M/S. BERGER PAINTS INDIA LTD. vs. C. I. T. DELHI-V

CIVIL APPEAL No. 2162/2007Supreme Court[2017] 4 S.C.R. 73528 March 2017Bench: 2 JudgesAuthor: R.K. AGRAWAL, ABHAY MANOHAR SAPRE9 pages
AI SummaryDismissed

What were the facts?

M/s. Berger Paints India Ltd. (the assessee) filed income tax returns for Assessment Years 1996-97 and 1997-98. The Assessing Officer (A.O.) processed the returns and issued a notice under Section 143(2) of the Income Tax Act, 1961, questioning the deduction claimed under Section 35D for preliminary expenses. The assessee claimed this deduction based on "capital employed in the business of the company," which they argued included amounts received as premium on issued share capital. The A.O. disagreed, disallowing a portion of the deduction. The Commissioner (Appeals) allowed the assessee's claim, but the Income Tax Appellate Tribunal reversed this decision. The High Court dismissed the assessee's appeal, leading to the present appeals before the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the "premium amount" collected by the Company on its subscribed issued share capital is not and cannot be considered part of the "capital employed in the business of the Company" for the purpose of Section 35D(3)(b) of the Income Tax Act, 1961. The Court reasoned that if the legislature intended to include share premium in the capital employed, it would have been specifically mentioned in Explanation (b) of sub-section (3) of Section 35D. The absence of such a specific mention indicates the legislative intent not to extend the benefit of Section 35D to such sums. The Court also referred to the Companies Act provisions, noting that while Section 78 mandates a "securities premium account," it does not treat this amount as part of the company's capital employed for deduction purposes. The Court affirmed the view of the Tribunal and the High Court, dismissing the assessee's appeals. No issue was expressly left undecided.

What were the issues?

1. Whether the "premium" collected by the appellant-Company on its subscribed share capital is "capital employed in the business of the Company" within the meaning of Section 35D(3)(b) of the Income Tax Act, 1961, for the purpose of claiming deduction of preliminary expenses. Assessee's Contention: The assessee argued that the premium received on issuing shares formed part of the capital employed in their business and, therefore, the deduction claimed under Section 35D was admissible. They relied on the principle that share premium is a reserve in the balance sheet and part of the company's capital base. Revenue's Contention: The revenue contended that the "premium amount" received on share capital is not included in the definition of "capital employed in the business of the company" for the purpose of Section 35D(3)(b). They argued that if the legislature intended to include it, it would have been explicitly stated in the Explanation to Section 35D(3).

Which sections of the Income-tax Act were involved?

Section 35D,Section 143(1B),Section 143(2),Section 260A,Section 78

AI-generated summary — verify with the full judgment below

[2017) 4 S.C.R. 735 M/S. BERGER PAINTS INDIA LTD. A v. C. I. T. DELHI-V (Civil Appeal No. 2162 of2007) MARCH 28, 2017 B (R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.] Income Tax Act, 1961 - s.35D and ss.(l), 143(JB), 143(2) - Whether "premium" collected on subscribed share capital of a company is "capital employed in the business of the Company" C within the meaning of s.35D for claiming deduction of the said · amount u/s.35D - Held: The "premium amount" collected by Company on its subscribed issued share capital is not and cannot be said to be the part of "capital employed in the business of the Company" for the purpose of s.35D(3)(b) - If the intention of the Legislature were to treat the amount of "premium" collecte:l by D Company from its shareholders while issuing shares to be part of "capital employed in the business of the company", then it would have been specifically said so in the Explanation (b) of sub-sec. (3) of s.35D - However, it was not said - Appellant-Company not entitled to claim any deduction in relation to amount received towards E premium from its shareholders on the issued shares of the Company.

Dismissing the appeals, the Court HELD:

The order continues below.

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