1980 (6) TMI 5 - HC - Income Tax

Summary

Issues Involved:
1. Accrual of underwriting commission.
2. Taxability of underwriting commission on shares subscribed by the public.
3. Treatment of underwriting commission on shares held by the assessee.

Summary:

Issue 1: Accrual of Underwriting Commission
The Tribunal found that the underwriting commission accrues during the period in which the subscription list remains open. The right to receive the underwriting commission accrues when the company makes an offer for the sale of shares to the public and continues to accrue until the offer remains open. The court agreed with the Tribunal that the underwriting commission accrued with the opening of banking hours and ceased to accrue on the close of banking hours during the period when the subscription list was open.

Issue 2: Taxability of Underwriting Commission on Shares Subscribed by the Public
The Tribunal held that the underwriting commission charged by the assessee on the shares subscribed by the public alone was taxable as the income of the assessee. The commission referable to the shares underwritten by the assessee and purchased by it did not represent the assessee's taxable income. The court confirmed that the underwriting commission earned by the corporation on the shares subscribed by the public is taxable.

Issue 3: Treatment of Underwriting Commission on Shares Held by the Assessee
The Tribunal opined that the underwriting commission referable to the underwritten shares purchased by the assessee went to reduce the cost of those shares in the hands of the assessee and was not separately taxable as the assessee's income of that year. The court upheld this view, stating that the underwriting commission in the case of shares held by the assessee itself and not actually subscribed by others went to reduce the cost of the shares in the hands of the assessee and was not separately taxable as the assessee's income of that year.

Conclusion:
1. The underwriting commission accrued with the opening of banking hours and ceased to accrue on the close of banking hours during the period when the subscription list was open.
2. The underwriting commission earned by the corporation on the shares subscribed by the public is taxable.
3. The underwriting commission in the case of shares held by the assessee itself and not actually subscribed by others went to reduce the cost of the shares in the hands of the assessee and was not separately taxable as the assessee's income of that year.

In view of the divided success of the parties, they were directed to bear their own costs.