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TMI Blog1977 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... 963 ? " The aforesaid question under the Super Profits Tax Act, 1963, arises in these circumstances : The assessee (Messrs. Geoffrey Manners & Co. Ltd ), is a public limited company and the question relates to the assessment year 1963-64, the previous year in relation to which is the year which ended on 31st October, 1962. Under section 4 of the Super Profits Tax Act, 1963, the levy of super profits tax is only on the excess of the chargeable profits of the previous year over the standard deduction. Under section 2(9), " standard deduction " means an amount equal to six per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of Rs. 50,000, whichever is greater. The capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 had been capitalised by the issue of bonus shares on September 12, 1962, and the proportional increase in the paid-up capital that was claimed by the assessee by reason of the aforesaid issue of bonus shares was in the amount of Rs. 2,14,795. The Income-tax Officer, however, rejected this claim on the ground that as the full amount of Rs. 20,00,000, being the general reserve, had already been included in the computation of capital under rule 1, a second addition on account of the issue of bonus shares out of the said general reserve could not be allowed. While rejecting the claim of the assessee-company, the Income-tax Officer observed as follows : " This amount (Rs. 2,14,795) has actually come out of the reserves at the beginning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves, no additional working capital was created and that rule 2 was intended to apply only to cases where additional capital was introduced in the business by the issue of fresh shares for cash. The assessee carried the matter in further appeal to the Tribunal. The self-same contentions were urged on behalf of the assessee, while on behalf of the revenue it was contended that if the interpretation of rule 2, as contended for by the assessee was accepted, anomalous result not intended by the legislature would follow. The Tribunal after considering the rival contentions accepted the view that was canvassed on behalf of the assessee and rejected the submissions made on behalf of the revenue. It took the view that rule 2 was in absolute terms an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the matter the Tribunal allowed the appeal of the assessee. At the instance of the revenue the question set out at the commencement of the judgment has been referred to us for our opinion. Mr. Joshi appearing for the revenue has contended before us that the real object and the purpose for which rules for computing the capital of a company for the purpose of the Super Profits Tax Act had been framed ought to be borne in mind while interpreting the relevant rule, being rule 2 in the instant case. He contended that the real intention of the legislature in giving a certain abatement based on the capital employed in the business was to provide for reasonable return on the capital actually employed in the working of the company in determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the proportional increase in terms of the relevant rule 3 of the Second Schedule to the 1964 Act, and he emphasised that this was obviously in keeping with the legislative intent. He, therefore, urged that so far as the position arising under the 1963 Act, and the rules framed under the Second Schedule thereto is concerned, a similar interpretation should be put on rule 2 and it should be held that the assessee in the instant case would not be entitled to the proportional increase in terms of rule 2 of the Second Schedule to the 1963 Act. It is not possible to accept this contention of Mr. Joshi for the reasons which we would presently indicate. It is true as has been pointed out by Mr. Joshi that the intention of the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerable difference between the language employed in the relevant rule 2 with which we are concerned and the language employed in rule 3 contained in the Second Schedule to the 1964 Act. In the case of a company which has used a part of its general reserves for capitalization and for issuance of bonus shares, if the question is to be considered in the light of the language employed by rule 2 contained in the Second Schedule to the 1963 Act, it will appear clear that by reason of the issuance of such bonus shares the " paid up share capital " of a company could be said to have been increased ; but under rule 3 of the 1964 Act it is difficult to say in such a case that " the capital of a company as computed in accordance with the foregoin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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