do no more than provide money for the shareholders, it is nothing more than machinery for distributing the profits. May 20. May 20. The judgment of their Lordships was delivered by LORD THANKERTON. This is an appeal from a judgment of the High Court of Judicature at Fort William in Bengal, delivered on a reference of questions of law by the Commissioner of Income-tax, Bengal, under s.66, sub-s.1, of the Indian Income-tax Act, 1922 (XI of 1922). These questions of law arose in course of an assessment for supertax and surcharge made by the Income-tax Officer upon the respondents, as trustees of the late Sir David Yule, for the year ending March 31, 1932, in respect of Rs.5, 71, 30,000, being the nominal amount of certain bonus debentures issued to them in respect of their shareholding in certain companies in the year ending March 31, 1931. The respondents appealed to the Assistant Commissioner, Calcutta, and, while the appeal was pending, the Commissioner, of his own motion, made the present reference to the High Court, asking the following questions of law, namely "First Question.—The assessee being in his own name and through nominees the holder (a) of the whole of the share capital of companies as specified in the case, and (b) together with two trustees in their individual capacity, of the whole of the share capital of one company as specified these companies being investment companies of the nature described in the case and the said companies having issued to the assessee by way of bonus, debentures which have subsequently been paid-off through the transaction specified in the case . . . .(quaere) was there by these transactions any income, profits or gains which accrued or arose to or were received by the assessee, within the meaning of s. 4 of the Act? "Second Question.—If any such income did arise, when did it so arise? "Third Question.—If any such income did arise, was its quantum an amount corresponding (a) to the full amount of the debentures or (b) to such part only as derived from the received and accumulated revenue profits of the companies, and excluding such part as derived from appreciated valuations of Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 182 the companies investment-holdings ? Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 182 the companies investment-holdings ? "Fourth Question.—In the latter alternative, on what principles are the respective quanta to be accounted and ascertained?" The parties were agreed in asking for the decision of the Board on the first question only. The facts are fully set forth in the statement of the case by the Commissioner, but they may be summarized as follows Sir David Yule died on July 3, 1928, leaving a very large estate, which mainly consisted of holdings of shares in thirty companies, with twenty of which the present appeal is concerned, being the companies which issued the debentures in question. The Commissioner has divided these twenty companies into two groups; in the first group all the capital was ordinary share capital, wholly held by the trustees in their own name or through nominees, the trustees being the beneficial owners of all the shares, and the debentures were issued wholly in the names of the tustees. In the second group, the trustees and their nominees did not hold all the ordinary share capital, the other shares being held by others of the thirty companies, and in one case, that of the Calcutta Discount Co., Ld., certain shares were held by two of the trustees individually. In the case of each company in the second group an issue of preferred ordinary shares was made to the trustees alone, and the debentures in question were thereafter issued to the trustees in respect of their holding of the preferred ordinary shares. For the purposes of the argument before their Lordships no distinction was drawn between the two groups of companies as regards the procedure under which the debentures came to be issued, and the procedure of the Calcutta Discount Co., Ld., was taken as sufficiently typical of the procedure of all the companies for that purpose. The following is an extract from a special resolution of that company, passed on January 3, 1930, and confirmed on January 22, 1930— "2. That the capital of the company be increased by the creation of 725 preferred ordinary shares of Rs.100 each, and the same be issued to such persons as the secretaries may think fit. The following is an extract from a special resolution of that company, passed on January 3, 1930, and confirmed on January 22, 1930— "2. That the capital of the company be increased by the creation of 725 preferred ordinary shares of Rs.100 each, and the same be issued to such persons as the secretaries may think fit. "(a) The preferred ordinary shares shall rank in priority to the ordinary shares both as to dividend and repayment of capital, and shall carry the right to a non-cumulative dividend of such amount as may be declared by the company in general meeting, but so that the ordinary shares shall not be entitled to any dividend in any year unless and until at least 5 per cent, has been declared on the preferred ordinary shares for that year. The said preferred ordinary shares shall have no further right to participate in profits or surplus assets in a winding-up. " (b) The date from which such shares shall rank for dividend shall be January 1, 1930, or such later date as the secretaries shall think fit." Of these 725 preferred ordinary shares, 629 were allotted to the respondents, as trustees of the estate of the late Sir David Yule, and the residue (96) partly to- one trustee and partly to another. At the same time the Calcutta Discount Co., Ld., adopted a new article as article 126 of its articles of association, from which the following is an extract “126. The company in general meeting may at any time and from time to time pass a resolution that any sum not required for the payment or provision of any fixed preferential dividend and (a) for the time being standing to the credit of any reserve fund or reserve account of the company, including premiums received on the issue of any shares, debentures or debenture stock of the company, or (b) being undivided net profits in the hands of the company, be Law. Rep. 63 Ind. App. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 183 capitalised, and that such sum be set free for distribution, and be appropriated as capital to and amongst the preferred ordinary shareholders and ordinary shareholders respectively in the proportions in which they would have been entitled thereto if the same had been surplus distributable profits, and in such manner as the resolution may direct, and such resolution shall be effective; and the secretaries shall in accordance with such resolution apply such sum in paying up in full any unissued shares in the capital or any debentures or debenture stock of the company on behalf of the shareholders concerned, and appropriate such shares, debentures or debenture stock, and distribute the same credited as fully paid-up amongst such shareholders in the proportions aforesaid in satisfaction of their shares and interests in the said capitalised sum, or shall apply such sum or any part thereof on behalf of the shareholders aforesaid in paying up the whole or part of any uncalled balance which shall for the time being be unpaid in respect of any issued shares of any of the said classes held by such shareholders or otherwise deal with such sums as directed by such resolution." The following is an extract from minutes dated March 14, 1931— "CALCUTTA DISCOUNT CO., LD. “Minutes of the Secretaries, dated March 14, 1931. "The secretaries having taken into consideration the financial position of the company and being satisfied that such position justified the distribution from the reserve fund of Rs. 1,45,00,000 in the form of a special capital bonus free of income tax it was decided to recommend to the shareholders the payment of such a special capital bonus to be satisfied by the distribution among the members holding preferred ordinary shares in the company on March 24, 1931, of Rs.1,45,00,000 of debentures carrying interest at 3 per cent, per annum from January 1, 1931, in proportion to the number of preferred ordinary shares respectively held by such members. "The notice convening the requisite meeting having been prepared it was decided to issue the same to the shareholders. "The notice convening the requisite meeting having been prepared it was decided to issue the same to the shareholders. "Andrew Yule & Co., Ld., "(Sgd.) J. SIME, "Managing Director, "Secretaries.” At an extraordinary meeting of the Calcutta Discount Co., Ld., held on March 24, 1931, the following resolutions were passed— "(1.) That it is desirable to capitalise a sum of Rs.1,45,00,000 being part of the amount standing to the credit of the reserve fund and accordingly that a special capital bonus of Rs.1,45,00,000 free of income tax be declared and such capital bonus be applied on behalf of the persons who on March 24, 1931, were the holders of the 725 issued preferred ordinary shares of the company in payment in full for Rs.1,45,00,000 of debentures of the company carrying interest at 3 per cent, per annum from January 1, 1931 (and to be charged upon the whole undertaking of the company)." "(2.) That ....the secretaries be and they are hereby authorized to create and issue such debentures as a special capital bonus free of income tax credited as fully paid and to distribute the same to the holders registered on March 24, 1931 of the 725 preferred ordinary shares in the companys capital in proportion to the number of such shares held by them respectively in full satisfaction of such capital bonus as aforesaid." Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India The following is an extract from the minutes— "CALCUTTA DISCOUNT CO., LD. “Minutes of the Secretaries, dated March 25, 1931. "The resolution passed at the extraordinary general meeting of the company held on March 24, 1931, that it was desirable to capitalise Rs. 1,45,00,000 being part of the companys reserve fund having been considered and it was decided to create and issue a series of debentures of a total nominal value of Rs.1,45,00,000 consisting of 28 debentures of Rs.5,00,000 each, one debenture of Rs.4,00,000 and five debentures of Rs.20,000 each all carrying interest at the rate of 3 per cent, per annum and to distribute the same to the holders registered on March 24, 1931, of the 725 issued preferred ordinary shares in proportion to the number of such shares held by them respectively in full satisfaction of the capital bonus. One debenture for Rs.5,00,000 was thereupon sealed and directed to be registered with the registrar of joint stock companies and that on obtaining the registrars certificate the remaining debentures be sealed and issued." As a result of the foregoing proceedings debentures of the Calcutta Discount Co., Ld., to the amount of Rs. 1, 25,80,000 were issued to the respondents, the residue of the issue being allotted severally to the two trustees who each held a small quantity of the preferred ordinary shares. The debentures are dated March 24, 1931, and the amounts secured were repayable at latest on December 31, 1940, and were repayable at the option of the company at any time after three months notice. The circumstances under which these debentures came to be issued are conveniently summarized in the judgment of the High Court as follows “All the companies had very large accumulations of undistributed profits. The actual figures are immaterial. The trustees had to meet very heavy outgoings for duties both in the United Kingdom and in India in relation to the estate of the deceased, and it was to provide funds for such duties that a scheme was devised whereby accumulated profits would come into their hands and be available for the purpose of meeting such charges." In fact, the debentures were all redeemed by the companies at various dates prior to the end of February, 1933, but the crucial date in the present question is the date of the issue of the debentures. The High Court decided against the claim of the Crown, holding that the case was governed by the principles laid down by the House of Lords in the cases of Inland Revenue Commissioners v. Blott ([ 1921] 2 A. C. 171.) and Inland Revenue Commissioners v. Fishers Executors. ([ 1926] A. C. 395) They rejected an argument of the Advocate-General directed against the validity of the proceedings of the companies, upon the ground that it was not open on the case as stated by the Commissioner, which proceeds on the footing that the transactions of the companies are unimpeachable. This argument was not pressed at the hearing before their Lordships. This argument was not pressed at the hearing before their Lordships. The question being whether, by the transactions in question, any income, profits or gains accrued or arose to or were received by the assessees within the meaning of s. 4 of the Indian Income-tax Act, the Crown maintained, first, that the decisions in the cases of Blott (1) and Fisher (2), which were under the Imperial Income Tax Act, were not applicable, and that the decision of this Board in Swan Brewery Co,, Ld. v. The King ([ 1914] A. C. 231.) applied in the present case, and, secondly, that, in any event, the facts in the present case rendered it distinguishable from the cases of Blott (1) and Fisher (2), in respect that the purpose of the transactions in the present case was not a genuine Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 185 company purpose, but for the individual benefit of the controlling shareholders. In the first place,their Lordships are of opinion that, as regards the point here in issue, there is no ground for distinction between the Imperial Act and the Indian Act. In Income-tax Commissioner v. Shaw, Wallace & Co.(( 1932) L. R. 59 I. A. 206.) Sir George Lowndes, in delivering the judgment of the Board while expressing a general warning against treating questions under these Acts as in pari materia, said (( 1932) L. R. 59 I. A. 212.) " The object of the Indian Act is to tax income,’ a term which it does not define. It is expanded, no doubt, into income, profits and gains,’ but the expansion is more a matter of words than of substance." This states compendiously the same view as is expressed in regard to the Imperial Act by Lord Macnaghten in London County Council v. Attorney-General.([ 1901] A. C. 26.) In the case of the Swan Brewery Co. ([ 1914] A. C. 231.) the company had passed resolutions by which its capital was increased by a new issue of shares, and a portion of the accumulated profits standing to the credit of the reserve fund corresponding to the amount payable on allotment of the shares was transferred to the credit of the share capital account, the new shares being then allotted as fully paid among the share holders pro rata. It was held by the Board that these transactions were in effect a declaration of a dividend within the meaning of the Dividend Duties Act, 1902, of Western Australia, under s. 2 of which the word "dividend" was defined as including "every dividend, profit, advantage, or gain intended to be paid or credited to or distributed among the members of any company.” In delivering the judgment of the Board, Lord Sumner, referring to the argument of the appellant company, said (Ibid. 235.) " The duty claimed is not, it is said, a duty on or in proportion to any advantage either to the company or the shareholder measured by the increased stability of the companys own position or the increased facility to the shareholder in marketing his shares it is measured by and is levied upon the whole nominal value of the new shares allotted, which is not the same thing as the value of the advantage distributed. Is this argument sound? “Their Lordships agree with the Supreme Court of Western Australia in thinking that it is not. There can be no doubt that the new shares were distributed and were not the same things as the old ones. They certainly were supposed to be advantages to the members of the company, none the less that the making of the issue was probably an - advantage to the company also. In so flourishing a business doubtless they really were advantages. The new shares were credited as fully paid, and, what is more, they were fully paid, for after the allotment the company held 101,450l as capital produced by the issue of those shares and for that consideration, and no longer as an undivided part of its accumulated reserve fund. True, that in a sense it was all one transaction, but that is an ambiguous expression. True, that in a sense it was all one transaction, but that is an ambiguous expression. In business, as in contemplation of law, there were two transactions, the creation and issue of new shares on the companys part, and on the allottees part the satisfaction of the liability to pay for them by acquiescing in such a transfer from reserve to share capital as put an end to any participation in the sum of 101,450l in right of the old shares, and created instead a right of general participation in the companys profits and assets in right of the new shares, without any further liability to make a cash contribution in respect of them. In the words of Parker C.J., Had the company distributed the 101,450l among the shareholders and had the shareholders repaid such sums to the company as the price of the 81,160 new shares, the duty on the 101,450l, would clearly have been payable. Is not this virtually the effect of what was actually done? I think it is. " It is unnecessary to resume in detail the facts in the cases of Blott ([ 1921] 2 A. C. 171.) and Fisher.([ 1926] A. C. 395.) In Blotts case ([ 1921] 2 A. C. 171.) the company applied accumulated profits in satisfaction of the amount due on the issue of bonus shares, while in Fishers case ([ 1926] A. C. 395.) accumulated profits were similarly applied in respect of bonus debentures. In the latter case Lord Cave states the principle of the decision in Blotts case ([ 1921] 2 A. C. 171.) by quoting Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 186 the opinion of Lord Haldane in that case, which was as follows (Ibid. 400.) " My Lords, for the reasons I have given I think that it is, as matter of principle, within the power of an ordinary joint stock company with articles such as those in the case before us to determine conclusively against the whole world whether it will withhold profits it has accumulated from distribution to its shareholders as income, and as an alternative not distribute them at all, but apply them in paying up the capital sums which shareholders electing to take up unissued shares would otherwise have to contribute. If this is done, the money so applied is capital and never becomes profits in the hands of the shareholder at all. What the latter gets is no doubt a valuable thing. But it is a thing in the nature of an extra share certificate in the company." The case of bonus debentures was held to be indistinguish able from that of bonus shares. Nor does it seem possible to distinguish the facts of the present case from those in Fishers case ([ 1926] A. C. 395.), apart from the contention of the Crown that the real purpose of the transactions in the present case forms a relevant ground of distinction. The case of the Swan Brewery Co. ([ 1914] A. C. 231) was referred to in certain of the opinions in Blotts case.([ 1921] 2 A. C. 171.) Lord Haldane says (Ibid. 188.) "There the transaction was in many respects analogous to that here. But the taxing statute was couched in very different language.....There were expressions in the judgment which may be construed as having gone rather further, and treated the payment made by the company as equivalent in substance to a payment by the company to the shareholders, and by them back to the company. It may have been so, and without a fuller knowledge of the facts in the case and of the local law than the report discloses, it is difficult to be quite sure about the point, but what is clear is that the wide character of the word advantages was a primary consideration in what was said by their Lordships who took part in advising His Majesty. I therefore do not feel embarrassed by the decision in that case." Lord Finlay thought (Ibid. 199.) that the reasoning in the Swan Brewery Co.s case ([ 1914] A. C. 231) was inconsistent with the decision of the House of Lords in Bouch v. Sproule. (12 App. Cas. 385.) Lord Cave ([ 1921] 2 A. C. 202.) said that the decision in the Swan Brewery Co.s case ([ 1914] A. C. 231) was no doubt fully supported by the definition clause in the Western Australia Act, but that, otherwise, he would hold it to be inconsistent with Bouch v. Sproule. (12 App. Cas. 385.) Lord Dunedin, who dissented in Blotts case ([ 1921] 2 A. C. 171.), stated (Ibid. (12 App. Cas. 385.) Lord Dunedin, who dissented in Blotts case ([ 1921] 2 A. C. 171.), stated (Ibid. 203.) that the Swan Brewery Co.s case ([ 1914] A. C. 231.) was a decision upon an Australian statute in the words of which if anything became an "advantage" it would fall within the tax. Lord Sumner, who also dissented in Blotts case ([ 1921] 2 A. C. 171.), and also delivered the judgment of the Board in the Swan Brewery Co.s case ([ 1914] A. C. 231.), was clearly of opinion that ([ 1921] 2 A. C. 217.) what was said by the Judicial Committee in the latter case as to the effect in law and in business of a distribution of bonus shares, was part of the decision, and could not be distinguished from Blotts case.([ 1921] 2 A. C. 171.) Having carefully considered the judgment in the Swan Brewery Co.s case ([ 1914] A. C. 231.), and the varying views taken of it in Blotts case ([ 1921] 2 A. C. 171.), their Lordships are of opinion that the judgment must be regarded as having been primarily based on the distribution of the new shares being advantages within the meaning of the particular Act under consideration, while the further expression of opinion in the judgment rather regarded the transaction as involving, in substance, a distribution of accumulated profits among the shareholders and a repayment by them to the company, although the operation was in fact short-circuited. For the purpose of the present question, their Lordships are clearly of opinion that the decisions under the Imperial Income Tax Act are more relevant to the similar question under the Indian Income-tax Act, than a decision under the different terminology of the Western Australia Act. Law. Rep. 63 Ind. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 187 Lastly, their Lordships are clearly of opinion that the personal motive or purpose of the individual shareholders, even if they hold a controlling interest in the company, is irrelevant, if it is made out that the company has in fact capitalized the accumulated profits. App. 457 ( 1935- 1936) C ommissioner of I.T. Bengal V. Mercantile Bank of India 187 Lastly, their Lordships are clearly of opinion that the personal motive or purpose of the individual shareholders, even if they hold a controlling interest in the company, is irrelevant, if it is made out that the company has in fact capitalized the accumulated profits. It is sufficient to quote from the opinion of Lord Sumner in Fishers case ([ 1926] A. C. 395.), in the decision of which he concurred, as follows ([ 1926] A. C. 411,412.) “In any case desires and intentions are things of which a company is incapable. These are the mental operations of its share holders and officers. The only intention, that the company has, is such as is expressed in or necessarily follows from its] proceedings. It is hardly a paradox to say that the form of a companys resolutions and instruments is their substance. At any rate, in the present case, there is no need to distinguish between form and substance in the transaction itself or to refer to desires or intentions, further than to examine what was done, for everything was carried out in plain terms and without concealment. What the requisite majorities of the shareholders desired and intended is pretty plain too, but that is another matter." Their Lordships are therefore of opinion that the first question of law referred by the Commissioner of Income-tax should be answered in the negative, that the judgment of the High Court should be affirmed, and that the appeal should be dismissed with costs. They will humbly advise His Majesty accordingly.