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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 ..... 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 : "Explanation.-For the purpose of Paragraph D of this Part- (i) the expression ' paid-up capital ' means the paid-up capital (other than capital entitled to a dividend at a fixed rate) of the company as on the first day of the previous year relevant to the assessment for the year ending on the 31st day of March, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a reading of section 17 of the Banking Companies Act of 1949, in the context of the facts of the present case concerning the gradual building up of its reserve fund, the share premium received by the bank in earlier years had been completely merged and had become part and parcel of the reserve fund of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant-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 convenient to discuss the principles of construction of statutes which would be applicable in the present case. The question raised on this reference has arisen in respect of the granting of " rebate " in the rate of super-tax under the relevant Finance Acts, and, as a matter of plain language, the word " r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 words occur, the subject of the statute in which the provision is included and the policy underlying the statute assume relevance and become material. It is in the light of these principles of construction that we must now proceed to deal with the arguments advanced on this reference by either side. The main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, there is nothing to lead us to the conclusion that the account to which the share premium amount should stand credited must be a separate account. The Explanation is silent on the point as to whether such an account should be a separate account, and, in those circumstances, it is certainly permissible for us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 happens to have maintained a separate share premium account, though it was not bound to do so under the law as it then stood, but should deny that rebate to a company which has not maintained a separate share premium account, though the amounts collected by way of share premium have been duly preserved and are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und 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 credited the same to the reserve fund and other reserves account, but has treated the amounts of share premium so received as an integral part of its reserve fund for the purpose of declaring dividends in compliance with section 17 of the Banking Companies Act quoted above. It is not disputed by Mr. Palkhiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 question for determination on that reference was whether or not section 78 of the Companies Act, 1956, was applicable to banking companies. After discussing the effect of the enactment of section 78 of the said Act, the learned judge held that the said section did apply to banking companies also. The court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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