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TMI Blog1989 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be excluded from the general reserve in computing the capital ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the general reserve should not be reduced by the sum of Rs. 28,24,000 being the value of bonus shares issued after the first day of the previous year, even though the capital had been increased proportionately in view of rule 3 of the Second Schedule ?" According to Dr. Balasubramanian, learned counsel for the Department, the first question is covered by the Supreme Court decision in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 and this question must be answered in the negative and against the assessee. According to him, the second question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. The Supreme Court decision in Vazir Sultan's case [1981] 132 ITR 559 has, of course, no application in the facts of the case. The first question is, accordingly, answered in the affirmative and in favour of the assessee. As regards the second question also, Shri Irani stated that this court's judgment in Century Spinning and Manufacturing Co. Ltd.'s case[1978] 111 ITR 6 had no application to the facts of the case. The question in that case was whether the increase of capital on account of the issue of bonus shares out of the general reserve was justified and this court held that when the bonus shares are issued as fully paid up shares by capitalisation of a part of the amount standing to the credit of the general reserves, the capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Tribunal. Thus, the only dispute before the Tribunal was whether reducing the general reserves by the sum of Rs. 28,24,000 being the value of bonus shares issued after the first day of the previous year was proper. The Tribunal addressed itself only to this question and that is the only question referred to us. Following this court's decision in New Swadeshi Sugar Mills Ltd.'s case [1985] 151 ITR 220, we must hold that the general reserve could not have been reduced by the amount of bonus shares issued after the first day of the previous year and that the Tribunal was justified in its conclusion. The second question is, accordingly, answered in the affirmative and in favour of the assessee. No order as to costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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