9911796707
TMI Blog1981 (10) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... utory deduction must be computed in accordance with the rules set out in the Second Schedule. Rule I of the Second Schedule lays down that the capital of a company shall be the aggregate of the amounts mentioned in cls. (i) to (v) mentioned therein. Clause (i) refers to the paid up share capital. Clause (ii) refers to the general reserves. Clause (iii) refers to the other reserves. Clause (iv) refers to the debentures, and, cl. (v) refers to moneys borrowed from Government concerns. It is the sum total of the paid up share capital, the reserves, debentures and the moneys borrowed, which makes up the capital for the purposes of the statutory deduction. Rule 3 to the Second Schedule is by way of an addition to the figure of capital computed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital and its reserves. On February 23, 1970, during the middle of the account year in question, the assessee issued 20,400 bonus shares of the face value of Rs. 100 each. This bonus issue was brought about by capitalising part of the company's general reserves. In other words, a sum of Rs. 20,40,000 was transferred from the general reserves and converted into bonus shares. The assessee claimed that this amount of Rs. 20,40,000, which represented the bonus issue as on February 23, 1970, must be the basis for an increase in the capital as already determined at Rs. 1,43,39,462 as on the first day of the previous year, viz., September 1, 1969. It was claimed that the bonus shares really constituted an addition to the paid up capital of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, on the very liabilities side of the balance-sheet. The process of conversion of reserves into bonus shares does not reduce the overall capital of the company, nor increase it. The overall capital just remains as it was as at the beginning of the year. The capital of the company, which includes the paid up capital and reserves does not undergo any change merely because a part of the reserves is capitalised into bonus shares. What r. 3 of the Second Schedule to the Act contemplates is that quite apart from the figure of capital as on the first day of the previous year (which includes in its computation both the paid up capital as on the first day as well as the general reserve of the company as on the same day) the capital must, subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mehta, on behalf of the assessee, has submitted that when after the first day of the previous year the paid up capital is increased in any manner whatsoever, whether by issue of bonus shares or by issue of right shares upon payment of cash, provisions of rule 3 are attracted. In our opinion, mere increase of paid up capital is not sufficient to attract the provisions of rule 3. The provisions of rule 3 will be attracted on account of increase of paid-up capital only if by reason thereof the capital of a company as computed in accordance with rules I and 2 of the Second Schedule of the Act is increased by any amount. " Proceeding to discuss what happens when reserves are capitalised by the issue of fully paid bonus shares, the learned jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing of what happens when there is a corporate exercise of discretion to effect conversion of reserves and capitalisation thereof into fully paid bonus shares. Besides, this decision was rendered as a matter of construction and application of r. 2 of the Second Schedule to a different statute, namely, the Super Profits Tax Act, 1963. There is a slight difference between the language of r. 2 of the S.P.T. Act, 1963, and r. 3 of the C. (P.) S.T. Act, which is the provision under consideration in the present reference. As observed by the Bombay High Court in CIT v. Century Spg. and Mfg. Co. Ltd. [1978] 111 ITR 6, there is a distinction between the rules governing the computation of the capital as well as the provision for making an increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the ambit of the said rule, so as to enable the assessee to obtain an increase over the capital computed as on the first day of that previous year. Our answer to the question is, therefore, in the negative and against the assessee. There are two other questions which have been referred to us by the Tribunal in this very case. Those questions are, however, fairly easy of answer, because they are covered by direct decisions of this court. One of the questions is whether, on the facts and in the circumstances of the case, a provision for proposed dividends should be treated as a reserve for the computation of capital for the purpose of Surtax Act, 1964. The answer to this question is covered by a decision rendered by this court in Sou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
