Case: Commissioner Of Income-Tax, West Bengal Vs. Allahabad Bank Limited

1. The Allahabad Bank Ltd. is a public limited company. The paid up share capital of the Company other than capital entitled to a dividend at a fixed rate was at the relevant time Rs. 30,50,000. The Company had issued before January 1, 1954, shares at premium and the premium received in cash aggregated to Rs. 45,50,000. In each of the account years 1955 and 1956 the Company distributed Rs. 5,49,000 as dividend.2. In proceedings for assessment for each of the assessment years 1956-57 and 1957-58 the Income-tax Officer reduced by Rs. 61,000 the rebate in super-tax admissible under the Finance Act 1956 on the view that the Company had distributed dividend exceeding 6% of its paidup capital. In reducing the rebate the Income-tax Officer did not take into consideration share premium amounting to Rs. 45,50,000 received by the Company.3. The Appellate Assistant Commissioner held that the Companys share premium was liable to be added to the capital of Rs. 30,50,000 in computing the reduction in the rebate in super-tax, and directed modification of the order of assessment. The Appellate Tribunal agreed with the Appellate Assistant Commissioner.4. The Tribunal then submitted a statement of the case and submitted the following question in respect of the year 1956-57 to the High Court ofon the facts and in the circumstances of the case, the amount of Rs. 45,50,000 should be added to the paidup capital of the assessee as on 1st January, 1955, for the purpose of allowing rebate to the assessee under Paragraph D of Part II of the First Schedule to the Indian Finance Act,similar question relating to the assessment year 1957-58 was so referred by the Tribunal. The High Court of Calcutta agreed with the Tribunal and held that in determining the reduction in rebate in super-tax admissible to the Company the share premium maintained by the Company within the reserves was liable to be included in the paid-up capital.In the assessment yearthe Company was being assessed to tax in respect of the previous year of the Company ending on December 31, 1955. In the calendar year 1955, the company was governed by the Indian Companies Act 7 of 1913 which contained no provision analogous to Section 78 of the Companies Act of 1956. The Companies Act was before the Parliament during the year 1955, but the Company was on that account not obliged to transfer to a separate share premium account independent of the reserve the premiums received prior to January 1, 1955. The Companies Act came into force on April 1, 1956: it had no retrospective operation. Since there was no obligation upon the Company to maintain a separate share premium account in the previous year corresponding to the assessment yearthe share premium account maintained as an identifiable account within the reserves qualified for being included in the paid up capital within the meaning of this expression in the Explanation to Paragraph D part II of the Finance Act, 1956,11. For the assessment yeartherefore rebate inwas liable to be reduced, if the Company had distributed dividend exceeding six per cent of thecapital inclusive of share premiums maintained as an identifiable account. The contention raised by the Commissioner must therefore fail in respect of the assessment year

Reasoning: 6. The reduction in rebate in supertax depended upon the proportion which the dividend distributed bore to the paidup capital. If the Company distributed dividends exceeding 6% of its paid-up capital as defined in the Explanation, the rebate was liable to be reduced to the extent provided in the second proviso (sic) the relevant years of account, the share premium formed an identifiable part of the reserves of the Company but was not shown in a separate share premium account apart from the reserves.e plea raised by the Commissioner that the Company failed to comply with the statutory injunction contained in Clause (1) of Section 78 and on that account the premiums received were not "standing to the credit of the share premium account" within the meaning of the Explanation to Paragraph D in the Finance Act 1956may be rejected on a simple ground.For the assessment year 1957-58 the Tribunal found that the share premium was liable to be included in the paid-up capital, because it was an identifiable part of the reserves. In our judgment the Tribunal was right in so holding. The Explanation to Paragraph D Part II of the Finance Act, 1957, does not require that the share premium account must be maintained as an account outside the reserves. Under the Companies Act of 1956 there was an express provisions that the share premium account shall be maintained in a separate account. It is true that in the balance sheet in Sch. VI of the Act the share premium has to be shown under the head "Liabilities" as part of the share capital and not of reserves. But it cannot be assumed on that account that if the share premium is maintained as a separate account within the reserves, reduction in the rebate in super-tax is liable to be computed after excluding share premium. The Exp1aliation requires that in determining the paid-up capital for the purpose of rebate in super-tax, share premium as standing to the credit of a share premium account shall be excluded: it does not make maintenance of an account outside the reserve a condition of its inclusion in the paid-up capital.15. Again if under the Finance Act 1956, the expression "standing to the credit of the share premium account" did not mean that the share premiums shall be maintained in a separate account apart from the reserve, is there any reason why under an identical scheme of reducing rebate in super-tax in the year 1957-58, it should have a different meaning? In the absence of any compelling grounds, we would not be justified in holding that the Parliament attributed to the expression "standing to the credit of the share premium account as used in the Explanation to Paragraph D Part II of the Finance Act 2 of 1957, a meaning different from the one which it had under the Finance Act, 1956.Share Premium account is accordingly liable to be included in the paidup capital for the purpose of computing rebate if it is maintained as a separate account. The Explanation does not contemplate that the account must be kept apart from the reserves. If within the reserves it is an identifiable separate account, the share premium will qualify for inclusion in the paid-up capital in computing the reduction in rebate of super-tax.In the assessment yearthe Company was being assessed to tax in respect of the previous year of the Company ending on December 31, 1955. In the calendar year 1955, the company was governed by the Indian Companies Act 7 of 1913 which contained no provision analogous to Section 78 of the Companies Act of 1956. The Companies Act was before the Parliament during the year 1955, but the Company was on that account not obliged to transfer to a separate share premium account independent of the reserve the premiums received prior to January 1, 1955. The Companies Act came into force on April 1, 1956: it had no retrospective operation. Since there was no obligation upon the Company to maintain a separate share premium account in the previous year corresponding to the assessment yearthe share premium account maintained as an identifiable account within the reserves qualified for being included in the paid up capital within the meaning of this expression in the Explanation to Paragraph D part II of the Finance Act, 1956,11. For the assessment yeare rebate inwas liable to be reduced, if the Company had distributed dividend exceeding six per cent of thel inclusive of share premiums maintained as an identifiable account. The contention raised by the Commissioner must therefore fail in respect of the assessment year