TaxTMI 
TaxTMI 
1987 (11) TMI 58
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....he case, the Tribunal was right in holding that the applicant was not entitled to development rebate on safe deposit lockers ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 6,12,677 is taxable as income of the assessee for the assessment year 1973-74 ? The facts of the cases behind the above formulation of questions of law are these: The assessee, which is common to both the cases, is the Syndicate Bank which is a nationalised banking institution and a public limited company. Before we set out further facts, we wish to make it clear that we are confining our attention only to question No. (2) since question No. (1) is covered by the ruling of this court in the ....
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....ommission ". The appellate authority held that the assessee acted in the capacity of an underwriter and not in the capacity of an investor while receiving the " brokerage and commission " and hence the money received is only revenue income. The Appellate Assistant Commissioner held that the assessee was carrying on the activity of an underwriter in the course of banking business and whatever brokerage and commission was received by the assessee was only in respect of the underwriting which the assessee had done though the assessee was the sole subscriber to the debentures and securities though being an underwriter. It is now contended before us by learned counsel for the assessee, Sri Kumar, that though the assessee had acted as an under....
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....does not relate to the activity of underwriting which is carried on as a part of banking business. Learned counsel further contended that the impugned order would lead to the presumption that a person is making profit out of himself. Learned counsel for the applicant-petitioner has relied upon the decision rendered in the case of U.P. State Industrial Development Corporation Ltd. v. CIT [1981] 130 ITR 835 (All). In this case, the Allahabad High Court has held that so far as the shares agreed to be underwritten and purchased by the U.P. State Industrial Development Corporation Ltd. is concerned, the transaction in substance results in the underwriter purchasing those shares for a consideration which is equal to the face value of the shares a....
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....akes the risk of underwriting the shares of a substantial amount of an established company or a company which is not in a position to do its activity due to paucity of funds. The underwriter agrees to purchase the shares of the company floated by it provided it offers to the underwriter certain commission and brokerage on the shares to be purchased by it. In other words, they, in such cases, subscribe to the company's share capital by purchasing its shares at a discounted value and the, value of the shares is reduced by giving to the underwriter such commission and brokerage. For example, if shares of Rs. 100 are offered to others at their face value, the underwriter agrees to take them for a smaller price represented by the face value of t....
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....on is charged by a person in respect of the transaction entered into between two other persons. Whenever some commission is paid by a seller to the purchaser, payment of such commission, in substance, results in reducing the amount of consideration for which the seller agrees to sell the property. It makes no difference whether the sale consideration is reduced by directly saying that the company agrees to sell the shares to the underwriter at reduced amounts or the company says that it will sell the shares to the underwriter at the face value but will give them certain amount as commission and brokerage. The view expressed by us is fully in accordance with normal trade practice." According to Sri K. Srinivasan, learned counsel for the C....
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.... warranted since the entire brokerage and commission is wholly intertwined with the sole investment of the assessee through direct subscription to the shares in the absence of public subscription. This, in essence, is all that has happened in the underwriting done by the assessee. The sum of Rs. 6,12,677 representing the brokerage and commission does not lend itself to the classification of an income arising out of the business of underwriting or business profit. Viewed in, this light, the perception that a person cannot make a profit out of himself is contextually relevant. The contentions of Sri Kumar, learned counsel for the assessee, find favour with us. We are convinced that the guidelines communicated by the Indian Banks Associatio....