' BADRUL HAIDER CHAUDHURY, J.--This appeal by special leave is directed against the order of the High Court Division in Application No, 1 of 1981 under section 66(1) of the Income-tax Act.
2. The respondent is an Income-tax Assessee and filed return of his income for the assessment year 1971-72 showing his total income at Tk. 15,045 and claimed exemption of Tk. 881 being dividend income from a company and enjoying benefits of tax under section 15-BB of the Income-tax Act.
The respondent also claimed exemption from tax on account of investment of Tk. 2,200 in Bonus share under section 15-C of the Income-tax Act. The Income-tax Officer while assessing the income of the respondent under section 23(3) of the Act disallowed the claims of the respondent and assessed his total income at Tk.
24.883 by his assessm ent order dated 2-3-1974. On appeal by the assessee the Assistant Commissioner allowed the appeal in part but rejected the prayer for rebate on account of investment in bonus share of Tk. 2,200. This order was challenged before the Income-tax Appellate Tribunal. The Tribunal took the view that the assessee acquired 220 bonus share of the face value of Tk. 2,200 by indirect investment and therefore shall be entitled to get investment allowance under section 15C of the Income-tax Act. Revenue filed an application under section 66 of the Income Tax Act which was marked as Application No, 1 of 1981 raising the following question of law:- -
(1) "Whether on the fact and in the circumstances of the case the Tribunal was justified in finding that the Income-tax Officer and the Appellate Assistant Commissioner were not justified in rejecting the assessee's claim for investment allowance in respect of Bonus share of Tk. 2,200"?
(2) Whether in view of the provisions of sections 2(6A) and 15C of the Income-tax Act. The Tribunal was justified in finding that the assessee's claim for investment allowance in respect of Bouns share of Tk. 2,200 should be allowed under section 15C of the Act ?
3. A Division Bench of the High Court Division decided the questionby answering the same in affirmative against the department. Leave was granted on the following terms: "The question was whether the bonus share could be treated as income of the assessee which would entitle the assessee to exemption under section 15 (c) (1) of the Income-tax Act. Mr. A.M.
Mahmudur Rahman, learned counsel appearing for the Revenue contended that the amount invested in the bonus share is the income of the Company and this is not being a portion of the total income of the assessee, is not entitled to such exemption-Points merit consideration."
4. Mr. A.M. Mahmudur Rahman appearing for the Revenue contended that the High Court Division erred in law in holding that the bonus shares should be treated as an investment by the assessee,
(2) the bonus shares not being dividend within the meaning of subsection (6-A) of section 2 and for that not being income of the assessee within the meaning of subsection (6-C) of section 2 read with Explanation 4 of the Income-tax Act, the assessee respondent is not entitled to get exemption under section 15-C of the Act; (3) for exemption under section 15C the amount, in question must form a portion of the total income of the assessee and the bonus shares not being a portion of the total income cannot claim for exemption inasmuch section 15C prostulates that the investment must be made by the assessee himself out of his own volition and independent decision whereas the investment in bonus share in question made by the Company is not such as investment.
5. Mr.S.M. Hossain, the learned counsel for the assessee contended that the bonus share should be treated as investment for the purpose of exemption under section 15-C (e). The learned counsel stressed that section 15-C is more or less machinery for the purpose of calculation of investment of allowance admissible under this section. He contended that the bonus shares being issued in lieu of dividend was as good as cash money forming the income of the assessee. It is contended that the bonus shares are fully paid up shares out of the accumulated profits of the company which instead of being distributed as dividend has been applied in paying up the amounts in lieu of bonus shares.
6. It would be useful to notice the view of the High Court Division when it observed:-- "It is true that the assessee did not directly invest any money and the bonus shares are deemed to be an income in the hands of the Company."
' Having observed thus the Division Bench added: "but in law it must be held that the bonus shares were contributed by the assessee share-holder.
There is no allegation that the assessee encashed the bonus shares. As he retained them in his hands. Such bonus shares should be treated as an investment by him for the purpose of exemption under section 15-C."
7. At the hearing the learned counsel for the assessee attempted to argue that the costs of the bonus shares Tk. 2,200 should be taken as an investment and necessary relief should have been given by the Income-tax Officer.
' Section 15(C) reads as under:-- "15(C) (1).--Subject to the provisions (of subsection(4) of section 15 and the provisions) of this section, there shall, in the case of an assessee not being a company, be exempted from the Tax payable under this Act a portion of his total income, determined as hereinafter provided, in relation to the amount invested by him in the acquisition of any stocks or shares of a company as described in the section (otherwise than by purchase or transfer from a previous holder of the stocks or shares.)
8. This section gives exemption from tax on account of investment subject to the provision of section 15(4) which says that relief in tax shall, in no case, exceed half the amount admissible of exemption under subsection (3). The assessee is exempted from tax and that amount must form a portion of his total income as directed in subsection (2) which says "portion of total income under subsection (1) shall not exceed 20% of the total income of the assessee Rs, 12,000 whichever is less".
To our query to the learned counsel appearing for the respondents submitted that the Assessee had not shown the bonus shares as a part of its total income in the tax return. Total income means "total amount of income profits and gain computated in the manner laid down in the Act referred to section 4(1)." Section 4(1) says that total income.Includes all income, profits and gain from whatever sources derived upon certain circumstances. Explanation 4 to section 4 reads as under:- - "Explanation 4.--Any bonus or bonus shares declared, issued or paid by a company having its registered office in (taxable territories) to its share holders in any year wholly or partly out of reserves or profits of the Company of reserves or profits of the Company of that year or accumulated profits of the company of earlier years, whether capitalised or not, or the share premium or other account shall be deemed to be income accruing to the company during that year."
9. It will be at once clear that bonus share are "deemed to be income accruing to the Company during that year." If the bonus share are the income of the company how an assessee could claim them as his income, and, if it is not an income of the assessee then section 15C has no manner of application. The argument of the assessee rests on fallacy. His argument proceeds on the basis that this bonus share though have been alloted to the share-holders by the Company are the property of the assessee or of the individual share-holder. The argument breaks down because Explanation 4 has advisedly added by making a legal fiction that it will be a part of the income accruing to the Company. Since it is an income of the Company necessarily it has nothing to do with the total income of the assessee. As it is not a part of his total income the question of his investment does not arise and this amount A was not invested by him in the acquisition of bonus share. The Income-tax Officer rightly declined to give the relief to the assessee. The High Court Division unfortunately though came to the conclusion that it was not directly invested by him but observed--"by law, it will be deemed to his income." No such law was placed before us. On the contrary Explanation 4 says it would be deemed to be income of the company. Since it is not the income of the assessee and nor a part of his total income and nor it was invested by him, the question of rebate or exemption from tax hardly arise.
' In the result therefore this appeal is allowed. The judgment and order of the High Court Division is set aside. No costs.