1965 (2) TMI 65 - HC - Companies Law

High Court rules against assessee on bonus shares inclusion in paid-up capital and timing of issuance

Shree Gopal Paper Mills Ltd. Versus Commissioner of Income-tax

Shree Gopal Paper Mills Ltd. Versus Commissioner of Income-tax - [1967] 37 COMP. CAS. 240 (CAL.) Issues Involved:1. Inclusion of bonus shares in the paid-up capital.2. Timing of the issuance of bonus shares.Detailed Analysis:Issue 1: Inclusion of Bonus Shares in the Paid-Up CapitalThe primary contention was whether the bonus shares of the face value of Rs. 50,07,500 should be included in the paid-up capital of the assessee within the meaning of sub-section (r) of the Explanation to Paragraph D of Part II of the Finance Act, 1956, for the relevant assessment year.The Appellate Assistant Commissioner initially accepted the assessee's contention, stating that the bonus shares should be included in the paid-up capital. However, the Tribunal later held that the assessee was not entitled to the rebate, leading to the referral of this question to the High Court.The High Court analyzed the statutory definition of 'paid-up capital' and the timing of the capital increase. The court noted that the undivided profits were capitalized and distributed in June 1955, and thus, the paid-up capital was not increased until then. The court emphasized that the relevant provision of the Finance Act refers to the paid-up capital as on the first day of the previous year, which was not met in this case. Therefore, the court concluded that the assessee was not entitled to any rebate under the Finance Act.Issue 2: Timing of the Issuance of Bonus SharesThe second question addressed whether the bonus shares in question could be said to have been issued within the meaning of the second proviso to Paragraph D of Part II of the Finance Act, 1956, during the accounting year ended 31st December 1955.The High Court examined the meaning and scope of the term 'issued to the shareholders.' It was determined that a share is issued when it finds an owner, which is completed by entering the name of the shareholder in the register of members. The court referred to various legal precedents and statutory provisions to support this interpretation.The court scrutinized the resolutions passed by the assessee-company on 30th December 1954, which included the capitalization of undivided profits, the issue of new shares, and the appropriation of profits. It was found that these resolutions did not effectuate the actual issuance of the shares by 31st December 1954. The shares were not issued until the approval of the Reserve Bank of India was obtained, and the necessary entries were made in the register of members in 1955.Therefore, the court concluded that the bonus shares were not issued during the accounting year ending 31st December 1955, and the assessee was not entitled to the rebate for that year.Conclusion:The High Court answered both questions against the assessee. The bonus shares were not included in the paid-up capital for the relevant assessment year, and the shares were not issued within the accounting year ending 31st December 1955. Consequently, the assessee was not entitled to the claimed rebate, and the reference was dismissed with costs.