LexCOMMISSIONER OF INCOME TAX, KANPUR versus U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION
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A B COMMISSIONER OF INCOME TAX, KANPUR v. U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION APRIL 11, 1997 [S.C. AGRAWAL AND G.T. NANAVATI, JJ.] Income Tax Act, 1961 : "U11de1w1iting Commission" eamed by assessee in respect of shares, C which were not s11b.mibed by public, and were purchased by assessee-Held, could not be treated as a part of assessee's taxable i11come. D P.M. Mohammed Meerakhan. v. Commissioner of Income Tax, Kera/a, (1969) 73 ITR 735, relied on. Kedar Nath Jute Manufacturing Company v. Commissioner of Income Tax, (1971) 82 ITR 363 and Mmvi I11dustries Ltd. v. Commissioner of Income Tax, (1971) 82 ITR 835, held not applicable. State of Tra11vancore v. Commissioner of Income Tax, (1986) 158 IT~ E 102; Whimsier & Co. v. Commissione1:r of Inland Revenue, 12 T.C. 813 and Commissioner of Inland Reve11ue v. Cock Russell & Co. Ltd., 29 T.C. 387, referred to. Accountancy by William Ribb/es, 3rd Edn., page 1144 (Chapter XXVI); Book Keepi11g and Accounts by Emest Evan Spicer a11d Emest C. F Pug/er, 10th Edn., page 650 Dick.fee's Auditing 17th Edn., pages 279 and Auditing Theory and Practice by R.K. Mo11togon11i, 2nd Edn., pages 215· 216, referred to. Words and Pharases : G "Undenwiting'~ "Undenvriting Commission ''-Meaning of CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.1739-40 of 1981. From the Judgment and Order dated 30.6.80 of the Allahabad High H Court in I.T.R. Nos. 31 and 137 of 1976. 846 .. C.I.T., KANPUR v. U.P.S.I. DEV. CORPN. [S.C.AGARWAL, J.] 847 P.A. Choudhary, Dhruv Mehta and B.K. Prasad for the Appellant. A Manoj Swarup and Mrs. Lalitha Kohli for the Respondent. The Judgment of the Court was delivered by S.C. AGRAWAL, J. These appeals, by certificate granted under B ' Section 261 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), have been filed by the Revenue against the judgment of the Al- lahabad High Court dated June 30, 1980 in Income Tax References Nos. 31 and 137 of 1976. By the said judgment the High Court has answered the following question against the Revenue and in favour of the U.P. State C Industrial Development Corporation (hereinafter referred to as 'the assessee') : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that under writing commission in D the case of shares held by the assessee itself and not actually subscribed by others was reducing the cost of the shares in the hands of the assessee and was not separately taxable as the assessee's income of that year?" The references relate to the assessment years 1970-71 and 1971- 72. The assessee is 3; State undertaking. Its shares are wholly subscribed by the State of Uttar Pradesh. It has been incorporated with the object of developing industries in the State of Uttar Pradesh and with that end in view it finances industrial projects or enterprises, whether owned or run by the Government, a statutory body, private company, firm or individuals etc. One of the clauses for financing the company by the assessee was that on the shares of such companies subscribed by public the assessce was entitled to get commission as well as brokerage on the sale of shares of such companies and in case the shares of such companies were not subscribed E F by the public in toto the assessee was obliged to subscribe those shares at G face value but was entitled to underwriting commission and brokerage in the same manner as if the shares of such companies were subscribed by the public. The method adopted by the assessee was that instead of crediting the underwriting commission and brokerage to its profit and Joss account in the case of such companies the shares of which had to be H 848 SUPREME COURT REPORTS [1997] 3 S.C.R. A subscribed by the assessee itself, it used to reduce the cost of the shares held by it as stock-in-trade. During the previous year relevant to the assessment year 1970-71 the assessee had earned by way of underwriting commission a sum of Rs. 1,01,250 and brokerage to the extent of Rs. 33, 719 while the assessee offered a sum of Rs. 12,535 out of the aforesaid receipts B as its taxable income. In the previous year relevant to the assessment year 1971-72 the assessee earned by way of underwriting commission and brokerage a sum of Rs. 1,15,000 and no part of it was included in its taxable income. While making the assessment the Income Tax Officer added the entire amount received by the ass
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