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TMI Blog1991 (5) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of total paid up capital and general reserves he had deducted the investments made in U.P. Hotels Restaurants Ltd., SITA Exports and N.S.Cs. While arriving at the net balance, 15% was treated as the paid up capital which was deducted for arriving at the chargeable profits. The primary objection of the Counsel for the assessee was with relevance to treating the shares held by the assessee in U.P. Hotels Restaurants Ltd. as its investments, disregarding the fact that the assessee was only acting on trust in holding those shares and has no interest whatsoever in that company. He referred to the principles of understanding between the assessee and U.P. Hotels Ltd. which is placed at pages 46 to 48 of the paper book and submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income does not arise. He then drew our attention to sub-rule 1 and sub-rule 2 of Second Schedule. Referring to sub-rule 2 of the Second Schedule, he submitted that this rule provides for exclusion of the assets or reduction of the value of the assets from the computation of total paid up capital and reserves, corresponding to the income from dividends which have to be excluded for purposes of computation of income from profits and gains. His plea was that reference made in sub-rule 2 of the Second Schedule and also clause (viii) sub-rule 1 of the First Schedule would apply only where there is income from dividend included and thereby while computing the capital employed the shares so held on which dividends are received are also red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me excluded from chargeable profits, when there was no such income, the value of the assets from which income would have arisen have been held to be not deductible in determining the capital of the company. He also referred to the decision of the Karnataka High Court in CIT v. United Breweries Ltd. [1978] 114 ITR 901 which had taken the contrary view to the one taken by the Madras High Court. He also drew our attention to the Supreme Court decision in Seth R. Dalmia v. CIT [1977] 110 ITR 644. His plea was that the investment was not being on company's own account but on account of the other, deducting the value of the shares as company's investment would be wrong on facts. 3. The Departmental Representative, on the other hand, submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicates that the intention of the Legislature was to levy surtax on the profits of the company and not necessarily all the incomes that are derived by it. Once such income which has been specifically provided to be excluded is the income from dividend, and since it is not normally treated as profits and gains, the Legislature had thought it proper to exclude it from the income computed under the head ' Profits and gains ' from business. Since the income computed from profits and gains does not contain any element of income from dividend, correspondingly for the computation of total paid up capital of the company, part of which is utilised in purchase of shares and shown as investment, have been directed to be deducted from the total paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the assessee has no option but to depict this investment in shares since the shares were held in its name. As pleaded by the assessee, there is an understanding arrived at between the assessee and the family of Gupta and Mr. Brijpal Das who held shares in U.P. Hotels through Hotel Clarks Varanasi Pvt. Ltd. As per this agreement SITA was required to acquire shares of a value of Rs. 28 lakhs and bythe 30th of June, 1980the Group would acquire the entire shareholding of Rs. 28 lakhs. It further provides that the Group shall pay SITA the full value of the shares along with interest. The amount of Rs. 28 lakhs was to be paid in six monthly instalments starting from January 1978 and to end with 30th of June, 1980. The interest was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee but an acquisition as a trustee only, it does not stand in the same footing as investments which are made on behalf of the company itself. Therefore, these being not in the nature of investment, they shall not be deducted for arriving at the paid up share capital and reserves as per Second Schedule of the Companies (Profits) Surtax Act. Reference to the Balance Sheet for the assessment year 1982-83 clearly supports the contention of the assessee that to the extent of the amounts paid by the Clark Group shares have been transferred to them, which is not disputed by the Revenue and to that extent the value of investments has got reduced from Rs. 28,43,375 to Rs. 18,81,875. Therefore, deduction made by the Assessing Officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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