Dividend in kind cannot be revalued at market price for tax beyond the amount actually declared and distributed.

Dividend in kind is taxable only to the extent of the distribution actually declared and valued by the distributing company; later market appreciation of shares does not justify revaluing the dividend to create additional taxable income. Where the company has already treated the accumulated profits and the share distribution at a specified value, the same distribution cannot be inflated in the shareholder's hands merely because the shares subsequently fetched a higher market price. The note states that the amount in excess of the declared dividend could not be assessed as extra dividend income absent material showing collusion or fraud.

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Issues: Whether, on the facts and in the circumstances of the case, the value of shares received by the assessee as dividend in kind could be revalued at market rate for the purpose of taxing an amount in excess of the dividend declared by the distributing company.

Analysis: Dividend under section 2(6A) of the Income-tax Act includes a distribution of accumulated profits that releases assets of the company to shareholders. The dividend here was admittedly declared and paid partly in shares and partly in cash, and the shares were taken by the revenue at the same value in the hands of the distributing company as that adopted by the company itself. Where the accumulated profits have been valued at one figure in the hands of the distributing company, there is no justification for treating the same distribution as larger merely because the shares later fetched a higher market value. The shareholder was entitled only to the dividend declared, and a notional revaluation at market price would wrongly enhance income beyond what was distributed.

Conclusion: The sum of Rs. 61,656 could not be assessed as extra dividend income, and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: Dividend in kind cannot be revalued at market price for tax purposes beyond the amount at which the distributing company declared and valued the distribution, unless there is material to show collusion or fraud.

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