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1964 Supreme(Cal) 174
High Court of Calcutta
S.P. Mitra, S.A. Masud, JJ.
Commissioner of Income Tax – Appellant
Versus
Allahabad Bank Ltd. – Respondent
IT Ref. No. 87 to 1960
Decided on : July 30, 1964
B.L. Pal, S. Mukherjee, K.R. Meyer, B. Sen
The amount transferred to the reserve fund and other reserve accounts can be included in the paid-up capital for the purpose of calculating the rebate on super-tax.
Headnote:
INCOME TAX - Paid-up capital - Share premium account - Whether amount transferred to reserve fund and other reserve accounts can be included in paid-up capital - Explanation to Paragraph D of First Schedule to Finance Act, 1956 - Section 78 of Companies Act, 1956.
Fact of the Case:
The assessee, a banking company, had transferred the amount received as share premium to the "reserve fund and other reserve accounts" instead of creating a separate "share premium account" as required under Section 78 of the Companies Act, 1956. The ITO did not include this amount in the paid-up capital for the purpose of calculating the rebate on super-tax. The AAC and the Tribunal held that the amount should be added to the paid-up capital.
Finding of the Court:
The Calcutta High Court held that the amount transferred to the reserve fund and other reserve accounts could be included in the paid-up capital for the purpose of calculating the rebate on super-tax. The Court relied on the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956, and Section 78(3) of the Companies Act, 1956, which deems the amount transferred to the reserve fund as part of the paid-up share capital.
Issues: Whether the amount transferred to the reserve fund and other reserve accounts can be included in the paid-up capital for the purpose of calculating the rebate on super-tax.
Ratio Decidendi: The Court held that the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956, and Section 78(3) of the Companies Act, 1956, allow for the inclusion of the amount transferred to the reserve fund as part of the paid-up share capital. The Court also held that the IT(Removal of Difficulties) Order, 1962, which was made under Section 298(1) of the Income Tax Act, 1961, did not make any provision that was inconsistent with the provisions of the 1961 Act and, therefore, the petitioner was entitled to appeal to the Supreme Court under Section 66A(2) of the Indian Income Tax Act, 1922.
Final Decision: The Court granted a certificate under Section 66A(2) of the Indian Income Tax Act, 1922, allowing the petitioner to appeal to the Supreme Court.
1. SANKAR PRASAD MITRA, J. This is an application for leave to appeal to the Supreme Court. The assessment year out of which the reference arose was the year 1956-57 and the relevant accounting year was the calendar year ended on the 31st Dec., 1955. The total income of the assessee was computed at Rs. 6,14,525. In computing the tax on the total income in accordance with the Finance Act, 1956, the ITO calculated the reduction in rebate in the following manner : The ITO based his calculation on the paid-up share capital of Rs. 30,50,000. According to the Finance Act, 1956, the expression "paid-up capital" means the paid-up capital of the company as on the 1st day of the previous year relevant to the assessment for the year ending on the 31st of March, 1957, increased by the premium received in cash by the company on the issue of its shares standing to the credit of the share premium account as on the 1st day of the previous year aforesaid.
2. THE assessee's accounts as on the 31st Dec., 1954, being equivalent to the balance-sheet as on the 1st Jan., 1955, disclosed no separate amount standing under the name of share premium account. THE receipts on account of share premium said to be for Rs. 45,50,000 were transferred to the "reserve fund and other reserve accounts" disclosing an aggregate figure of Rs. 1,08,00,000. THE ITO did not aggregate the paid-up capital by addition of the said sum of Rs. 45,50,000.
The AAC first considered the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956, which runs thus:-
"(1) 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 1st day of the previous year relevant to the assessment for the year ending on the 31st 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 1st day of the previous year aforesaid."
3. The AAC also considered the provisions of s. 78 of the Companies Act, 1956. This section is as follows :
"78. (1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an Total dividend and bonus taken during the year Rs. (The bonus declared is also to be included in the dividend as it is not bonus declared with a view to increasing the capital). 5,49,000 6 per cent of the ordinary share capital 1,83,000, 3,66,000 4 per cent of the ordinary share capital 1,22,000 @ 2 As. 15,250, 2,44,000 @ 3 As. 45,750 Total 61,000 account, to be called 'the share premium account' ; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid-up share capital of the company.
(2) The share premium account may, notwithstanding anything in sub-s. (1), be applied by the company-
(a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares ;
(b) in writing off the preliminary expenses of the company ;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company ; or
(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.
(3) Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act :
"Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company's reserves within the meaning of Sch. VI shall be disregarded in determining the sum to be included in the share premium account."
Having regard to the provisions of the Explanation to Paragraph D of the Fi
