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TMI Blog1968 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 1957. The applicant-bank had received as premium on issue of shares in the years prior to the year 1955, an aggregate sum of Rs. 2 crores which stood credited as part of an account called " reserve fund and other reserves account ". In the year 1956, a sum of Rs. 50 lakhs was transferred from the said amount of Rs. 2 crores to the bonus shares account, as the applicant-bank had issued bonus shares in that year. Under the Finance Act, 1956, super-tax was levied at the rate of 6 annas and 9 pies in the rupee of the total income of every company. The said Act, however, gave a rebate in respect of super-tax to those companies which declared dividend which was not in excess of 6 per cent. of its paid-up capital. The said Act further provided a pro rata reduction in that rebate in respect of companies which paid dividend exceeding 6 per cent. of their paid-up capital per annum. Explanation (i) to Paragraph D of Part II of the First Schedule to the said Act defines the expression " paid-up capital ", and it is with the construction of the definition contained in that Explanation that the court is concerned in the present case. The said Explanation is in the following terms : "Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid-up capital of the bank, and held that, under Explanation (i) to the said Paragraph D of the relevant Finance Acts, such share premiums could not be included as paid-up capital of the bank. Following the orders of the Commissioner in respect of the said two assessment years, the Income-tax Officer, in making the assessment order for the assessment year 1958-59, excluded the sum of Rs. 1,50,00,000 representing the amount of share premiums lying in the reserve fund account, in computing the paid-up capital of the bank, on the ground that it was a condition of share premiums being considered as paid-up capital that there should be a separate share premium account as on the first day of the previous year. The bank took the matter in appeal before the Appellate Assistant Commissioner from the orders of the Income-tax Officer, but the Appellate Assistant Commissioner confirmed the same on 22nd July, 1959. Against the orders of the Commissioner and the order of the Appellate Assistant Commissioner, the bank preferred appeals to the Income-tax Appellate Tribunal which were disposed of by that Tribunal by a common order dated 30th June, 1961. The Tribunal came to the conclusion that, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proceeded to argue that, even as far as the third year is concerned, the construction of those words cannot be different in view of the fact that the Finance Act of 1958 has reproduced exactly the same words. It may be mentioned that Mr. Palkhivala has conceded in the course of his arguments that the applicant-bank has no separate share premium account, either in its balance-sheets or in its books of account, and that the share premiums which it has received have been included in the " reserve fund and other reserves account ". As against that argument of Mr. Palkhivala, Mr. Joshi has contended that the amount of the share premiums having been merged in the reserve fund account, and having become an integral part of the same, and having been treated as such for purposes of declaring dividends in accordance with section 17 of the Banking Companies Act, 1949, there was no share premium account in existence as far as the applicant-bank was concerned, and the applicant-bank was, therefore, not entitled to include the amounts received by it in the past years while computing its paid-up capital, by reason of the said Explanation (i). Before we deal with those arguments, it would be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he argument of Mr. Palkhivala that the provisions of the relevant Finance Acts must be construed in the context of the law as it prevailed on the first day of the accounting years in question, and in the light of the object of the statutory provision contained therein. As observed by the Supreme Court in the case of Sheikh Gulfan v. Sanat Kumar, the words used in a statute have, no doubt, to be construed in their ordinary meaning, but in many cases judicial approach finds that the simple device of adopting the ordinary meaning of words does not meet the needs of a fair and reasonable construction. It was further observed in the judgment in the said case that exclusive reliance on the bare dictionary meaning of words may not necessarily assist a proper construction of the statutory provision in which the words occur, and that, often enough, in interpreting a statutory provision it becomes necessary to have resort to the subject-matter of the statute and the object which it was intended to achieve. It was then observed in the judgment in the said case that that was why in deciding the true scope and effect of the relevant words in any statutory provision, the context in which the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not commend itself to us, as, in our opinion, it would be too technical to take such a view. We would prefer to look at the substance of the statutory provision contained in the Explanation in question rather than the mere form of it, and it is hard for us to reconcile ourselves to the view that, even if there be a separate account into which amounts of share premium collected by a company have gone, the company should not be entitled to claim the requisite rebate on super-tax if, for instance, through a purely clerical error, the account, instead of being headed " share premium account " is headed " share account " or " premium account ". We have no hesitation in rejecting that construction. The real question, therefore, is whether the second construction or the third construction of the phrase mentioned above should be accepted by us. In our opinion, the Explanation to the Finance Acts in question does not in terms state that the amount of share premiums should stand credited to a " separate share premium account ", but uses only the words " standing to the credit of the share premium account ". Even on a literal construction of the language of that Explanation, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 1954 and 1955, which would be standing so credited on the 1st of January, 1955, and the 1st of January, 1956, respectively, which would be the first days of the previous years in question within the terms of the Explanation to the Finance Acts of 1956 and 1957. On the 31st of Decem ber, 1954, and the 31st of December, 1955, there was no provision of the Companies Act in force which required a separate share premium account, nor is there any provision in the Banking Companies Act, 1949, which calls for the maintenance of such a separate account. If, therefore, the words used in the Finance Acts of 1956 and 1957 are construed in the context of the law as it prevailed on the 1st of January, 1955, and the 1st of January, 1956, respectively, which are the first days of the previous years 1955 and 1956, within the terms of the Explanation to the said Finance Acts, there was no statutory provision in existence at the material time which required the applicant-bank to maintain a separate " share premium account ". In that state of law, there would be no reason why the legis lature should intend that the benefit of a rebate on super-tax should be made available to a company if it happ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before any dividend is declared, transfer a sum equivalent to not less than 20 per cent. of such profits to the reserve fund until the amount of the said fund is equal to the paid-up capital." It is the contention of Mr. Joshi that it is in order to prevent the mischief of a bank lumping up its reserve fund with the share premium amounts received by it, for the purpose of complying with the provisions of the said section 17, that the legislature has, by the Explanation to the Finance Acts of 1956, 1957 and 1958, required the maintenance of a separate share premium account. This argument of Mr. Joshi appeared attractive on first impression, but we are afraid it cannot stand scrutiny, because the provisions of the Explanation in the said Finance Acts, which are applicable not only to banking companies but to other companies also, cannot be construed by reference to the provisions of section 17 of the Banking Companies Act which would be applicable to banking companies alone, and not to other companies. It was further contended by Mr. Joshi that the amounts of share premium have been received by the applicant-bank over a period of several years past, and that the bank has not only c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the accounts of the assessee, which was also a banking company as in the present case, for the assessment year 1956-57, did not disclose a separate share premium accounts but the receipts on account of share premium amounting to Rs. 45,50,000 were first entered in a separate " share premium account ", and later transferred to the " reserve fund and other reserves account ". The Income-tax Officer did not aggregate the paid-up capital by the addition of the amount received on the issue of shares at a premium, and did not, therefore, allow rebate on super-tax on that amount. The Appellate Assistant Commissioner reversed the decision of the Income-tax Officer. On further appeal, the Tribunal confirmed the order of the Appellate Assistant Commissioner, as it found that there was cash received on account of premiums, that the premium receipts were standing to the credit of the shares account though there was no particular account called the share premium account, and that those cash receipts remained as identifiable amounts within the reserves of the company. On a reference to the Calcutta High Court which was heard by a Division Bench, it was observed in the judgment that the real q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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