TMI Blog1973 (4) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... usefully be stated. The assessee, Messrs. Mohan Meakin Breweries Ltd., Solan is a public limited company and it is following the financial year of which the assessment year was 1963-64 with the corresponding accounting year ending on 31st March, 1963. The assessee-company was called upon to file the super 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6% of the total capital. The super profits for tax liability were held to decrease by Rs. 1,13,447. It was stated that paid-up share capital does not mean merely the capital paid in cash but also includes capitalised part of the reserve. The Tribunal, however, considered that there was a lacuna in the provision 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to what is just or expedient. The expressed intention must guide the court." Their Lordships in that case also referred to Cape Brandy Syndicate v. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Rule 1. Subject to the other provisions contained in this Schedule, the capital of a company shall be the sum of the amounts, as on the first day of the previous year relevant to the assessment year, of its paid-up share capital and of its reserve, if any, created under the proviso (b) to clause (vib) of sub-section (2) of section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessarily mean the sum total of the paid-up capital as well as the reserve, and that figure in this case is Rs. 2,54,91,674. To this figure shall be added the proportionate increase in the paid-up share capital which according to the admitted figure is Rs: 18,90,773. From this enhanced capital, "standard deduction" has to be made which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said clause 3 of the Second Schedule of the successor Act is quoted in the reference order. It is manifest that the provision is different and no assistance could be taken from it in order to interpret rule 2 of the Second Schedule of the Super Profits Tax Act, 1963. Where the language is clear and the meaning is easy to deduce, no amount 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 counse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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