TaxTMI 
TaxTMI 
1977 (7) TMI 34
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....ar 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 of the assessee-company was thus required to be computed by the Income-tax Officer in accordance with the rules contained in the Second Schedule to the Super Profits Tax Act, 1963. The Second Schedule contained only three rules for computing the capital. In the first place, the capital was required to be computed under rule 1 and after it was so computed, rule 2 under which the question that has been referred to us has arisen, came into operation. That rule ran thus : " 2. Where after the first day of the previous year relevant to the assessment year, the paid up share capital of a company is increased or reduced by any amount during that previous year, the capital computed in accordance with rule 1 shall be increased or decreased, as the case may be, by a portion of that amount which is proportional to the portion of the previous year during which the increase or the reduction of the paid up share capital r....
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....d been increase in the paid-up capital during the accounting year resulting in overall increase in the working capital, and that in the instant case as no fresh capital had come in during the course of the year, there had practically been no material change in the capital computed under rule 1 during the course of the year. In other words, the Appellate Assistant Commissioner took the view that by capitalising a part of the reserves, 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 and that on a plain....
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....e capital computation that would be made in accordance with rule 1, if from one of the items which constitutes such capital computation, viz., general reserves, certain amount was transferred or utilised for the purpose of issuance of bonus shares, though technically the paid-up capital could be said to have been increased, no additional amount by way of cash could be said to have come in which could be employed in the business of the company and, therefore, if rule 2 was interpreted by keeping the objective of the legislature in mind the court should take the view that there was really no increase in the capital of the company--capital which could be said to have been actually employed in the working of the company in the relevant previous year. He invited our attention to the position arising under the Companies (Profits) Surtax Act, 1964, and the rules contained in the Second Schedule framed for the purpose of computing the capital of a company for the purpose of surtax, and he pointed out that in Commissioner of Income-tax v. Century Spg. & Mfg. Co. Ltd. [1978] 111 ITR 6 (Bom), which was decided by this court under the 1964 Act and the rules contained in the Second Schedule the....
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....derable 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 foregoing rules of this Schedule is increased by any amount ". In the latter case when a part of the general reserve which is one of the constituents that has gone in the capital computation under rule 1 is utilised for issuance of bonus shares, the total computation as made in accordance with rule 1 can never be said to have been increased by any amount. When the court is concerned with interpreting rule 2 contained in the Second Schedule to the 1963 Act, th....