TMI Blog1993 (9) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... ther appeal before us we find that the issue has been decided against the assessee by the order of the Tribunal dated 2-4-1983 in the assessee's own case for the assessment years 1968-69 and 1969-70 in ITA Nos. 2461 and 2462 (Cal.) of 1981. Respectfully following the aforesaid order, we dismiss the first ground. 3. The second and the third grounds are as under: "2. The Ld. Commissioner of Income-tax (Appeals) erred in confirming the inclusion in the total income of the sum of Rs. 1,83,000 being the sum forfeited from the shareholders in default of payment of call money. 3. The Ld. Commissioner of Income-tax (Appeals) erred in confirming the inclusion in the total income of Rs. 1,48,000 being premium received on re-issue of forfeited s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been forfeited ceases to be a member in respect of the forfeited shares but the liability to pay the arrears of call money will continue. The liability will cease only if the payment is made. The provisions of the Companies Act, as contained in the Table A of Schedule I, indicate that forfeiture of shares is not a business or trading activity of the Company. The forfeiture of shares is an act of the company in respect of its capital structure. Any profit which arises on the forfeiture of the shares cannot, therefore, be treated as the company's normal trading transaction giving rise to any income liable to tax under the Income-tax Act. The Lahore High Court has held in Multan Electric Supply Co. Ltd., In re. [1945] 13 ITR 457, at page 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t value of the shares was at a premium. But the company issued its shares to its employees at par. The company claimed that it was done to further the business interest and to secure a benefit to the company and that the sum representing, the difference between the par value and the market value was a sum foregone by the assessee for the purposes of their business and was consequently deductible. While dealing with this contention, it was held by Viscount Caldecote (Lord Chancellor), at page 96 as under:--- "In my opinion this appeal largely turns on the nature of the right of a company to issue it shares at any price and on any conditions it thinks fit, provided that it does so in good faith for the benefit of the company and does not is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d this fact must not be forgotten." 7. The above decision is authority for the proposition that the issue of shares is not a regular trading or business transaction and the premium cannot be regarded as the profits assessable to tax. 8. In India, the Mysore High Court in Pangal Nayak Bank Ltd. v. CIT [1964] 52 ITR 915 had occasion to deal with the case of an assessee who collected entrance fee in respect of the new shares issued by it. The contention was that the entrance fee was a capital receipt. The Mysore High Court upheld the contention. After referring to the celebrated decision of the Judicial Committee of the Privy Council in CIT v. Shaw Wallace Co. AIR 1932 PC 138, and the judgment of the Supreme Court in Hoshiarpur Electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare premium account will be returned to the shareholders as capital. So long as the company is a going concern, the share premium cannot be returned to the shareholders, since such Act would result in the reduction of capital. It is further stated by the author that distribution of the share premium amount as dividend to the shareholders is not permitted and that the share premium is taken out of the category of divisible profits. The share premium amount can only be utilised in any one of the modes specified in section 78(2). 10. The Delhi High Court had occasion to deal with the question whether the premium on issue of shares is capital or income in the hands of the company. After referring to section 78 of the Companies Act and after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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