TaxTMI 
TaxTMI 
2007 (8) TMI 461
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....hem entitled to object it. 2. Initially, the petitioner-company was registered on 31-7-1980, under the provisions of the Act, as a company limited by shares in the name of Prakash Pipes and Industries Limited in the State of Haryana. Subse-quently, the name of the petitioner-company was changed to Prakash Industries Limited and a fresh certification of incorporation was issued by the Registrar of Companies. The registered office of the petitioner- company is situated at 15 km stone, Delhi Road, Hissar. The main objects of the petitioner-company are manufacture of all kind of PVC pipes, picture tubes, worsted woollen yarn, steel products like sponge iron, billets, bloom, channel, structure, generation of power through any mode and mining of coal and iron ore, etc., and other objects as set out in the memorandum of association thereof. The memorandum and articles of association of the petitioner-company has been annexed with the petition as annexure P-2. The authorised share capital of the petitioner-company is Rs. 160 crores divided into 15 crores equity shares of Rs. 10 each and 10 lakhs preference shares of Rs. 100 each, of which 98313106 equity shares of Rs. 10 each and 8,00,000....
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....y." 6. In the petition, the following reasons for reduction of the share capital of the petitioner-company have been mentioned : "Company has taken various initiatives for improving its financial performance. In accordance with the provisions of section 78 read with section 100 of the Companies Act, 1956, the application/utilisation of securities premium account for the purpose of meeting the 'deferred tax liability' in terms of Accounting Standard-22, 'accounting for taxes of income' issued by the Institute of Chartered Accountants of India and for writing off the 'deferred revenue expenses' and 'capital issue expenses', if any will be in the interest of the company and by setting-off the securities premium account against above will result in improvement in future profitability and consequent increase in earnings per share and return on capital employed. This should also help the company to show its operational efficiency better in future years." 7. It has been further stated that reduction of capital does not involve either the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital, and the petitioner-company has no c....
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....tal involves either the diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, and in any other case if the company court so directs, such proposed reduction is to be approved by the creditors of the company. 13. In this petition, the petitioner-company is seeking dispensation of complying with the mandatory requirement of section 101(2) of the Act, as the proposed reduction of share capital, i.e., utilisation of securities premium account of the company for the purpose of meeting the "deferred tax liability" in terms of Accounting Standard-22, does not involve either diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital, and the petitioner-company has no creditor or any class of them entitled to object the proposed reduction of share capital. 14. Learned counsel for the petitioner-company submitted that where the reduction of the share capital is by way of set off of accumulated losses against the share premium account, there is no diminution of liability or payment to any shareholder of any paid-up capital, the interest of the creditors is also not lik....
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....mitted to dispense with the requirement of sub-section (2) of section 101 of the Act. 17. Now the question arising for consideration is : Whether the "deferred tax liability" can be adjusted towards the securities premium account and if it can be, then what is the procedure to reduce the share premium account ? 18. Section 78(1) of the Act specifies that the provisions of the Act relating to reduction of share capital of the company shall, except as provided in that section, apply as if the securities premium account were the paid-up share capital of the company. Sub-section (2) of section 78 of the Act provides that the securities premium account may be applied by the company for the following purposes : (1)The paying up of fully paid bonus shares to be issued by the company to its members; (2)The writing-off of preliminary expenses of the company; (3)The writing-off of the expenses of, or underwriting commission paid or discount allowed on, any issue of shares or debentures of the company; (4)The providing of a premium payable by the company on redemption of redeemable shares or redemption of debentures of the company; (5)Purchase of its own shares or other specified secur....
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....lance in the securities premium account of the company for the purpose of meeting the 'deferred tax liability' in terms of Accounting Standard-22 issued by the Institute of Chartered Accountants of India, i.e., 'accounting for taxes on income' and for 'deferred revenue expenses' and for 'capital issue expenses' of the company. Resolved further that the purpose of giving effect to the aforesaid resolution, the board of directors of the company (including any Committee of the Board for this purpose) be and is hereby authorized to take all such acts, deeds, matters and things as may be considered necessary." 21. Counsel for the petitioner-company contends that many High Courts have confirmed the reduction of share capital on account of utilization of securities premium account of the company for meeting the deferred tax liability in terms of Accounting Standard-22, issued by the Institute of Chartered Accountants of India. In this regard, learned counsel referred to the decision of the Calcutta High Court rendered in C.A. No. 95 of 2007 connected with Company Petition No. 43 of 2007, in the matter of Adhunik Metaliks Ltd. He also referred to a decision of the Delhi High Court render....