1986 (6) TMI 30

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..... (3)(a)(i) and section 155(5)(ii)(a) ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the Income-tax Officer is not justified in withdrawing the development rebate ? " The assessee is a company and the assessment years concerned are 1972-73, 1973-74 and 1974-75. In the assessments for these years, the Income-tax Officer allowed development rebate. Later on, however, lie noticed from the balance-sheet of the company that the company had transferred amounts from the development rebate reserve to the share capitalisation account by issue of bonus shares. He formed an opinion that issuance of bonus shares would amount to distribution of profits by capitalis .....

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..... per cent. of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than (i) for distribution by way of dividends or profits. Section 155(5)(ii)(a) in so far as it is relevant provides: " (5) Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant installed after the 31st day of December, 1957, in any assessment year under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (XI of 1922), and subse .....

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..... ue of bonus shares. The latter category certainly is not distribution of dividend but none the less it is also distribution of profit. By the distribution of bonus shares, it is not in dispute that capital is created and reserve is depleted. When capital is created by issuing bonus shares, the shareholders are enriched. Shareholders could be enriched by issue of dividends or by issue of bonus shares. Changing the terminology of profits into shares cannot, therefore, in our opinion, take the distribution out of the embargo imposed by section 34(3)(a)(i). It may not be, therefore, correct to state that by issue of bonus shares, the company has utilised the profits for the purpose of business. Issue of bonus shares, in our opinion, is, therefo .....

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