TMI Blog1970 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 should be included in the paid up capital of the assessee 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, 1956, to the shareholders by the assessee during the accounting year ended 31st December, 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 December 30, 1954, it passed the following resolution unanimously at a general meeting held on that date : (a) That a sum of Rs. 50,07,500 (Rupees fifty lakhs seven thousand and five h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant accounting period ending on December 31, 1955, the Income-tax Officer had determined by his order dated September 29, 1958, the total income of the company at Rs. 42,73,176. 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 Paragraph 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 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 1st January, 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 Paragraph D of Part II of the Finance Act, 1956. The reduction of the rebate on the first count was Rs. 6,25,937. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding 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 sub-section (3D) of section 18 of that Act, and (b) is a public company with total income not exceeding, Rs. 25,000 to which the provisions of section 23A 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) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st day of the previous year aforesaid (ii) the expression ' dividend ' shall be deemed to include any distribution included in the expression ' dividend ' as defined in clause (6A) 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 Income-tax 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 gains for that year other than capital gains or capital receipts, reduced by such allowances as may be admissible under the Income-tax 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 the 1956 Act was adopted. The fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the erroneous impression that a share cannot be held to have been issued to a person until a share certificate is given to him. This misconception appears to have resulted from the decision in Bush's case. In Buckley on the Companies Acts, thirteenth edition, page 129, the law on the point is stated thus : " It was supposed to have been decided in Bush's case that by the ' issue ' of shares was meant the issue of the certificates for the shares. But this is a misapprehension. The expression 'issue' with regard to shares may bear various meanings according to the context. It is not necessarily either the allotment of the share or the issue of the certificate that constitutes the issue of the share. The question may be whether the shareholder has or has not been put completely in possession of his share, and this may be so, although some formal act may not have been completed. Thus shares may have been issued which have been allotted, but for which no certificates have ever been issued, and on the other hand shares as to which a resolution to allot has been made may not have been issued. Shares for which the memorandum of association has been subscribed are 'issued' when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares." In Sri Gopal Jalan's case Sarkar J. (as he then was) quoted with approval the following passage from Farwell L.J. in Mosley v. Koffyfontain Mines Ltd : " As regards the construction of these particular articles, it is plain that the words 'creation', 'issue' and 'allotment' are used with the three different meanings familiar to business people as well as to lawyers. There are three steps with regard to new capital ; first, it is created ; till it is created the capital does not exist at all. When it is created it may remain unissued for years, as indeed it was here ; the market did not allow of a favourable opportunity of placing it. When it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment. To take the words of Stirling J. in Spitzel v. Chinese Corporation, he says : ' What is an allotment of shares. Broadly speaking, it is an appropriation by the directors or the managing body of the company of shares to a particular person'. " After examining the various decisions, Sarkar J. observed : " It is beyond doubt from the authorities to which we have earlier referred, and there are many more which could be cited to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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