TMI Blog1991 (11) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in this case are that the assesseecompany follows the calendar year as its accounting year and the assessment years involved are 1975-76 to 1978-79. In the wake of an amalgamation of some other tea companies with the assessee-company with effect from the close of the business on December 31, 1968, with the approval of the High Court at Calcutta, a surplus of Rs. 44,84,866, representing the difference between the book value of the assets transferred and the par value of the capital stock' issued, arose out of such amalgamation. The assessee treated the surplus as a reserve of the company. The Surtax Officer negatived the assessee-company's claim that the said sum of Rs. 44,84,866 should be treated as reserve for inclusion in the computation of the capital in accordance with rule I of the Second Schedule to the Companies (Profits) Surtax Act, 1964. Before him, the assessee relied or the decision of the Supreme Court in CIT v. Standard Vacuum Oil Co. [1966] 59 ITR 685. But the Surtax Officer took the view that the share premium not having been received in cash, it was hit by Explanation 2 to rule 2 of the Second Schedule. The assessee's contention that the amount standing in the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the par value of the stock issued arising out of the amalgamation is to be treated as "Other reserves" within the meaning of rule 1(iii) of the Second Schedule. Before us, it has been contended by learned counsel of the assessee that the facts of the present case are on all fours with the facts of the aforesaid case decided by the Supreme Court in Standard Vacuum Oil Co. [1966] 59 ITR 685. In that case, the assessee, a non-resident company incorporated in Delaware in the U.S.A. with the object of taking over the assets of two other companies, the Second Vacuum Oil Company and the Standard Oil Company (New Jersey), in consideration of the transfer of assets valued in their books at $97,715,701 and $46,767,397 allotted to each company 49,995 shares of $ 100 each and to the Secony Vacuum Oil Company serial bonds of the value of $ 13,093,000. The remaining ten shares of the share capital of the assessee-company were divided equally between the two companies for cash. The assessee-company entered in its books of account, the book value of the assets taken over from the companies and the excess of the net value of the assets transferred over the par value of the stock issued and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edited to the share premium account, by its quintessential nature, would represent a part of the company's capital by virtue of the premium being treated as the reserves of the company. The argument of learned counsel for the assessee that rule 2(1) of the Business Profits Tax Act and rule 1(iii) of the Surtax Act are substantially the same cannot be lightly dispensed with. That being so, the judgment of the Supreme Court cannot be said to have lost its relevance. The decision would have clinched the question in favour of the assessee but for Explanation 2 to rule 2 of the Second Schedule. The argument of the assessee has consistently been at every stage that the surplus representing the net assets taken over by the amalgamated company in excess of the face value or paid-up value of the shares issued by it is in a sense not its share capital but its reserve. If the surplus is not computable as part of capital under rule 2, it is to be so under rule 1(iii). Learned counsel for the assessee has not either advocated that the surplus should be treated as paid-up share capital of the company. In fact, the ratio of the decision of the Supreme Court in Standard Vacuum Oil Co. [1966] 59 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There are clear indications in the said decision that the Supreme Court did not at all concern itself with the question whether the share premium being the difference between the par value and the market value arising in the event of amalgamation should be paid-up share capital. The principle that received attention and final approval in the said decision is the proposition that the surplus so credited to the share premium account would represent a part of the company's capital by virtue of the premium being treated as the reserve of the company. Although the decision was rendered under the corresponding provisions of the Business Profits Tax Act, 1947, which are somewhat similar to those of the Surtax Act, the decision would continue to be applicable for surtax purposes as well because the treatment of the amount of the share premium as reserve is permissible even under the accounting principles. From an analysis of the form of balance-sheet in the Sixth Schedule, Part I of the Companies Act, 1956, it will appear that share capital is a distinct category and reserves and surplus is another. The share premium account appears under the heading "Reserves and surplus" and not unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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