COMMISSIONER OF INCOME TAX Vs. ALLAHABAD BANK LTD

JUDGEMENT

(1.) This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessment year is 1956-57. The relevant accounting year is the calendar year ending on the 31st December, 1955. The assessee-company's total income was computed at Rs. 6,14,525 (Rupees six lakhs fourteen thousand five hundred and twenty-five). In computing the tax on this total income in accordance with the Finance Act, 1956, the Income-tax Officer calculated the reduction in rebate in the following manner: <FRM> -------------------------------------------------------------------------------- Rs. Rebate Rs. -------------------------------------------------------------------------------- Total dividend and bonus declared during the year (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 Nil 4 per cent, of the ordinary share capital ... 1,22,000 -------------------------------------------------------------------------------- @ 2 as. 15,250 2,44,000 -------------------------------------------------------------------------------- @ 3 as. 45,750 -------------------------------------------------------------------------------- 61,000 -------------------------------------------------------------------------------- </FRM> --------------------------------------------------------------------------------

(2.) The Income-tax Officer based his calculation on the paid up share capital at Rs. 30,50,000 (Rupees thirty lakhs and fifty thousand). According to the Finance Act, 1956, the expression " paid-up capital " means the paid-up capital of the company as on the first day of the previous year relevant to the assessment for the year ending on the 31st March, 1957, increased by 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 first day of the previous year aforesaid. The assessee's accounts as on the 31st December, 1954, being equivalent to the balance-sheet as on the 1st January, 1955, disclosed no separate share premium account. But the receipts on account of the share premium being Rs. 45,50,000 (Rupees forty-five lakhs and fifty thousand) were transferred to the "Reserve fund and other reserves account" disclosing an aggregate figure of Rs. 1,08,00,000 (Rupees one crore and eight lakhs). The Income-tax Officer did not aggregate the paid-up share capital by the addition of the amount received on the issue of shares at a premium and did not, therefore, allow the rebate on that account.

(3.) The Appellate Assistant Commissioner first considered the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956, which ran thus: