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Pangal Nayak Bank Ltd. Versus Commissioner of Income-Tax, Mysore

Income-Tax Referred Case No. 4 of 1961 - Dated:- 2-7-1962 - K. S. Hegde And Ahmed Ali Khan, JJ. For the Assessee : S. P. Bhat For the Commissioner : D. M. Chandrasekhar JUDGMENT The Madras Income-tax Appellate Tribunal has referred the following question under section 66(1) of the Indian Income-tax Act, 1922: "Whether the sum of ₹ 10,000 is income assessable under any of the provisions of the Income-tax Act?" The learned judge set out the statement of facts which ran as follows: .....

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ch is as follows: "No person shall be considered as a shareholder until he has paid the prescribed entrance fee and premiums, if any, fixed per share, and the whole of the share value or the amount of call made if any, on allotment of the share. On payment of the share value, he shall be supplied with a share certificate as hereafter provided." In its accounts of the aforesaid year 1957, the "previous" year for assessment year 1958-59, it included the aforesaid sum of ₹ .....

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000 being his estimate of postage stamps, power of attorney expenses and other expenses incidental to the increase of capital. The assessee appealed to the Appellate Assistant Commissioner raising, inter alia, the following grounds: "2. The mere fact that the collection of entrance fees has been credited to the profit and loss account does not alter the nature of receipt from 'capital' receipt to 'revenue' receipt. As the said sum of ₹ 10,000 represents collection of e .....

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hares as revenue receipts in its books and it was also declared in the return as part of its business income. The appellant is not a company which was newly formed in the year 1957. The entrance fee was collected on the new shares issued as a result of increasing the share capital. The sum of ₹ 10,000 realised as entrance fees can by no means represent a capital receipt. It is a receipt in the course of the appellant's business and was rightly subjected to tax as a revenue receipt..... .....

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rst year's revenue account but is distributed over a reasonable number of years. But expenses incurred on account of printing and stationary etc., for the purpose of raising the share capital does not, in my opinion, represent expenditure of a non-recurring nature. It would be proper to treat it as exclusively revenue expenditure and charge it to the profit and loss account. The addition of ₹ 5,000 made by the Income-tax Officer is therefore deleted." The assessee thereupon appeal .....

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ks of account are not the criterion for finding the nature of a receipt for purposes of assessments." The respondent too appealed against the allowance of ₹ 5,000 aforesaid. In the above cross-appeals, the Tribunal upheld the assessment of ₹ 10,000 as also the disallowance of ₹ 5,000 aforesaid in the following words: "2. ...It was argued that it was not a business income at all, liable to be brought to tax. It is certainly income in that, this sum of ₹ 10,000 ca .....

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aising capital and as such, would only be capital expenditure. We, therefore, set aside the order of the Appellate Assistant Commissioner on this contention and restore that of the Income- tax Officer." [After setting out the statement of facts as above, HEGDE J. continued.] The material facts are fully set out above. The amount of ₹ 10,000 collected as entrance fees cannot in any manner be said to be the result of any trading activity. In truth, it is only an addition to the capital .....

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arising from business or the exercise of a profession, vocation or occupation which are of a casual and non-recurring nature, or are not by way of addition to the remuneration of an employee." The learned counsel for the revenue does not dispute the fact that the additional share capital raised is only an addition to the capital assets of the company. The entrance fee levied must also partake the same character. It is an additional price fixed for the share. At any rate, it has nothing to d .....

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rable controversy. As early as in 1932, the meaning of that word came up for consideration before the Judicial Committee of the Privy Council in Commissioner of Income-tax v. Shaw Wallace and Company [1932] 2 Comp. Cas. 276; A.I.R. 1932 P.C. 138. Sir George Lowndes, who delivered the judgment, opined that the central idea underlying such sections 2(4), 10, and 18 of the Indian Income-tax Act in the continuous exercise of activity signifying that what is taxable is the profit earned by process of .....

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sort of regularity or expected regularity from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often losely spoken of as 'capital'. But capital, though possibly the source i .....

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which we are dealing in this case is a capital receipt. Quite clearly it was not the result of any banking activity of the assessee. Floating shares was not a part of the banking activity of the assessee. Shares are floated with a view to strengthen the capital structure. Sri Bhat, the learned counsel for the assessee, tried to take support from the decision of the Supreme Court in Hoshiarpur Electric Supply Company v. Commissioner of Income-tax [1961] 41 I.T.R. 608; [1961] 2 S.C.R. 956. Therein .....

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g service lines, which exceeded its actual cost and the excess was sought to be taxed in the hands of the assessee. The Supreme Court held: "The amount contributed by the consumers was in direct recoupment of the expenditure for bringing into existence an asset of a lasting character enabling the assessee to conduct its business of supplying electrical energy. The amount was, therefore, essentially reimbursement of capital expenditure and the excess that remained after expending the cost of .....

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