1. These three references under s. 256(1) of the I.T.Act, 1961 (hereinafter referred to as 'the Act'), raise the following question of law of the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the premium on issue of shares amounting to RS. 24,000 in 1967-68, Rs. 83,000 in 1968-69 and Rs. 12,000 in 1969-70 assessment year was not a revenue receipt includible in the total income of the company ?'
2. The facts are these. The three assessment years under reference are 1967-68, 1968-69 and 1969-70 of which the relevant previous years are the years ending September 30, 1966, September 30, 1967, and September 30, 1968, respectively. The assessed had 136 unissued equity shares of the face value of Rs. 500 each. By a resolution No. 25/64 dated January 30, 1965, the board of directors of the assessed resolved that the unissued equity shares of the company of Rs. 500 each be thereafter issued at a premium of Rs. 1,000 per share. In pursuance of this resolution of the Board, out of 136 unissued equity shares, 34 shares were allotted during the accounting period relevant to the assessment year 1967-68, 83 were allotted in the accounting period relevant to the assessment year 1968-69 and 12 were allotted in the accounting period relevant to the assessment year 1969-70. The shares were allotted on premium of Rs. 1,000 each. The assessed owned a building called Coronation Hotel Building in the heart of the city. The main business of the assessed was to organise trade in oil and oil seeds. This was, however, suspended by the Forward Markets Commission in June, 1964. The trading was resumed in October, 1964, but again banned from September 30, 1965. Thereafter, for a long time, the assessed could not do its business. The shares were allotted at a premium and the allotted were also given office accommodation in the building owned by the assessed.
3. When the assessment for the three assessment years was completed, the ITO came to the conclusion that the assessed company had devised a novel method of charging revenue receipts from the new tenants under the guise of share premium. Eight different reasons were given by the ITO for coming to this conclusion. The ITO then came to the conclusion : 'The assessed gave a wrong nomenclature of share premium but it was not share premium in fact. Neither is it an advance rent nor a deposit to be adjusted against future rent, but it is a revenue receipt assessable under the head Income from 'other sources' in the hands of the assessed company'. The ITO, accordingly, included Rs. 24,000 in the first year Rs. 83,000 in the second year and Rs. 12,000 in the third year as the assessed's income under the head 'Income from other sources'.
4. The assessed came up in appeal before the AAC. The AAC deleted the additions on the ground that the amounts in question could not be treated as revenue receipt. Being dissatisfied with the decision of the AAC, the ITO came in appeal before the Tribunal. In appeal before the Tribunal, it was contended on behalf of the Revenue that the amounts clearly represented revenue receipts in the hands of the assessed. The Tribunal for reasons recorded upheld the decision of the AAC and dismissed the departmental appeal.
5. Mr. Wazir Singh, the learned counsel for the Revenue, took us through the records of the case including the orders of the ITO, the AAC and the Tribunal. He also invited our attention to the memorandum and articles of association of the assessed and particularly to objects Nos. 1, 2, 10 and 27 of the Part III of the memorandum of association and article No 7. of the articles of association. The objects for which the assessed company was established include the object of investing and acquiring property ; to own, keep, manage or control market places, trading rings (patias) for the purpose of entering into or making or performing ready and forward contracts in oil seeds, oil and oil cakes, etc. Article No. 7 provides that without prejudice to the rights, privileges and obligations conferred on the existing shareholders, shares of the company shall, immediately after recognition has been granted to the company by the Central Government, be allotted only to registered trading members of the company or persons being eligible for or desirous of becoming trading members of the company. Reference is then made to the findings recorded by the ITO and the reasons given by the ITO in support of his findings that the premium of Rs. 1,000 per share has to be treated as a consideration for a right to occupy the premises. We have proceeded to answer the question of law on that basis. He contends that if the premium of Rs. 1,000 is treated as a consideration for the creation of the tenancy in favor of the shareholders, then it takes the character of salami or pagri which is taxable. Reliance is place on a number of authorities, namely, CIT v. Ukhara Estate Zamindaries (Pvt.) Ltd. : 82ITR103(Cal) , Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani : 32ITR169(SC) , Durga Das Khanna v. CIT : 72ITR796(SC) , Maharaja Chintamani Saran Nath Sah Deo v. CIT : 82ITR464(SC) , Karanpura Development Co. Ltd. v. CIT : 44ITR362(SC) , and Jyotirindra Narayan Sinha Chowdhury, In re : 13ITR263(Cal) . Three of the cases namely, CIT v. Ukhara Estate Zamindaries Pvt. Ltd. : 82ITR103(Cal) , Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani : 32ITR169(SC) and Karanpura Development Co. Ltd.'s case : 44ITR362(SC) , cited by the counsel, relate to companies which had the objects of acquiring and disposing of underground coal mining rights in certain coal fields and the objects enumerated other works such as coal raising but the assessed there restricted its activities to acquiring mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. In that case, the company never worked in the coat fields with a view to raising coal, nor did it acquire or dispose of the coal raised by the assessed. There also the assessed realised salamis. The question in all these cases was whether the amounts received by the assessed as salami for granting sub-leases constituted a trade receipt in its hands and the profits there from were assessable to tax. In two cases, the Supreme Court, and in one case the Calcutta High Court, came to the conclusion that the transactions of acquiring, leasing and granting sub-leases were in the nature of trading within the objects of the company. In acquiring the head leases and granting the sub-leases, the assessed-company carried on a business and the amounts received by way of salami were trading receipts and the profits there from were liable to tax. On facts, in Durga Das Khanna's case : 72ITR796(SC) , the Supreme Court expressed that in each case it has to be examined whether the salami is income or not. Income connotes a periodical monetary return, coming in which some sort of regularity or expected regularity from definite sources. The premium or salami which is paid once for all and is not a recurring payment, hardly satisfied this test. In that case, it was found on facts that the payments of a lump sum which was of non-recurring nature showed that the amount in question had all the characteristics of a capital payment and not revenue. Again in Maharaja Chintamani Saran Nath Sah Deo's case : 82ITR464(SC) , the Supreme Court held that salami is a single payment made for the acquisition of the right of the Lesser by the lessee to enjoy the benefits granted to him by the lease. The onus is, however, upon the income-tax authorities to show that there exist facts and circumstances which would make a payment of what has been called : salami, income.
6. In the case before us, the finding recorded by the ITO is that the share premium is neither an advance rent nor a deposit to be adjusted against future rent. If that be so, it could not be treated as a revenue receipt. The payment of premium of Rs. 1,000 for each share was a single payment made, assuming on the facts of this case, for the acquisition of the right of lease. Such a payment and the right can properly be regarded as a capital asset and the money paid as on capital account. This is more so in view of the provisions of s. 78 of the Companies Act, 1956. The effect of s. 78 of the said Act is to create a new class of capital of a company which is not share capital but not distribution of the share premium as dividend is not permitted and it is taken out of the category of the divisible profit. In the case of First national City Bank v. CIT : 42ITR17(SC) , the Supreme Court held that an amount described as undivided profits was held to be a reserve because the law of the land, where the company was incorporated, required it to be so done. In the case of Heckett Engineering Co. v. CIT : 120ITR417(Patna) , a question came to be considered with respect to the retained earnings and unmerited foreign income. It was found by the Tribunal that those amounts, besides, being classified under the head 'Capital', were required to be retained in that shape under the law of the land where the company had been incorporated and, thereforee, it could never be considered as revenue. Section 78 of the said Act statutorily provides for the application of premium received on issue of shares and it has to be transferred to an account to be called the share premium account.
7. The learned counsel for the Revenue at the Bar tried to make out a new case for the Revenue that the amount of premium received by the assessed was a revenue receipt of the assessed's business. We are not inclined to deal with those arguments as the amounts had not bee treated even by the ITO said that it is a revenue receipt assessable under the head 'Income from other sources' in the hands of the assessed-company. Such 'income from other sources' was not established before the Tribunal.
8. For the above reasons, the reference is answered against the Revenue and in favor of the assessed. On the facts and circumstances of the case, we make no order as to costs.