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TMI Blog1970 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 hundred) being part of the undivided profits of the company standing to the credit of general reserve as on 30th June, 1934, 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 each, in the company and that such 5,00,750 new o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 6,25,937.50 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, and therefore, did not come within the mischief of sub-clause (a) of clause (1) of the second proviso to Paragraph D of Part II. It also contended that the bonus shares were part of the paid up capital of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bate 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 to the amount or the aggregate of the amounts, as the case may be, computed as hereunder :--- (a) on the amount representing the face value of any at the rate bonus shares or the amount of any bonus issued to its share- of two holders during the previous year with a view to increasing annas per the paid-up capital, except to the extent to which such rupee bonus shares or bonus have been issued out of premiums received in cash on the issue of its shares ; and (b) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributed 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 first question that arises for decision is as to when the bonus shares became the property of the shareholders ? Is it on the date of the resolution of the general meeting of the company, namely, December 30, 1954, or on any later date ? It may be remembered that for the allotment of the bonus shares, there was no question of calling for applications. Under the articles of association of the company it was not open to the ordinary shareholders to refuse to accept those shares when al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the company is registered." In In re Heaton's Steel and Iron Co. the Court of Appeal held that the issue of certificates is not necessary to the issue of shares within section 25 of the English Companies Act, 1867. In that case Brett J. observed : " In Bush's case the issue of the certificates was merely taken as evidence of the time when the shares were issued, but this must not be taken to mean that shares are not issued until the certificates are issued." James L.J. observed : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist 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 show the same position, that in company law " allotment " means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. Till such allotment the shares do not exist as such. It is on allotment in this sense that the shares come into existence. The word " distribute " found in clause (b) of the resolution in the context means to record the distribution of the shares in the books of the company. If the resolution passed at the general me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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