S.P. Mitra, J.
1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessment year is 1956-57. The relevant accounting year is the calendar year ending on the 31st December, 1955. The assessee-company's total income was computed at Rs. 6,14,525 (Rupees six lakhs fourteen thousand five hundred and twenty-five). In computing the tax on this total income in accordance with the Finance Act, 1956, the Income-tax Officer calculated the reduction in rebate in the following manner:
Total dividend and bonus declared during the year (The bonus declared is also to be included in the dividend as it is not bonus declared with a view to increasing the capital)...5,49,000 6 per cent, of the ordinary share capital...1,83,000
3,66,000 Nil4 per cent, of the ordinary share capital...1,22,000
@ 2 as.15,250 2,44,000
@ 3 as.45,750
2. The Income-tax Officer based his calculation on the paid up share capital at Rs. 30,50,000 (Rupees thirty lakhs and fifty thousand). According to the Finance Act, 1956, the expression ' paid-up capital ' means the paid-up capital of the company as on the first day of the previous year relevant to the assessment for the year ending on the 31st March, 1957, increased by premium received in cash by the company on the issue of its shares standing to the credit of the share premium account as on the first day of the previous year aforesaid. The assessee's accounts as on the 31st December, 1954, being equivalent to the balance-sheet as on the 1st January, 1955, disclosed no separate share premium account. But the receipts on account of the share premium being Rs. 45,50,000 (Rupees forty-five lakhs and fifty thousand) were transferred to the 'Reserve fund and other reserves account' disclosing an aggregate figure of Rs. 1,08,00,000 (Rupees one crore and eight lakhs). The Income-tax Officer did not aggregate the paid-up share capital by the addition of the amount received on the issue of shares at a premium and did not, therefore, allow the rebate on that account.
3. The Appellate Assistant Commissioner first considered the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956, which ran thus:
'(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, 1957, increased by any premium received in cash by the company on the issue of its shares, standing to the credit of the share premium account as on the first day of the previous year aforesaid ; . .. '
4. The Appellate Assistant Commissioner also considered the provisions of Section 78 of the Companies Act, 1956. This section is as follows :
'78. (1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called ' the share premium account'; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid-up share capital of the company.
(2). The share premium account may; notwithstanding anything in Sub-section (1), be applied by the company-
(a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares ;
(b) in writing off the preliminary expenses of the company ;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company ; or
(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company,
(3). Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act:
Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company's reserves within the meaning of Schedule VI, shall be disregarded in determining the sum to be included in the share premium account. '
5. Having regard to the provisions of the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956, and Section 78(3) of the Companies Act, 1956, the Appellate Assistant Commissioner held that the sum of Rs. 45,50,000 (Rupees forty-five lakhs and fifty thousand) formed an identifiable part of the bank's reserves and that the amount should be added to the paid-up share capital for the purpose of calculation of rebate of super-tax.
6. The Appellate Tribunal found that the amount received on the issue of shares at a premium were first entered in the ' share premium account'and later in the reserve account. Upon going through the balance-sheets ending on the 31st December, 1956, 31st December, 1957, and 31st December, 1958, the Appellate Tribunal found that the 'reserve fund and other reserves ' disclosed the same old figure of Rs. 1,08,00,000 (rupees one crore and eight lakhs). In the balance-sheet as on 31st December, 1958, this account had the following note :
' Reserve fund (includes Rs. 45,50,000 as identifiable as premium received on issues of shares in past years). '
7. The Appellate Tribunal also relied on the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956. It held that, (a) there was cash received on account of premiums ; (b) those premium receipts were standing to the credit of the shares account although there was no particular account called the share premium account; and (c) these cash receipts remained as identifiable amounts within the reserves. In the premises, the Appellate Tribunal was of opinion that the aforesaid sum of Rs. 45,50,000 (Rupees forty-five lakhs and fifty thousand) was covered by the Explanation given in the Finance Act, 1956. The Appellate Tribunal confirmed the order of the Appellate Assistant Commissioner.
8. From these facts and circumstances, the following question of law has arisen :
' Whether, on the facts and in the circumstances of the case, the amount of Rs. 45,50,000 should be added to the paid up capital of the assessee as on 1st January, 1955, for the purpose of allowing rebate to the assessee under Paragraph D of Part II of the First Schedule to the Indian Finance Act, 1956. '
9. Mr. Balai Pal, learned counsel for the applicant, has argued before us that the provisions contained in Paragraph D of Part II of the First Schedule to the Finance Act, 1956, in its first proviso grants relief to the assessee by way of rebate. To that provision exceptions have been made through the several clauses of the second proviso. It is, therefore, for the assessee to satisfy the court that he is entitled to the full relief conferred by the first proviso. According to Mr. Pal, the provisions contained in these provisos are meant for encouraging companies to accumulate their funds by not declaring dividends beyond a certain percentage of paid-up capital. This is clear from the second proviso itself. Mr. Pal contends that since the highest quantum of distributable dividend is dependent upon the amount of paid up capital, the legislature has given its own definition of paid-up capital for the purpose of Paragraph D in the Explanation. This definition already noted above should be strictly construed, submits Mr. Pal, and strictly followed. It cannot be loosely used in favour of the assessee. The requirement of the premiums received in cash by the company on the issue of its shares to be standing to the credit of the share premium accountis very essential inasmuch as restrictions have been imposed on the company as regards its capacity to deal with that fund. In this context merely an identifiable amount received as premium on the issue of shares is not sufficient for the purpose of giving the assessee the benefit of paid-up capital. In the Explanation what is essential to see is whether there is any restriction on the company regarding its dealings with the share commission fund in the same manner as it is under restriction with respect to dealings with paid up-capital. Mr. Pal has urged that the assessee-company is governed by the Banking Companies Act. It follows the provisions of that Act relating to preparation of its account and is subject only to the liabilities created by that Act. The creation of the reserve fund of the assessee as appearing in the three balance-sheets annexed to the paper-book is governed by Section 17 of the Banking Companies Act, 1949, as it stood at the material time and not by Section 78 of the Companies Act, 1956. Mr. Pal also referred to various authorities to show that, in the absence of restrictions, the share premium account can be utilised for declaring dividends, etc.
10. Considering carefully the argument advanced by learned counsel on behalf of the applicant, it seems to us that, if we came to the conclusion that Section 78 of the Companies Act, 1956, applied to Banking Companies, the order of the Tribunal in the instant reference must be upheld. The real question for determination in this reference, therefore, is whether or not Section 78 of the Companies Act, 1956, is applicable to banking companies. We have, in the premises, to consider various provisions of the Banking Companies Act, 1949, as it stood at the relevant time. Section 2 of this Act prescribes that its provision shall be in addition to, and not, save as hereinafter expressly provided, in derogation of, the Companies Act, 1956, and any other law for the time being in force. In other words, all the provisions of the Companies Act do apply to banking companies unless any such provision has been expressly excluded by the Banking Companies Act itself. Proceeding further, we find that in Sections 11, 13, 20, 39, 40, 41, 42, 43, 44, 44A and 45A of the Banking Companies Act, the application of various Sections of the Companies Act, 1956, have been expressly excluded. It is indeed interesting that by Sections 13 and 20 the applicability of Sections 76, 79 and 77 respectively of the Companies Act, 1956, have been excluded; but our attention has not been drawn to any provision in the Banking Companies Act (as it stood at the relevant time) to exclude the operation of Section 78. In the absence of such express provision, we are unable to uphold the contention of Mr. Balai Pal that there are no restrictions on banking companies so far as share premiums are concerned. We do not think it is possible to contend that Section 78 of the Companies Act, 1956, cannot control banking companies.
11. Coming now to Section 78 itself, which I have quoted above, it appears that Sub-section (1) of this section is prospective and applies to share premia actually received after the 1st April, 1956, when the Companies Act, 1956, came into force. And Sub-section (3) of Section 78 is a ' deeming provision ' with regard to premium received before the commencement of the 1956 Act. This ' deeming provision' had to be introduced as, prior to the 1956 Act, it was not necessary for companies to maintain an account called the share premium account nor were there provisions regarding the application of premium received on the issue of shares. Section 78(1) now requires an account which is to be styled as the ' share premium account '. Since this requirement did not exist before the 1956 enactment in the Explanation to Paragraph D of the First Schedule to the Finance Act, 1956, the language is ' standing to the credit of the share premium account '. The reason is that companies which did not have an account called the share premium account could also take advantage of this Explanation under Sub-section (3) of Section 78 which is obviously retrospective in operation. The retrospectivity, however, is limited to share premia collected prior to the 1st of April, 1956, forming an identifiable part of the reserves.
12. In this case the Appellate Tribunal's definite finding is that the assessee-company having received the premiums upon the issue of shares first entered the receipts under the head of share premium account and at the end of the year transferred it to the reserve fund or other reserves account. The same figure was being brought forward from year to year after the transfer and nothing has been appropriated from the said account or nothing has been written off from the said account. According to the Tribunal the amount of receipt against the premium on shares is a known figure and is an identifiable part of the company's reserves.
13. In the face of these findings, we are of opinion that the Tribunal has come to the correct conclusion in this matter. The answer to the question framed is in the affirmative.
14. The applicant will pay to the respondent the costs of this reference.
15. I agree.