Dividend can include valuable share rights; substance over form made the distribution taxable to shareholders.

The term "dividend" under the Income-tax Act, 1922 was treated as inclusive, so its ordinary meaning continued to apply. A company's transfer of valuable rights to apply for and obtain new shares in favour of its shareholders was held to be a monetarily valuable benefit, not confined to cash distributions. Because the substance of the transaction governed its tax character, the distribution of those share rights was treated as dividend and was taxable in the hands of the shareholders.

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Issues: Whether the distribution of the right to apply for and obtain shares in another company, in favour of the shareholders, amounted to a distribution of dividend within the meaning of the Income-tax Act, 1922.

Analysis: The expression "dividend" in section 2(6A) was held to be inclusive and not exhaustive, so its ordinary meaning remained relevant. The company had valuable rights to the new shares, and by nominating its shareholders to take those rights the company effectively transferred a monetarily valuable benefit. Dividend need not be confined to cash distribution and may also take the form of property or rights having monetary value. The substance of the transaction, not its form, controlled the tax character of the benefit received by the shareholders.

Conclusion: The distribution of the right to apply for and obtain the shares amounted to dividend and was taxable in the hands of the shareholders.

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