Bonus shares and paid-up capital must be actual, not anticipated, for rebate computation under the Finance Act, 1956.

Bonus shares count for rebate reduction under the Finance Act, 1956 only when the issue process is actually completed and the shares have passed into shareholders' ownership; a mere resolution or agreement to create bonus shares is insufficient. The same approach applies to paid-up capital: it means capital actually paid up on the relevant statutory date, not capital expected to be brought in later. On the stated facts, the bonus shares were not issued during the accounting year and were not part of paid-up capital on the relevant date, so the rebate claim based on those shares was disallowed.

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Issues: (i) Whether bonus shares issued pursuant to the company's resolution and agreement could be treated as having been issued to shareholders during the relevant accounting year for the purpose of the rebate reduction under the Finance Act, 1956; (ii) Whether the bonus shares formed part of the company's paid-up capital on the relevant date for computing rebate under the Finance Act, 1956.

Issue (i): Whether bonus shares issued pursuant to the company's resolution and agreement could be treated as having been issued to shareholders during the relevant accounting year for the purpose of the rebate reduction under the Finance Act, 1956.

Analysis: The expression "issued to the shareholders" was construed as requiring completion of the process by which shares pass from the company's unissued capital to ownership in existing shareholders. The reasoning emphasized that a mere resolution to create or earmark bonus shares did not amount to issue; issue occurred only when the shares reached shareholders through the operative steps completing the transaction, including the relevant registration and distribution process. On the facts, the resolutions and agreement showed only future implementation, and the shares were not actually issued in the accounting year ending 31 December 1955.

Conclusion: The bonus shares were not issued to the shareholders during the relevant accounting year and the answer was against the assessee.

Issue (ii): Whether the bonus shares formed part of the company's paid-up capital on the relevant date for computing rebate under the Finance Act, 1956.

Analysis: Paid-up capital was treated as the capital actually paid up on the relevant statutory date, not a notional or anticipated capital. The capitalised undistributed profits were brought into the paid-up capital only in June 1955, and not on the first day of the previous year. The provision did not permit treatment of the capital as paid up by deeming fiction merely because the shareholders were to participate in dividends from an earlier date.

Conclusion: The bonus shares were not includible in the paid-up capital on the relevant date and the answer was against the assessee.

Final Conclusion: The rebate claimed on account of bonus shares and the corresponding increase in paid-up capital was not admissible, so the reference failed.

Ratio Decidendi: For rebate computation under the Finance Act, 1956, bonus shares count only when they are actually issued to shareholders and the paid-up capital is the capital actually paid up on the relevant statutory date, not a capital merely resolved or intended to be created later.

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