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1996 (5) TMI 83 - SC - Income TaxWhether, on the facts and in the circumstances of the case, and having regard to rule 3 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the share capital of the company should be increased proportionately on account of issue of bonus shares for the purpose of computation of capital under the Companies (Profits) Surtax Act, 1964 ? Held that:- By issuing the bonus shares in the assessment year in question there had only been a conversion of the reserves into fully paid bonus shares, which conversion did not add up to the capital or reserve base which was not there on the first day of the previous year. No hesitation in approving the view taken in New India Industries' case [1992 (9) TMI 57 - GUJARAT High Court] that before rule 3 of the Surtax Act, 1964, can be made applicable, an increase in the capital base as computed under rule 1 has to be shown to have taken place. In order that rule 3 could apply the capital base of the company, as computed in accordance with rule 1 of Schedule II to the Surtax Act, 1964, must have increased during the previous year and such increase should be on account of increase of paid-up share capital or issue of debentures referred to in clause (iv) or borrowing of any moneys referred to in clause (v) of rule 1. Unless these conditions are satisfied, there would be no occasion for the assessee-company to get the benefit contemplated by the second part of rule 3 of Schedule II to the Surtax Act, 1964. The Bombay, Madras and Delhi High Courts have also taken the same view without, however, elaborating the implication of rule 3 of Schedule II to the Surtax Act, 1964, as has been done by the Gujarat High Court. The incidence of rule 2 of Schedule II to the Super Profits Tax Act, 1963, being different, the interpretation of the said rule by the Himachal Pradesh High Court is not germane for interpreting rule 3 of Schedule II to the Surtax Act, 1964. The aforesaid interpretation is quite reasonable and is clearly discernible in rule 3. The decisions cited by Mrs. Ramachandran relating to the principle of interpretation of taxing statutes do not call for any change in the view we have taken on the language of the rule. Appeal dismissed.
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