Case: M/S. Berger Paints India Ltd Vs. C.I.T., Delhi-V

no merit in that contention. The Tribunal has pointed out that the share capital of the Company as borne out by its audited accounts is limited to Rs.7,88,19679/-. The company’s accounts do not show the reserve and surplus of Rs.19,66,36,734/- as a part of its issued, subscribed and paid up capital. It is true that the surplus amount of Rs.19,66,36,734/- is taken as part of share holders fund but the same was not a part of the issued, subscribed and paid up capital of the Company. Explanation to Section 35D(3) of the Act does not include the reserve and surplus of the Company as a part of the capital employed in the business of the Company. If the intention was that any amount other than the share capital, debentures and long term borrowings of the Company ought to be treated as part of the capital employed in the business of the company, the Parliament would have suitably provided for the same. So long as that has not been done and so long as the capital employed in the business of the Company is restricted to the issued share capital, debentures and long term borrowings, there is no room for holding that the premium, if any, collected by the Company on the issue of its share capital would also constitute a part of the capital employed in the business of the Company for purposes of deduction under Section 35D. The Tribunal was, in that view of the matter, perfectly justified in allowing the appeal filed by the Revenue and restoring the order passed by the Assessing Officer.” 17) We are in complete agreement with the view taken by the High Court quoted supra as, in our considered opinion, the well-reasoned judgment/order of the High Court correctly explains the true meaning of the expression employed in sub-section3(b) of Section 35D read with Explanation (b) quoted above, calling no interference in the appeals.18) In our considered opinion also, the "premium amount" collected by the Company on its subscribed issued share capital is not and cannot be said to be the part of "capital employed in the business of the Company" for the purpose of Section 35D(3)(b) of the Act and hence the appellant-Company was rightly held not entitled to claim any deduction in relation to the amount received towards premium from its various shareholders on the issued shares of the Company.19) This we say for more than one reason. First, if the intention of the Legislature were to treat the amount of "premium" collected by the Company from its shareholders while issuing the shares to be the part of "capital employed in the business of the company", then it would have been specifically said so in the Explanation(b) of sub-section(3) of Section 35D of the Act. It was, however, not said.20) Second, on the other hand, non-mentioning of the words does indicate the legislative intent that the Legislature did not intend to extend the benefit of Section 35D to such sum. Third, these two reasons are in conformity with the view taken by this Court in the case of Commissioner of Income Tax, West Bengal vs. Allahabad Bank Ltd., (1969) 2 SCC 143. Wherein the question arose as to whether an amount of Rs.45,50,000/- received by the assessee (Bank) in cash as "premium" from its various shareholders on issuing share on premium is liable to be included in their paid up capital for the purpose of allowing the assessee to claim rebate under Paragraph D of Part II of the first Schedule to the Indian Finance Act 1956. 21) It was noticed therein that Part II - paragraph D while specifying the rates of super tax had added an Explanation, which reads as under: Explanation.—For the purposes of para D of this part— "(i) 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 for the year ending on 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 ….” (Emphasis supplied) 22) This Court speaking through the learned Judge J.C. Shah, J. (as His Lordship then was and later became CJI) after examining the issue in the context of Para D read with its Explanation held that “share premium account” was liable to be included in the paid up capital for the purposes of computing rebate. One of the reasons to allow such inclusion with the paid up capital was that such inclusion was permitted by the specific words in the Explanation. Such was, however, not the case here.23) As rightly pointed out by the learned Attorney General appearing for the Revenue, the Companies Act provides in its Schedule V- Part II (Section 159) a Form of Annual Return, which is required to be furnished by the Company having share capital every year. Column III of this Form, which deals with capital structure of the company, provides the break up of "issued shares capital break up". This column does not include in it the "premium amount collected by the company from its shareholders on its issued share capital". This is indicative of the fact that such amount is not considered a part of the capital unless it is specifically provided in the relevant section.24) Similarly, as rightly pointed out, Section 78 of the Companies Act which deals with the "issue of shares at premium and discount" requires a Company to transfer the amount so collected as premium from the shareholders and keep the same in a separate account called "securities premium account". It does not anywhere says that such amount be treated as part of capital of the company employed in the business for one or other purpose, as the case may be, even under the Companies Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]13) Having heard the learned counsel for the parties and on perusal of the record of the case, we find no merit in theWe are in complete agreement with the view taken by the High Court quoted supra as, in our considered opinion, the well-reasoned judgment/order of the High Court correctly explains the true meaning of the expression employed in sub-section3(b) of Section 35D read with Explanation (b) quoted above, calling no interference in the appeals.18) In our considered opinion also, the "premium amount" collected by the Company on its subscribed issued share capital is not and cannot be said to be the part of "capital employed in the business of the Company" for the purpose of Section 35D(3)(b) of the Act and hence the appellant-Company was rightly held not entitled to claim any deduction in relation to the amount received towards premium from its various shareholders on the issued shares of the Company.19) This we say for more than one reason. First, if the intention of the Legislature were to treat the amount of "premium" collected by the Company from its shareholders while issuing the shares to be the part of "capital employed in the business of the company", then it would have been specifically said so in the Explanation(b) of sub-section(3) of Section 35D of the Act. It was, however, not said.20) Second, on the other hand, non-mentioning of the words does indicate the legislative intent that the Legislature did not intend to extend the benefit of Section 35D to such sum. Third, these two reasons are in conformity with the view taken by this Court in the case of Commissioner of Income Tax, West Bengal vs. Allahabad Bank Ltd., (1969) 2 SCC 143.  Wherein the question arose as to whether an amount of Rs.45,50,000/- received by the assessee (Bank) in cash as "premium" from its various shareholders on issuing share on premium is liable to be included in their paid up capital for the purpose of allowing the assessee to claim rebate under Paragraph D of Part II of the first Schedule to the Indian Finance ActThis Court speaking through the learned Judge J.C. Shah, J. (as His Lordship then was and later became CJI) after examining the issue in the context of Para D read with its Explanation held thatwas liable to be included in the paid up capital for the purposes of computing rebate. One of the reasons to allow such inclusion with the paid up capital was that such inclusion was permitted by the specific words in the Explanation. Such was, however, not the case here.23) As rightly pointed out by the learned Attorney General appearing for the Revenue, the Companies Act provides in its Schedule V- Part II (Section 159) a Form of Annual Return, which is required to be furnished by the Company having share capital every year. Column III of this Form, which deals with capital structure of the company, provides the break up of "issued shares capital break up". This column does not include in it the "premium amount collected by the company from its shareholders on its issued share capital". This is indicative of the fact that such amount is not considered a part of the capital unless it is specifically provided in the relevant section.24) Similarly, as rightly pointed out, Section 78 of the Companies Act which deals with the "issue of shares at premium and discount" requires a Company to transfer the amount so collected as premium from the shareholders and keep the same in a separate account called "securities premium account". It does not anywhere says that such amount be treated as part of capital of the company employed in the business for one or other purpose, as the case may be, even under the Companies Act.