Ambrose J (with whom Rose CJ and Chua J agreed):

The question to be decided in this appeal is this: was a dividend of 250 0.000000e+00ss income tax at 30% which was declared on 23 December 1954, by the XYZ Co. Ltd. for credit to the account of the respondent part of the assessable income of the respondent for the year 1955 ? If it was part of his assessable income, the respondent would be entitled to be credited by the Comptroller of Income Tax with the sum of $6,000 which was deducted from it by the company and paid as income tax.

The question arises upon these facts. The respondent is a director of the company, which is a private limited company incorporated in Singapore. In December 1954, he held 80 shares of $100 each in the company.

Article 93 of the articles of association of the company provides that the directors may with the sanction of a general meeting of the members of the company from time to time declare a dividend out of the net profits of the company.

Article 94 provides that the directors may deduct from any dividend payable to any member unpaid calls and debts due by him to the company.

Article 96a provides for the capitalisation of reserves in this manner. The company in general meeting may upon the recommendation of the directors resolve that it is desirable to capitalise any part of the amount standing to the credit of the company's reserve accounts and profit and loss account. The company may accordingly resolve that such sum be set aside free for distribution, subject to one condition, amongst the members entitled thereto if distributed by way of dividend and in the same proportions. The condition is that the sum is not to be paid in cash but to be applied in paying up amounts unpaid on any shares or in paying up in full unissued shares to be allotted and distributed as fully paid up.

Article 96b provides that the directors shall make all appropriations and applications of the undivided profits resolved to be capitalised and all allotments and issues of fully paid shares, and generally shall do all acts and things required to give effect to the resolution.

At an ordinary general meeting held on 23 December 1954 the shareholders in the company passed the following resolution:

That a dividend of 250 0.000000e+00ss income tax at 30% be and is hereby declared for credit to the accounts of shareholders whose names duly appear in the Company's share register on 31 December 1954 to pay off any amount any of them may owe to the Company and also to pay for the value of the shares which the Directors are contemplating issuing to them in the near future.

On 23 December 1954 the respondent was indebted to the company in the sum of $380.

On 31 December 1954, a dividend notice was sent to the respondent. This stated that a dividend at the rate of 2500n 80 shares of $100 each held by him had been declared on account of the year 1953. It further stated that his account had been duly credited as follows:

Dividend ... ... ... ... ... $20,000

Less income tax at 30% ... ... 6,000

Net amount $14,000

On the same date the respondent's account was credited as follows:

250 0.000000e+00ss 30 0ncome tax declared on 23 December 1954 ... ... ... $14,000

Director's fees for 1952 and 1953 ... 1,000.

His credit balance at the end of 1954 was thus $14,620.

On 30 June 1955, it was resolved by the directors of the company that 3,636 ordinary shares of $100 each be allotted as set out in the resolution to certain named persons for payment in cash. According to the resolution 140 shares of $100 each were allotted to the respondent. The secretaries were authorised by the resolution to enter the names of the allottees in the share register and to issue share certificates to the allottees under the common seal.

On 31 December 1955 the respondent's account was debited as follows:

Value of 140 shares of $100 allotted on 30 June 1955 ... ... ... ... ... $14,000.

The Comptroller of Income Tax decided that the dividend