Bonus shares take effect from the resolution date for paid-up capital and rebate computation.

Bonus shares were treated as issued and allotted on the date the shareholders' resolution capitalised accumulated profits and appropriated the shares to members, even though later implementation steps remained. Directions to directors for registration and other formalities were treated as machinery provisions and did not delay the operative effect of the resolution. On that basis, the bonus shares were taken to exist before the relevant previous year ended and their face value was includible in paid-up capital on the first day of that year for rebate computation. The text states that this made the rebate reduction unsustainable.

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Issues: (i) Whether the bonus shares became the property of the shareholders on the date of the resolution so as to fall outside the reduction of rebate for bonus shares issued during the previous year; (ii) Whether the face value of the bonus shares had to be included in the paid-up capital of the company on the first day of the previous year for computing the rebate reduction.

Issue (i): Whether the bonus shares became the property of the shareholders on the date of the resolution so as to fall outside the reduction of rebate for bonus shares issued during the previous year.

Analysis: The resolution capitalised accumulated profits and distributed the resulting capital among the ordinary shareholders as bonus shares with effect from the date of the resolution. Clauses dealing with directions to the directors for implementation were treated as machinery provisions and did not postpone the operative effect of the capitalisation and allotment. The Court distinguished the notion of issue of shares from the mere issuance of share certificates, and held that, in company law, shares may be issued and allotted without certificates having been delivered. Reading the resolution as a whole, the conversion of reserve into capital and the appropriation of bonus shares to the shareholders took place on the date of the resolution.

Conclusion: The bonus shares were issued to the shareholders on the date of the resolution and not during the relevant previous year; the reduction of rebate on that footing was not justified, in favour of the assessee.

Issue (ii): Whether the face value of the bonus shares had to be included in the paid-up capital of the company on the first day of the previous year for computing the rebate reduction.

Analysis: The paid-up capital for the relevant computation had to be determined as on the first day of the previous year. Since the bonus shares had already come into existence and had been allotted and distributed by virtue of the resolution, they formed part of the company's paid-up capital on that date. The directions as to registration and implementation did not prevent the shares from being treated as issued and owned from the date of the resolution.

Conclusion: The face value of the bonus shares was includible in the paid-up capital on the first day of the previous year, in favour of the assessee.

Final Conclusion: The appeal succeeded because the bonus issue was treated as effective from the date of the shareholders' resolution, and the resulting rebate reduction under the Finance Act was unsustainable.

Ratio Decidendi: In company law, bonus shares can be treated as issued and allotted when the resolution capitalising profits and appropriating the shares to shareholders becomes operative, even if ministerial acts of implementation remain, and such shares then form part of paid-up capital for the relevant computation date.

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