1993 (2) TMI 135 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Bonus Shares Capital Treatment

The Tribunal dismissed the appeal, upholding the CIT(A)'s decision that the sum of Rs. 6,32,876 for bonus shares should not be treated as capital for ... Bonus Shares, General Reserve Issues:Capital computation for surtax assessment year 1983-84.Analysis:The appeal raised the issue of whether a sum of Rs. 6,32,876 should be treated as capital on account of a proportionate increase in capital during the year due to the issuance of bonus shares through the General Reserve Account. The assessee company, in its return of chargeable profits under the Companies (Profit) Sur-tax Act, 1964, declared chargeable profits at Rs. 13,80,158 with sur-tax liability of Rs. 4,31,108. The dispute arose from the computation of capital as on 1-1-1982, where the assessee included the proportionate capital of Rs. 6,32,876 for bonus shares declared on 15-10-1982. The Assessing Officer, following precedents from the Bombay and Calcutta High Courts, held that the increase in paid-up capital due to bonus shares did not trigger rule 3 of the Second Schedule of the Act. The CIT(A) upheld this decision.The assessee argued that conflicting High Court decisions and the principle of adopting a view in favor of the assessee when two views are possible should be considered. Additionally, a new plea was made regarding the transfer of profits to general reserves and the treatment of bonus shares. The assessee contended that profits accrue from day to day, citing relevant case law and balance-sheet extracts. However, the D.R. countered that the Super Profit Tax Act judgments were not applicable, and the balance-sheet entries showed the proper computation of capital by the authorities.The Tribunal analyzed the precedents cited, noting that the Super Profit Tax Act judgments had different provisions from the current Act. The Bombay High Court held that issuing bonus shares does not increase capital computed under the Act. The Calcutta High Court emphasized the importance of considering the decrease in reserves when calculating capital. The Tribunal concluded that the Assessing Officer's computation excluding the proportionate capital was correct, as no High Court judgment favoring the assessee was presented. The new plea regarding profit transfer and bonus shares was dismissed based on the balance-sheet entries, leading to the affirmation of the CIT(A)'s conclusions.In the final decision, the Tribunal dismissed the appeal, upholding the CIT(A)'s conclusions based on the proper computation of capital and the lack of supporting High Court judgments favoring the assessee.