HEGDE - (1.) THE Judgment of the court was delivered by
(2.) THIS appeal is by a certificate under Section 66-A(2) of the Indian Income-tax Act, 1922 (which will hereinafter be called 'the Act') issued by the High court of Calcutta. It arises out of the judgment and order of that High court, dated 3/02/1965 in a reference under Section 66(1) of the Act. In the reference mentioned earlier, two questions of law were referred to the High court for its opinion. They are : "(1) Whether on the facts and in the circumstances of the case the bonus shares of the face value of Rs. 50,07,500.00 should be included in the paid-up capital of the assessee within the meaning of that term in pursuance of Ss. (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, 1956 to the shareholders by the assessee during the accounting year ended 31/12/1955 relevant for the assessment year 1956-57 ?" The facts relevant for the purpose of deciding this appeal may now be stated : The appellant is a company incorporated under the Indian Companies Act. It carries on business of manufacture of paper. On 30/12/1954, it passed the following resolution unanimously at a General Meeting held on that date: "(a) That a sum of Rs. 50,07,500.00 (Rupees fifty lakhs, seven thousand and five hundred) being part of the undivided profits of the Company standing to the credit of General Reserve as on 30/06/1954, be capitalised and distributed amongst the holders of the ordinary shares in the Company on the footing that they became entitled thereto as capital and that the said capital be applied on behalf of such Ordinary Shareholders in payment in full for 5,00,750 Ordinary shares of Rs. 10.00 each, in the Company and that such 5,00,750.00 New Ordinary Shares of Rs. 10.00 each, credited as fully paid-up shall rank in all respects pari passu with the existing Ordinary Shares, save and except that the holders thereof will not participate in any dividend in respect of any period ending on or before 31/12/1954 and that 82 the same shall be treated for all purposes as an increase of the nominal amount of the capital of the Company held by each of such Ordinary shareholders and not as income. (b) That pursuant to the above resolution and in satisfaction of the interest of the said Ordinary Shareholders in the capitalised sum, the Directors be and they are hereby directed to issue, allot and distribute the said 5,00,750 New Ordinary Shares of Rs. 10.00 each, credited as fully paid-up amongst the persons whose names are registered as such in the books of the Company as on 1st day of January, 1955, in proportion of one such new ordinary share for each ordinary share already held by them on that date, provided that no allotment of shares issued as aforesaid shall be made to non-resident shareholders till approval of the Reserve Bank of India is obtained for the same. (c) That the Draft of the Agreement providing for the allotment of said New Ordinary shares in satisfaction of the said capital bonus and submitted to this meeting and signed in the margin by the Chairman, by way of identification, be and the same is hereby approved and that the Director be authorised to affix the Company's seal to duplicate endorsement of such Agreement as and when the same shall have been signed on behalf of the members holding Ordinary shares in the company on 1/01/1955, by some person to be appointed by the Directors in that behalf, which the Directors be and are hereby authorised to do." There is no dispute as regards the validity of that resolution. It was passed in accordance with the Articles of Association of the Company. For the assessment year 1966-67, the relevant accounting period ending on 31/12/1955, the Income-tax Officer had determined by his order, dated 29/09/1958, the total income of the Company at Rs. 42,73,176.00. In computing the Corporation Tax due in respect of the said income, the Income-tax Officer reduced the rebate to which the appellant-company was entitled on two counts : firstly in accordance with sub-clause (a) of clause (1) to second proviso to S. D of Part II of the Finance Act, 1956, he reduced the rebate at the rate of 2 annas a rupee on Rs. 50,07,500.00 which according to him represented the face value of the bonus shares issued by the appellant-company to its shareholders during the previous year with a view to increasing its paid-up capital. Secondly he excluded these bonus shares from the paid-up capital of the company as on 1/01/1955 for the purpose of determining the excess dividends over 6 per cent. of the paid-up capital on which the rebate was to be reduced at the rate of 2 annas in a rupee according to sub-clause (b) of clause (1) of the second proviso to S. D of Part II of the Finance Act, 1956. The reduction of the rebate on the first count was Rs. 6,25,937.50 P. and on the second count it was Rs. 1,48,127.31 P. The company appealed to the Appellate Assistant Commissioner and claimed that the bonus shares were in fact issued in the year preceding the previous year relevant to the assessment year 1956-57, therefore, it did not come within the mischief of sub-clause (a) of clause (1) of the second proviso to S.D of Part II. It also contended that the bonus shares were part of the paid-up capital of the company as on 1/01/1955 and, therefore, its case came within the scope of sub-clause (i) of the second proviso to S.D of Part II of the Finance Act, 1956. The Appellate Assistant Commissioner rejected the first contention of the company but accepted the second contention. According to him, as the bonus shares were to be credited as fully 83 paid-up amongst persons whose names were registered as such in the books of the company as on Janua 1/01/1955, the issue could not possibly take place before that date. But at the same time he took the view that the shareholders have been put into possession of the bonus shares on 1/01/1955 and that the shares were actually issued en 1/01/1955. Hence he held that from that date the ordinary shareholders became the owners of the bonus shares. He, therefore, included the face value of the bonus shares in the paid-up capital of the company as on the 1st day of the accounting year for the purpose of sub-clause (b) of clause (1) of the 2nd proviso to S. D of Part II of the Finance Act, 1956. Both the company as well as the department appealed against the order of the Appellate Assistant Commissioner to the extent it went against them. The tribunal rejected the contention of the assessee and accepted that of ths department. Thereafter at the instance of the assessee, it stated a case to the High court. The High court answered both the questions referred to it in favour of the department.
(3.) THE Finance Act, 1956 prescribed the rate of super tax in Part II Paragraph 'D'. That part reads : JUDGEMENT_80_2_1970Html1.htm Provided that-- (i) a rebate at the rate of five annas per rupee of the total income shall be allowed in the case of any company which- (a) in respect of its profits liable to tax under the Income-tax Act for the year ending on the 31st day of March, 1957, has made the prescribed arrangements for the declaration and payment within the territory of India, of the dividends payable out of such profits and for the deduction of super-tax from dividends in accordance with the provisions of Ss. (3D) of Section 18 of that Act; and (b) is a public company with total income not exceeding Rs. 25,000.00 to which the provisions of Section 23-A cannot be made applicable ; (ii) a rebate at the rate of four annas per rupee of the total income shall be allowed in the case of any company which satisfies Condition (a) but not Condition (b) of the preceding clause ; and (iii) a rebate at the rate of three annas and six pies per rupee on so much of the total income as consists of dividends from a subsidiary Indian Company, and a rebate at the rate of one anna per rupee on any other income included in the total income shall be allowed in the case of any company not entitled to a rebate under either of the preceding clauses : Provided further that- (i) if 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 of the amounts, as the case may be, computed as hereunder : 84 JUDGEMENT_80_2_1970Html2.htm (ii) where the sum arrived at in accordance with sub-clause (b) or both the sub-clause of clause (i) of this proviso exceeds the amount of the rebate arrived at in accordance with clause (i) or clause (ii) as the case may be, of the preceding proviso, only so much of the amounts- (a) issued as bonus shares or as bonus, and (b) distributed as dividends, as is sufficient, in that order, in accordance with the rates specified in clause (i) of this proviso, to reduce the rebate to nil, shall be deemed to have been taken into account for the purpose: Provided further that the super-tax payable by a company the total income of which exceeds Rs. 25,000.00 shall not exceed the aggregate of- (a) the super-tax which would have been payable by the company if its total income had been Rs. 25,000.00, and (b) half the amount by which its total income exceeds Rs. 25,000.00. Explanation.-For the purposes of Paragraph D of this Part- (i) the expression 'paid up capital' means the paid-up capital (other than capital entitled to a dividend at a fixed rate) of the company as on the first day of the previous year relevant to the assessment for the year ending on the 31st day of March, 1957, increased by any premiums received in cash by the company on the issue of its shares, standing to the credit of the share premium account as on the first day of the previous year aforesaid ; 85 (ii) the expression 'dividend' shall be deemed to include any distribution included in the expression 'dividend' as defined in clause (6-A) of Section 2 of the Income-tax Act ; (iii) where any portion of the profits and gains of the company is not included in its total income by reason of such portion being exempt from tax under any provision of the Incometax Act, the amount of the 'paid-up capital' of the company, the amount distributed as dividends (not being dividends payable at a fixed rate), the amount representing the face value of any bonus shares and the amount of any bonus issued to the shareholders, shall each be deemed to be such proportion thereof as the total income of the company for the previous year bears to its total profits and gaibs for that year other than capital gains or capital receipts reduced by such allowances as may be admissible under the Incometax Act which have not been taken into account by the company in its profit and loss account for that year." In the Finance Act, 1957, also a similar scheme of according rebate and reduction thereof in conditions set out in 1956 Act was adopted.;