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TMI Blog1973 (4) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... profits tax return and the assessment order made by the Super Profits Tax Officer indicated that the net chargeable profit was Rs 37,20,914. The standard deduction admissible to the company was worked out at 6% of Rs. 2,54,91,674 which came to Rs. 15,29,500, As such, the net profits liable to super profits tax were found to be Rs. 21,91,414. While calculating the standard deduction, the Super Profits Tax Officer took into consideration the paid-up capital as well as the reserves according to the figures as these existed on the first day of the previous year. The total was Rs. 2,54,91,674. In this amount the paid-up share capital was Rs. 28,36,160. During the course of the previous year (on July 31, 1962), the assessee-company issued bonus shares to the amount equivalent to the paid-up capital and thus the said figure was doubled. Under rule 2 of the Second Schedule of the Super Profits Tax Act, 1963, the capitalised part of the reserve as a result of the issue of bonus shares was to be proportionately added to the paid-up capital. The increase was of Rs. 18,90,773. The total capital including this increase was to be computed for standard deduction, which was 6% of the total capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and on principles of strict interpretation to be given to the language of the statute, the advantage has to go to the assessee. They adopted the phraseology of Viscount Simonds and stated that the legislature has "plainly missed fire". Accordingly the appeal was allowed. As already pointed out, the Commissioner of Income-tax moved an application before the Tribunal to formulate the aforesaid question of law and refer it to the High Court for its opinion. The rules of interpretation applicable to a taxing statute are well founded. The cardinal rule of interpretation of statutes is to construe its provisions literally and grammatically giving the words their ordinary and natural meaning. It is only when such a construction leads to an obvious absurdity which the legislature cannot be supposed to have intended that the court in intepreting the rule may introduce words to give effect to what it conceives to be the true intention of the legislature. It is not any and every inconvenience that justifies adoption of this extreme rule of construction (see Nanalal Zaver v. Bombay Life Assurance Co. Ltd.) To the same effect is the following observation of Chagla C.J., in Elphinstone Spin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inland Revenue Commissioners and relied upon the classic statement of Rowlatt J.: " In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." To this may be added a rider : in a cage of reasonable doubt, the construction most beneficial to the subject is to be adopted. It is, therefore, manifest, that the provisions of the Super Profits Tax Act, 1963, need be interpreted keeping regard to the above noted principles which are more or less settled. The scheme of the Act including its schedules broadly speaking, lays down that the chargeable profits are to be deduced after adjustment in the total income of the assessee computed under the Income-tax Act, 1961, in accordance with the provisions of the First Schedule. Standard deduction is to be made in accordance with the provisions of the Second Schedule. The balance would give the net profits liable to tax. In Schedule III, the percentage of the tax is prescribed. The phrase "chargeable profits" has thus been defined in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (3) of section 34 of the Income-tax Act, 1961 (43 of 1961), and of its other reserves in so far as the amounts credited to such other reserves have not been allowed in computing its profits for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), diminished by the amount by which the cost to it of the assets the income from which in accordance with clause (iii) or clause (vi) or clause (viii) of rule 1 of the First Schedule is not includible in its chargeable profits, exceeds the aggregate of- (i) any money borrowed by it which remains outstanding; and (ii) the amount of any fund, any surplus and any such reserve as is not to be taken into account in computing the capital under this rule. Explanation 1.-A paid-up share capital or reserve brought into existence by creating or increasing (by revaluation or otherwise) any book asset is not capital for computing the capital of a company for the purposes of this Act. Explanation 2.-Any premium received in cash by the company on the issue of its shares standing to the credit of the share premium account s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is equal to six per cent. of the total capital of the company. The learned Appellate Assistant Commissioner was of the opinion that paid-up share capital only means capital subscribed by payment and does not include capitalised value of reserve. This proposition does not appear to be correct. The issue of bonus shares necessarily leads to the addition in the paid-up share capital. Shri Inder Singh referred to Shree Gopal Paper Mills Ltd. v. Commissioner of Income-tax. The point at issue in that case before the learned judges was not this, that the bonus share leading to capitalisation of a part of reserve does or does not lead to addition in the paid-up capital. But the point at issue was that, assuming that it does lead to the addition in paid-up capital, whether a mere resolution issuing bonus shares without the shares being actually issued to the shareholders does or does not lead to that addition in the share capital. It was held that a mere resolution will not be sufficient and actual issue of such shares to the shareholders would be necessary. As the bonus shares were not held to be issued within the meaning of the taxing statute, the paid-up share capital was not consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of help can be taken from the succeeding statute. The learned counsel for the assessee even argued that the so-called double benefit was actually intended to be given to boost the share capital leading to other fiscal benefits. A tax relief was intended to be given by this conversion of capitalised reserve and with some defined object the provision was made. We, therefore, do not subscribe to the view expressed by the Tribunal that the legislature has misfired or that there was a lacuna in the statute. Rather we consider that there has been a meaningful fire and taxing relief was intended. The capitalised part of reserve was to be added to the share capital, while reserve was not to be reduced to that extent. By increasing the base capital the percentage of standard deduction was enhanced. This gave relief to the taxpayer. The learned counsel referred to The Law and Practice of Super Profits Tax by S. V. Ghatalia (1964 edition), which appears to be a valuable treatise on this subject. At page 59 of this book, an example is given and the capital base for "standard deduction" has been computed by adding up paid-up capital on the first day of the previous year, the company's reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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