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HIGH COURT OF CALCUTTA
S. Datta, C. N. Laik
SHREE GOPAL PAPER MILLS LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX, CENTRAL - Respondent
I. T. Reference 32 Of 1961
Decided On : FEBRUARY 5, 1965
FINANCE ACT - REBATES - ISSUE OF BONUS SHARES - MEANING OF ISSUE OF BONUS SHARES TO SHAREHOLDERS - PAID-UP CAPITAL - INTERPRETATION OF RELEVANT PROVISIONS.
Fact of the Case:
The assessee company passed resolutions relating to the issue of fully paid-up bonus shares and increase in the paid-up capital. The Income-tax Officer disallowed the rebates claimed by the assessee on the ground that the bonus shares were not issued in the accounting year ended December 31, 1955. The Appellate Assistant Commissioner held that the bonus shares were issued within the meaning of the second proviso to paragraph (D) of Part II of the Finance Act, 1956, to the shareholders by the assessee during the accounting year ended 31st December, 1955. The Tribunal, however, held that in neither case, the assessee was entitled to the rebate.
Finding of the Court:
The Court held that the bonus shares were not issued to the shareholders in the relevant accounting year and therefore, the assessee was not entitled to the rebate under the relative provision of the Finance Act. The Court also held that the paid-up capital of the company was not increased until June, 1955, and therefore, the assessee was not entitled to the rebate on this ground as well.
Issues: 1. Whether on the facts and in the circumstances of the case the bonus shares of the face value of Rs. 50,07,500 should be included in the paid-up capital of the assesses within the meaning of that term in pursuance of Sub-section (1) of the explanation to paragraph (D) of Part II of the Finance Act, 1956, for the relevant assessment year? 2. Whether on the facts and in the circumstances of the case the bonus shares in question can be said to have been issued within the meaning of the second proviso to paragraph (D) of Part II of the Finance Act, 1950, to the shareholders by the assessee during the accounting year ended 31st December, 1955, relevant for the assessment year 1956-57?
Ratio Decidendi: The Court held that the word 'issue' in the phrase 'bonus shares issued to shareholders' means the movement of shares from the company to the shareholders or the giving of something to the shareholders. The Court further held that the issue of bonus shares is a special type of share and that the resolution for the capitalisation of the undistributed profits, the resolution for the issue of new shares and the resolution for the appropriation of the undistributed profits pro rata for payment in full of the new shares do not by themselves lead to the disposal of the share. The Court also held that the paid-up capital of the company was not increased until June, 1955, and therefore, the assessee was not entitled to the rebate on this ground as well.
Final Decision: The Court answered both the questions against the assessee and dismissed the reference with costs.
( 1 ) THIS reference relates to the application of the provisions for rebates contained in paragraph D of Part II of the Finance Act. 1956.
( 2 ) ON December 30, 1954, the assessee company passed several resolutions relating to the capital structure of the company including a resolution relating to the issue of fully paid up bonus shares.
( 3 ) THE assessee company in its return for the assessment year 1966-57 corresponding to the accounting year 1955 claimed a rebate on account of the issue of bonus shares and the increase in the paid-up capital consequent upon the issue of bonus shares. The Income-tax Officer held that the rebate on the face value of the bonus shares is to be reduced in the year when these shares are issued by the company to its shareholders. In the accounting year 1955 only a resolution for increase of capital by issue of new shares was passed. The passing of the resolution in the accounting year did not tantamount to the issue of bonus shares to the shareholders He further held that Clause (b) of the said resolution makes it patent that the shares were not issued in the accounting year ended December 31, 1955, and accordingly he disallowed the rebates claimed.
( 4 ) THE assessee company thereupon filed an appeal before the Appellate Assistant Commissioner of Income-tax Range (II ). Central Calcutta.
( 5 ) THE Appellate Assistant Commissioner observed:--"in my judgment therefore the Income- tax Officer was fully justified in coming, to the conclusion that these shares had been issued in the previous year under consideration and not preceding the accounting period ending December 31, 1954. He was of the opinion that in view of the definition of paid- up capital as paid-up capital (other than capital entitled, to dividend at a fixed rate) of the company as on the 1st day of the previous year relating to the assessment for the year ending on March 31 1957, and in the light of the facts set forth above. I think that the bonus shares of the face value of Rs. 50,000 should be included in the paid-up capital of the appellant within the meaning, of this term in the Indian Finance Act 1956. The appellant's contention on this point is therefore accepted The Income-tax Officer will please amend his computation of taxes accordingly. "thereupon both the Commissioner of In come-tax and the assessee took up the matter to the Tribunal for each of them lost on one ground before the Appellate Assistant Commissioner. The Income-tax Tribunal, however, held that in neither case, the assessee was entitled to the rebate.
( 6 ) THEREUPON the assessee made an application under Section 66 (1) to the Commissioner of Income-tax for referring the matter to the Income tax Tribunal. Thereupon the Tribunal referred the following question for our opinion:- (1) Whether on the facts and in the circumstances of the case the bonus shares of the face value of Rs. 50,07,500 should be included in the paid-up capital of the assesses within the meaning of that term in pursuance of Sub-section (1) of the explanation to paragraph (D) of Part II of the Finance Act, 1956, for the relevant assessment year? (2) Whether on the facts and in the circumstances of the case the bonus shares in question can be said to have been issued within the meaning of the second proviso to paragraph (D) of Part II of the Finance Act, 1950, to the shareholders by the assessee during the accounting year ended 31st December, 1955, relevant for the assessment year 1956-57?
( 7 ) THEREAFTER this matter came before us for hearing.
( 8 ) THE second question may be considered first for it raises the primary controversy between the parties.
( 9 ) THE relevant provisions of the second proviso to paragraph (D) of Part II of the Finance Act of 1956 are as follows:--"provided further that- (i) the amount of the rebate under Clause (i) or Clause (ii), as the case may be, of the preceding proviso shall be reduced by the sum, if any, equal to the amount or the aggregate
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