1. This reference relates to the application of the provisions for rebate contained in Paragraph D of Part II of the Finance Act, 1956.`
2. On 30th December, 1954, the assessee-company passed several resolutions relating to the capital structure of the company including a resolution relating to the issue of fully paid-up bonus shares.
3. The assessee-company in its return for the assessment year 1956-57 corresponding to the accounting year 1955 claimed a rebate onaccount of the issue of bonus shares and the increase in the paid-up capitalconsequent upon the issue of bonus shares. The Income-tax Officer heldthat the rebate on the face value of the bonus shares is to be reduced inthe year when these shares are issued by the company to its shareholders. In the accounting year 1955 only a resolution for increase of capital by issue of new shares was passed. The passing of the resolution in the accounting yeardid not tantamount to the issue of bonus shares to the shareholders. Hefurther held that Clause (b) of the said resolution makes it patent that theshares were not issued in the accounting year ended 31st December, 1955,and, accordingly, he disallowed the rebates claimed.
4. The assessee-company thereupon filed an appeal before the Appellate Assistant Commissioner of Income-tax, Range (II), Central, Calcutta.
5. The Appellate Assistant Commissioner observed :
' In my judgment therefore the Income-tax Officer was fully justified in coming to the conclusion that these shares had been issued in the previous year under consideration and not preceding the accounting period ending 31st December, 1954. He was of the opinion that in view of the definition of paid-up capital as 'paid-up capital (other than capital entitled to dividend at a fixed rate) of the company as on the 1st day of the previous year relating to the assessment for the year ending on 31st March, 1957 ', and in the light of the facts set forth above, I think that the bonus shares of the face value of Rs. 50,000 should be included in the paid-up capital of the appellant within the meaning of this term in the Indian Finance Act, 1956. The appellant's contention on this point is therefore accepted. The Income-tax Officer will please amend his computation of taxes accordingly. '
6. Thereupon both the Commissioner of Income-tax and the assessee took up the matter to the Tribunal for each of them lost on one ground before the Appellate Assistant Commissioner. The Income-tax Tribunal, however, held that, in neither case, the assessee was entitled to the rebate.
7. Thereupon the assessee made an application to the Commissioner of Income-tax for referring the matter to the Income-tax Tribunal. Thereupon the Tribunal referred the following questions for our opinion :
'(1) Whether, on the facts and in the circumstances of the case, 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 that term in pursuance of Sub-section (1) of the Explanation to Paragraph D of Part II of the Finance Act, 1956, for the relevant assessment year ?
(2) Whether, on the facts and in the circumstances of the case, the bonus shares in question can be said to have been issued within the meaning of the second proviso to Paragraph D of Part II ,of the Finance Act, 1956, to the shareholders by the assessee during the accounting year ended 31st December, 1955, relevant for the assessment year 1956-57 ?'.
Thereafter this matter came before us for hearing.
The second question may be considered first, for it raises the primary controversy between the parties.
8. The relevant provisions of the second proviso to Paragraph D of Part II of the Finance Act of 1956 are as follows;
' Provided further that--
(i) the amount of the rebate under Clause (i) or Clause (ii), as the case may be, of the preceding proviso shall be reduced by the sum, if any, equal to the amount or the aggregate of the amounts, as the case may be, computed as hereunder ;--....
(b) on the amount representing the face value of any bonusshares or the amount of any bonus issued to its shareholders during theprevious year with a view to increasing the paid-up capital, except to theextent to which such bonus shares or bonus have been issued out of premiumsreceived in cash on the issue of its shares............
at the rate of two annas per rupee'.
It is now necessary to consider the meaning and scope of the words 'issued to the shareholders' before considering the meaning and effect of the words ' bonus shares issued to the shareholders '.
The phrase 'share issued to the shareholders' comprises of three components.
The word ' share ' has more than one meaning in common parlance.
9. The Indian Companies Act defines shares: ' Share' means under Section 2(16) 'share in the share capital of the company and includes stock except when a distinction between stock and shares is expressed or implied'.
10. Therefore the statutory meaning of share covers the three phases of the share, share when it is a part of the share capital still remaining unexploited by the company, share when it is exploited by the company finding a shareholder and lastly when the share is converted into stock.
11. The first phase arises because under the company law 'Every company limited by shares ' has nominal or authorised or registered share capital. This capital is one of the essential features in the company's constitution. It is to be mentioned in the memorandum of association and the capital so mentioned is to be divided into shares of a fixed amount. The capital is usually fixed at some round figures according to the requirements of the company assessed by the promoters of the company. Therefore, it seems to me that the first part of the definition of the word ' share ' in the Companies Act refers to the share in this limited sense when the share is still in the womb of the company or in the shell of the company and has no shareholder.
The second phase arises when it attracts Section 28 of the Indian Companies Act.
12. Section 28 of the Indian Companies Act is as follows:
' (1) The shares or other interests of any member in a company shall be movable property, transferable in the manner provided by the articles of the company.
(2) Each share in a company having a share capital shall be distinguished by its appropriate number.'
13. Therefore, the share when it becomes associated with a member becomes a movable property. It is however not movable property whose transfer is solely regulated by the Sale of Goods Act.Its transfer is also governed bythe Companies Act and/or articles of the company. Each share again bears a distinguishing number.
14. It may be noticed that certificate of share is not the shares or a share. A certificate under Section 29 of the Indian Companies Act is ' a certificate, under the common seal of the company, specifying any shares or stock held by any member, shall be prima facie evidence of the title of the member to the shares or stock therein specified '. Hence, a share certificate is not the share. It is only a prima facie evidence of the title to the share. Therefore, it is necessary to consider what is the character of a share.
15. Section 28 says it is a movable property. It is however not a tangible property for it is not the share certificate. Therefore, it must consist of a bundle of rights and obligations. The nature of a share has received judicial consideration. Romer L.J. observed in In re Paulin,  1 K.B. 26, 57as follows :
' Share is a right to receive a proportion of the profits of the company and it is assessed on winding up and all other benefits to membership combine the obligation to contribute to its liabilities, all measured by a certain sum of money which is the nominal value of the share, and all subject to control by the regulations of the company. '
16. Therefore, a share can be either in the first phase or stage or in the second phase or stage. It remains either in its shell as a part of the capital or resides in a shareholder. It cannot lie suspended in any intermediate phase or stage.
17. Hence it is necessary to find out the modus operandi of the transit from one phase or stage to another to appreciate the meaning of the word '' issue ', which ordinarily means ' sending out ' or ' putting out'.
18. Section 30 of the Companies Act furnishes the modus operandi or mechanism for the transformation and ultimately the completion of the transit.
19. Clause (1) of Section 30 states that a subscriber to a memorandum becomes a member when his name is entered in the register of members. Clause (2) of Section 30 lays down that every other person (those who are not covered by Clause (1), who agrees to be a member and whose name is entered in the register of members becomes a member.
20. In the case of subscribers to the memorandum, no agreement is necessary but an entry in the register must be made before the subscriber becomes a member. In the other class of case there must be at first an agreement which is regulated by the Contract Act.
21. There must be an offer, an acceptance and a communication of the acceptance under the Contract Act to constitute a contract. Therefore, the same requisites are necessary for a completion of the agreement to take shares. In the Companies Act, the offer is made generally when an application for share is signed by the applicant. It has been held however that anapplication by word of mouth is equally effective. It is accepted when the board of directors allot the shares. It is however not sufficient to constitute a contract then. It is only when an allotment is communicated to the prospective shareholders that it becomes a completed contract. The agreement is not sufficient to make the applicant a member. There must be an entry in the register of members.
The entry in the share register is a sine qua non in both cases.
22. Therefore, though the subscription to the memorandum or an agreement to take a share may keep the share in preparedness by fulfilling the preliminary requirements for its exit and transit to the owner, it still remains in the womb or shell of the company, though it may be then in an animated condition. The exit and transit, however, takes place when the entry in the register is made. Hence, in my opinion, issue of the share takes place when entry of the name of the subscriber or the successful offerer is made in the register of members. It follows from the foregoing observation that a share is issued when it finds an owner.
It is now necessary to turn to the decisions in England and our country as. to the meaning of the word ' issue '.
23. It was held in England in Bush's case, (1874) 9 Ch. App. 554 in Grenfell v. Inland Revenue Commissioners, (1876) 1 Ex. D. 242 and in In re Perth Electric Tramways Ltd.,  2 Ch. 216 that a share is issued when a share certificate is issued. In In re Heaton's Steel and Iron Co. : Blyth's case, (1876) 4 Ch. D. 140 it was held that the issue of share certificate was not necessary for the issue of shares.
24. In England it has been held in Oswald Tillotson Ltd. v. Inland Revenue Commissioners,  1 K.B. 134 (C.A.) it refers to a stage after allotment.
In England again it has been held that no share is issued before an entry in the register after the contract of purchase : see In re Ambrose Lake Tin and Copper Co., also known as Clarke's case, (1878) 8 Ch. D. 635 Stark's case,  1 Ch. 575, Spitzel's case, (1899) 80 L.T. 347 and Regent's case,  1 K.B. 263.
25. There is practically only one Indian reported decision on the point which incidentally considered the meaning of the word ' issue '. This is the case of Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd.,  33 Comp. 33 Comp. Cas. 862 (S.C.) where the question was whether the sale or the re-allotment or the re-issue of issued shares is an allotment of shares within the meaning of Sub-section (1) of Section 75 of the Companies Act, 1956. There, Bachawat J. observed, inter alia, that the allotment of shares precedes all issues. Allotment of share means appropriation of unissued shares to a specified number of persons. Issue of shares is something distinct from allotment and is some subsequentact whereby the title of the allottee becomes complete. His Lordship left the matter at that stage. This question was broached in the case of Nanalal Zaver v. Bombay Life Assurance Co., 20 Comp. Cas. 179;  S.C.R. 391 in connection with the interpretation of Section 105C of the Indian Companies Act. There is, however, no clear expression of opinion.
26. In my opinion, on a reference to the authorities, it seems to me that on the whole they support my view. It is now necessary to ascertain the meaning of the word ' to ' in the relative phrase. It seems to me that the word 'to' connotes a movement with a direction or destination. The next mentioned word in the phrase is ' shareholders'.
27. In company law a member is a shareholder and a shareholder is a member : see Palmer's Company Law (Topham, 18th Edition, page 88).
28. A person may become a member or shareholder in any of the following ways:
' (1) By subscribing the memorandum of association, before its registration (which is in essence Section 30, Clause (1), of the Companies Act).
(2) By agreeing with the company to take a share or shares, and being placed on the register of members (which is in substance Section 30, Clause (2), of the Companies Act).
(3) By taking a transfer of a share or shares, and being placed on the register of members (which is in substance Section 34 of the Companies Act).
(4) By registration on succession to a deceased or bankrupt member (which is equivalent to Section 35).
(5) By allowing his name to be on the register of members or otherwise holding himself out or allowing himself to be held out as a member (which follows from the ordinary principle of estoppel).'
Hence the words ' to shareholders ' do not have the destination at large but circumscribe the destination to shareholders. This destination, that is, shareholder, can be reached only when an existing shareholder becomes the owner or holder of the share and not otherwise.
29. Therefore, the words ' share issued to shareholders ' signify that the share in the shell or womb of the company has found an owner in an existing shareholder, for, once it issues out, it cannot remain in the air but it becomes attached to a purchaser or owner.
30. Therefore, having regard to the words ' issued to the shareholders ' in the phrase ' shares issued to the shareholders ', it is clear that the share is used in the narrowest sense, that is to say, when it is in the womb or shell of the company and is divorced from a shareholder. It follows that when a share is issued to the shareholder, it bears an extensive meaning indicatingthat the share has reached its destination, an existing shareholder who may have partly or fully paid up share or sharestin the company.
31. It is now necessary to turn to the provisions of the Indian Companies Act which loomed largely in the submission made before us as also another provision which may have been incidentally mentioned in the course of the argument. In all these provisions the word ' issue ' occurs.
32. Section 50 of the Indian Companies Act provides, inter alia, as follows :
' (1) A company limited by shares, if so authorised by its articles, may alter the conditions of its memorandum as follows (that is to say), it may--
(a) increase its share capital by the issue of new shares of such amount as it thinks expedient.'
33. Therefore, the object of Section 50 is to issue new shares for increasing the share capital, ' when the authorised capital of a company has been fully issued, and further capital is needed for development or other purposes.' Thus, Section 50 enables the company to create shares for increasing the authorised capital of the company. Hence the effect of a resolution under Section 50 is the increase in the share capital simpliciter. The shares so created are still in the possession of the company or in the womb or shell of the company and capable of being exploited by the company. The company can and is now in readiness to raise capital by issuing the shares to the shareholders which means that at this stage there is no addition to the capital of the company in terms of money which is ordinarily the object of increasing the share capital or, in other words, the shares are yet without shareholders or owners.
34. The word ' issue ' also occurs in Regulation 46 (42 ?) in Table A of the Indian Companies Act, 1913. Regulation 46 is not applicable when there is direction to the company in the resolution sanctioning the increase of capital. Regulation 46 comes into play, when there is no direction to the contrary or where there is a direction in conformity with regulation 46,
35. Be that as it may, regulation 46 can come into operation only when there is an increase of share capital by the issue of new shares, that is to say, when a resolution had been passed under Section 50 of the Indian Companies Act, 1913. It is, in other words, a consequential and subsequent stage after the increase of share capital by the issue of new shares. It consists of several steps which culminate in the passing out oi the newly created shares from the domain of the company to the existing shareholders and, if they are unwilling, to outsiders or even to other shareholders who had received their usual proportion of share of the increased share capital.
36. The word ' issue ' has again been used in Section 105C, which was introduced in the Indian Companies Act, 1913, in order that the increase of share capital may not be a device to increase the voting powers of thedirectors, for, under regulation 46, they were not compelled to issue newly created shares to the existing shareholders in the same proportion as their holding was before new shares were created. It makes it incumbent upon the company and/or its directors to offer the newly created shares in proportion to their existing shareholdings. Hence it is very similar to the provision contained in the regulation. It is however debatable whether, unlike regulation 46, Section 105C not only covers cases of newly created shares under Section 50 but also covers the issue of the unissued share capital where the entire share capital had not been issued or, in other words, there are reserve shares in the company which may be utilised in raising the capital. This point, however, requires no determination for answering the proposed question before us. The word ' issue ' in this regulation comprises several steps which culminate in the issue of the shares to the shareholders. In other words, it results in the ownership of the shares by the existing shareholders and, in case of refusal by them, by others.
37. Hence, there is a gulf of difference between the meaning of ' issue ' in Section 50 and Section 105C and regulation 46. In the case of .section 50 there is an increase of the share capital of the company. The shares are created by increasing the authorised capital. The shares so created, however, are not, by virtue of the relative resolutions, passed out to the shareholders or sent out by the company. In other words, the ownership of the shares when a resolution is passed under Section 50 is yet at large. It is only when shares are issued to the shareholders in terms of Section 105C that the new issue finds its owners either in the existing shareholders or elsewhere. Hence, Section 50 is only an enabling section authorising the company or its directors to raise increased capital by the disposal of the shares. Section 50 by itself does not lead to the disposal of the shares. This can be only done under Section 105C when shares are actually transferred to the shareholders or in case of their refusal to others.
38. It is now necessary to consider whether the meaning of the word 'issued to the shareholders ' undergoes a change in the phrase ' bonus share issued to shareholders '. The word ' bonus shares ' means ' special dividend '. A dividend is ordinarily paid in cash direct to the shareholders. A shareholder may again be compelled to allow the undistributed profit to be appropriated towards the consideration money for the issue of new or additional shares to him, the existing shareholder. Hence, bonus share is a special type of share.
39. The resolution for the capitalisation of the undistributed profits, resolution for the issue of new shares and a resolution for the appropriation of the undistributed profits pro rata for payment in full of the shares may suggest that not only is there a creation of shares but there is also the change in the location of the shares and/or transfer of the shares to the shareholders,
40. In other words, these steps or acts may suggest that there is a complete creation of capital coupled with the issue of shares to the shareholders.
41. The move to issue bonus shares presupposes a large undistributed capitalised profits. Hence bonus shares are created by the company often by passing resolutions for issue of new shares, capitalisation of the undivided profits, the appropriation of the undivided profits for pro rata payment in full of the new shares. At this stage when the resolutions are passed there are however only expressions of the will of the company, for the company can express its will only through a meeting duly convened ; there is no expression of the will of the individual shareholder and at any rate for those who are not present in the meeting personally or by proxy, there is no allotment of shares followed by the issue of a letter of allotment and there is no registration of the newly created bonus shares. Hence in reality there is no actual issue of the shares.
42. It may be noticed that the words ' issued to the shareholders ' do not mean issue of share certificates which are only conclusive evidence of the ownership of the shares. Therefore, what is material is not the transfer of the share certificates. The words ' bonus shares issued to the shareholders ' suggest movement of shares to the shareholders, something passing from the company to the shareholders or giving of something to the shareholders. What is giving is only the rights and obligations of a shareholder and not the share certificate which is only a piece of evidence. In that sense there is only a notional transfer of the rights and no physical transfer in the ordinary acceptance of the word.
43. In this view of the matter there seems to be no difference between the issue of shares to the shareholders and the issue of bonus shares to the shareholders.
This brings us to the consideration of the resolution and the surrounding facts in this case.
44. It may be noticed at the outset in this case, the resolution for capitalisation of the undivided capital, the issue of new shares and the resolution for the appropriation of the undistributed profits were all passed by the company.
45. In England, as will appear from Palmer's Company Precedents, 18th Edition, Form No. 490, at page 874, that a similar resolution like that of Clause (a) in the instant case for capitalisation of the undivided profits is passed by the company. In England, however, resolutions analogous to clauses (b) and (c) are not passed by the company at its extraordinary general meeting but similar resolutions are passed by the board of directors (see Form No. 492, at page 875, of the same book).
46. In other words, in England the company only enables the directors to issue the unissued shares, capitalise the reserve fund, distribute the same amongst the shareholders and the board of directors carry out and give effect to the same.
47. Hence, at the stage when a resolution is passed by the company for capitalisation in English Jaw, there is no issue of shares by the company whatever meaning may be ascribed to the word ' issue ', though there is an increase of share capital by the issue of new shares. In India, as it appears from the resolutions in the present case, the company passes a composite resolution which not only includes the resolutions usually passed by the company in England but also the resolutions which are passed by the directors of the company pursuant to such authority given in the resolution by the company. This passing of the composite resolution in India cannot change the legal character of clauses (a), (b) and (c) when they are passed by the company itself instead of by the board of directors.
Clause (a) of the agreement may be considered in the first place.
48. The words ' be capitalised and distributed, the said capital be applied ' and the wor.ds 'that the holders thereof will not participate in any dividend in respect of any period ending on or before 31st December, 1954, ' clearly indicate that the capitalisation did not take place then and there and likewise the application of the capital did not take place then and there by virtue of the resolution. The words ' will not participate in any dividend in respect of any period ending on or before 31st December, 1954, ' likewise clearly point to the fact that the capitalisation and application was to take place after 31st December, 1954, that is to say, after the accounting year ending with 31st December, 1954. In other words, it is significant to note that the words are not 'hereby capitalised or applied ' and that the shareholders will participate in the dividend from 31st December, 1954. It is left to the future for completion of these acts.
Clause (b) may now be examined.
49. The words ' the directors be and hereby are directed to issue ' clearly indicate that the issue had not taken place even at that stage when Clause (b) was passed. The words ' the said 5,07,500 new ordinary shares of Rs. 10 each credited as fully paid up amongst the persons whose names are registered as such in the books of the company as on the 1st day of January, 1955, ' again clearly point to the fact that the distribution and crediting of the amounts amongst the existing shareholders did not take place before the 31st December, 1954, but was directed to take place as on the 1st day of January, 1955. The words 'provided that no allotment of shares issued as aforesaid shall be made to non-resident shareholders till the approval of the Reserve Bank of India is obtained for the same ' again indicate that all the shares could not be issued until and unless the approval of the Reserve Bank of India for the non-resident shareholders was obtained. Hence, Clause (b) supports the conclusion arrived at on an independent consideration of Clause (a) that the shares were not issued even at that stage.
Clause (c) of the resolution may be considered next.
50. The words 'that the directors be authorised to affix the company's seal on duplicate endorsements of such agreement as and when the same shall have been signed on behalf of the members holding ordinary shares in the company on 1st January, 1955, by some person to be appointed by the directors in that behalf which the directors be and hereby are authorised to do ' clearly indicate that the agreement providing for the allotment of the same new ordinary shares and satisfaction of the same capital bonus was to come into existence not in the accounting year ending with 31st December, 1954, but on a future date in the subsequent accounting year.
51. It may be incidentally noticed here that the word 'hereby' is used more than once in this clause in contradistinction to such phrase ' as and when the same shall have been signed.' The word ' hereby ' has been used in order to signify that certain things have been done and completed. It is significant that the word 'hereby' is absent in Clause (a) of the resolution.
52. Clause (c) again strengthens the conclusion that the shares were not issued to the shareholders even when the draft agreement was duly entered into.
53. The agreement dated the 31st January, 1955, even when it was executed, did not result in the issue of bonus shares to the shareholders as will appear, inter alia, from the following contents thereof :
' Now therefore it is agreed as follows :--
(1) The company shall allot to each of the persons named in the schedule the number of new ordinary shares of Rs. 10 each set opposite to his or her name in the second column of the same schedule......
(2) The said shares shall be numbered 500751 to 993813 (both inclusive) and shall be credited as fully paid up,
(3) The said shares so credited shall be accepted in full satisfaction of the said capitalised sum.'
54. It is now necessary to turn to the actual accounting position. In the balance-sheet the sum of Rs. 5,00,750 which was sought to be capitalised and thereafter distributed amongst the shareholders with a view to apply the same in payment in full for Rs. 5,00,750 ordinary shares of Rs. 10 each was shown as the balance on the 31st December, 1954, under the heading ' General Reserve '. This indicates clearly that the sum of Rs. 50,07,500 was still in the accounting year considered as a part of the reserve and still remaining part of the undivided profits and consequently not capitalised. If further appears from the statement of facts that the shares were not issued to the shareholders till some time in 1955.
55. Therefore, on a consideration of the resolution and the subsequent facts, it is clear that the bonus shares were not issued to the shareholders in the relevant accounting year which is the calendar year 1955 corresponding to the assessment year 1956-57.
In the result, question No. 2, which has been dealt with first, must be answered against the assessee.
It is now necessary to deal with question No. 1.
56. The relative provision of Sub-section (1) of the Explanation of Paragraph D of Part II of the Finance Act, 1956, is as follows :
' The expression ' paid up capital' means the paid up capital (other than capital entitled to a dividend at a fixed rate) of the company, as on the first day of the previous year relevant to the assessment ior the year ending on the 31st day of March, 1957, increased by any premiums received in cash by the company on the issue of its shares standing to the credit of the share premium account as on the first day of the previous year aforesaid.'
57. The facts before us make it abundantly clear that the undivided profits were capitalised and distributed in June, 1955. The undistributed capital remained in the books undistributed and as a part of the reserve until the middle of June. This capitalised sum was thereupon distributed to the shareholders by appropriation against the face value of the newly issued shares to the existing shareholders. Hence the paid up capital of the company was not increased until June, 1955, that is to say, neither in 1954 nor on the first day of the year 1955- Hence on these grounds the assessee cannot get any rebate under the relative provision of the Finance Act.
58. There is another possible approach to the problem. The resolution marked as Clause (a) and the agreement between the company and its shareholders through one of its representatives clearly indicate that the bonus shareholders will be entitled to dividends as from 1st January, 1955. In these circumstances, it may be contended that unless the paid up capital is deemed to be paid up capital as from the 1st January, 1955, the company was not competent to declare a dividend on the shares with effect from the 1st January, 1955. Hence the paid up capital must be deemed to have been increased as from 1st January, 1955, though in fact the paid up capital was increased in the books of the company from June, 1955. In the relative provision, however, there is no provision for taking into account the deemed paid up capital. It is referable only to paid up capital which means in its ordinary significance capital actually paid up. Hence on this ground also the assessee is not entitled to the rebate.
Hence, on either view of the matter, this question again must be answered against the assessee.
In the result, the reference is dismissed with costs.
59. In this reference, the assessee claimed a rebate in the accounting year 1955 for the issue of the bonus shares and the increase in the paid up capital, consequent upon such issue. The respondent, on the other hand, supported the view of the Appellate Tribunal and contended, for reasons which will appear in the sequel, that the two questions, namely, (1) whether the bonusshares should be included in the paid up capital of the assessee within the meaning of Sub-section (1) of the Explanation to Paragraph D of Part II of the Finance Act, 1956, and (2) whether the bonus shares can be said to have been issued within the meaning of the second proviso to the said paragraph to the shareholders by the assessee during the accounting year ended 31st December, 1955, should be answered against the assessee.
60. The rival contentions raise questions of general importance on the company law which is elaborately discussed by my learned brother. The relevant legislative history of the subject, however, is short and the answers to the questions entirely depend on the meaning of the expression ' issue of bonus shares to the shareholders ', i.e., at what point of time such shares are taken to be issued on the facts of this case.
61. To appreciate the various English decisions (most of which again are dealt with by my learned brother) and to make them applicable to the Indian Companies Act, it is better to remember at the outset that the word '' issue ' is a word of flexible meaning. It was found in the English Companies Act of 1867 (Section 25 repealed) which had given rise to some difficulty. Section 25 was mitigated by Section 1 of the English Act of 1898. Both the said sections of the said two Acts were repealed by the Act of 1900, which again, in its turn, is subsequently repealed. Section 52 of the English Act of 1948 now provides for a penalty in such cases.
62. In this country, prior to 1936, there was no check on the directors' powers to issue blocks of shares, either to themselves or to their nominees, within the authorised limit, unless such powers are circumscribed by the articles of association. The managing agents, who usually dominated the board of directors, could, to secure their own position, induce the board to issue shares to the managing agents or their nominees. To check one of such mischiefs of the managing agency system, Section 1050 was introduced in the Indian Companies Act, 1913, in the year 1936. This section is raised and discussed before us, though the Tribunal does not refer to the same.
63. Antecedent to this period, regarding increase of capital, Regulations 26 to 28 were there in Table A of the Act of 1882. In the Act of 1913, under the heading ' alteration of capital ' , Regulations 41 to 43 appear in Table A. The question of issue of new shares by the directors was dealt with by article 42 of the articles of association in the Schedule to the Act of 1913. It might be taken note of that regulation 42 and Section 105C do not cover the same.
64. Section io5C, which has no counter part in the English Act, was interpreted by the Supreme Court in the case of Nanalal Zaver v. Bombay Life Assurance Co. Ltd.,  20 Comp. Cas. 179, 184, 197 ;  S.C.R. 391.Kania C. J. held, inter alia, at page 396 of the authorised reports, that the directors are obliged :
'... to offer the shares issued to the shareholders on the register of the company and not to any one else......'
Mahajan J. held, at page 412, that the directors :
'... were under no obligation to Singhanias, who had not yet even been entered as shareholders on the register of shareholders '.
They are ' complete strangers to the company', says Das J., at page 4171.
Mahajan J. freely used the expressions ' issue ', 'offer ', ' allotment ' and ' sale ' in his judgment. At page 406, he held:
' It was not disputed that the directors in the present case had not sold these shares to any one and that these have remained unissued.'
At page 407,  20 Comp. Cas. 179, 193, 213 ; S.C.R. 117. S.C.R. 391. it was further held that at the stage when Section 105C comes into operation, if, out of the shares offered, some cannot be taken up by the shareholders:
'.. . the only result is that those shares remain unoffered and thus unissued.........the shares have to be offered to the existing shareholders......... '
Lastly, S.R. Das J. (as his Lordship then was) held at page 433:
' It is true that 272-4/5 shares remain in hand. At best, although issued, they have not been offered to any one. '
' Clause 8 (of the directors' resolution) ', continues Das J., ' on a true construction of the resolution as a whole ', ' covers only those shares which have been actually issued but have not been applied for. In point of fact the directors have not yet allotted any of these 272-4/5 shares. '
65. According to him, ' there has been no contravention of the provisions of Section 105C. '
Therefore, this much is clear that the shareholders must have to be on the register of shareholders so that the shares might be issued to them.
The Supreme Court, again, in the case of Mathalone v. Bombay Life Assurance Co.,  24 Comp. Cas. 1; observed at page 129 of the reports :
' The English Law can furnish no guidance for its solution as there is no provision corresponding to Section I05-C in the English Companies Act. '
66. In refuting Mr. Patnaik's argument that the receiver could not acquire the newly issued shares in his name, it was held at page 143:
'... privilege was conferred by Section 105C only on a person whose name was on the register of members. '
67. In dealing with the question as to whether the re-issue of forfeited shares is ' allotment ' within the meaning of Section 75(1) of the Companies Act, 1956, corresponding to Section 104(1) of the Companies Act of 1913, Sarkar J., delivering the judgment on behalf of the Supreme Court, held in the case of Sri Gopal Jalan & Co. v. Calcutta Stock Exchange,  33 Comp. Cas. 862 (S.C.), that a ' re-issue of forfeited shares is not an allotment of share.' The word ' allotment ' has not been defined in the Companies Act either in our country or in England. After reviewing several English decisions, it was held that:
' in company law, allotment means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. Till such allotment, the shares do not exist as such. '
By the amendment of 1935, the meaning of the word ' allotment' in Section 105(1) was not altered. This decision does not go against the contention of the revenue.
68. Some of the decisions cited by Mr. Meyer are sought to be distinguished by the learned counsel, Mr. S. Choudhry, viz., that the decision in Oswald's case,  1 K.B. 134 is a case on the Stamp Act and that it is based on a particular section of the Finance Act of a particular year. The decision in Mowatt's case, (1886) 34 Ch. D. 58 is a case of debenture and not of shares (debentureholders were strangers to the company and there must have been delivery in the very nature of debenture). The decision in Clarke's case, (1878) 8 Ch. D. 635 is a case of a new company. The decision of Bachawat J. (as his Lordship then was) in the case of Sri Gopal Jalan, 33 Comp. Cas. 862 (S.C.) is in another context and is contrary to the Supreme Court decision of Nanalal Zaver v. Bombay Life Assurance Co.,  20 Comp. Cas. 179 (S.C.). Further, the decision in Bush's case was not accepted by Mr. Buckley, James L.J. being a party to the decision in Blyth's case, (1876) 4 Ch. D. 140 reconsidered the case in Bush's case, (1874) 9 Ch. App. 554.
69. Prolonged and learned arguments were advanced by the learned counsel on both sides, but in my view this reference can be disposed of ultimately by referring to the facts arising in question No. I, in the background of the legislative history stated above.
70. We have really to find out the ' paid-up ' capital, and not merely, capital on 1st January, 1955. We shall have also to interpret the resolution dated 30th December, 1954, and the agreement dated 31st January, 1955, referred to by my learned brother. The resolution uses the expression ' shall allot'. In my view, it is not effective on the date of resolution. It could have been rescinded the next day. The agreement is prospective. As a matter of fact, there is no transfer from the general reserve to the capital before late June, 1955. It never became paid up capital until June in view of the recognised distinction between issued capital and paid up capital.
71. Different views have no doubt been taken as to when the issue to the shareholders takes place. It is said to be issued when the transaction is complete and again, not until before the registration of the contract. It is also said to be issued when the allottee has become complete master of the shares, and further when the certificates are actually issued and also when the shareholders are put in complete possession of the shares. In my judgment it is not necessary to combine all those tests because the conclusion is one more of fact than of law on a consideration of all the circumstances in a given case.
72. Though the expression ' issue ' appears in Section 50 of the Companies Act, in the Finance Act of 1956 the expression is ' issue to the shareholders '. In my view, it is not tautology. It is not a case of issue of shares to the world at large. The difference between issue and allotment is not a matter of mere form but really of substance. Actual issue cannot be complete only on resolution to allot shares.
73. Resolution is not necessarily the issue of them. It is not a mechanical act. Non-participation of dividend is a factor to be kept in view, as the shareholders only are entitled to participate in dividend. Consent of the Reserve Bank again is necessary. Clause (b) in the agreement in the instant case modifies Clause (a) and the shareholders were not on the register on the relevant date.
74. In my judgment, therefore, the assessee is not entitled to rebate and both the questions should be answered against the assessee. I respectfully agree with the order including the order for costs proposed by my learned brother.