TaxTMI 
TaxTMI 
1980 (6) TMI 5
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....sp; --------------------------------------- Assessment years Amount (Rs.) --------------------------------------- 1965-66 1,23,806 1966-67 2,20,059 ITR No. 37 of 1976 1967-68 4,26,683 1969-70 1,77,065 1970-71 4,26,685 ....
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....underwriting commission. The AAC followed his decision in the appeal for the assessment years 1970-71 and 1971-72 as well. When at the instance of the assessee the matter went up before the Income-tax Appellate Tribunal, the Tribunal disposed of the appeals for the assessment years 1965-66, 1966-67,1967-68 and 1969-70 by a common order dated May 29, 1974, and it followed its decision in respect of the appeals for the years 1970-71 and 1971-72 also, which appeals were disposed of by it on August 26, 1974, and October 1, 1974. The Tribunal pointed out that the decision of the AAC that the amount of brokerage charged by the assessee in respect of shares underwritten by it merely went to reduce their cost and that the same could not be treated as income, has not been questioned by the revenue. The only controversy with regard to underwriting commission before the Tribunal was, as to whether or not such commission which the assessee was entitled to receive from various companies, formed part of the assessee's income and if so when such income accrued. The Tribunal, after considering the circumstances in which the assessee-company had undertaken to underwrite the shares, held that the....
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.... 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 assessees' income of that year ? " Normally understood, the business of an underwriter is that of guaranteeing to subscribe for an agreed number of shares (or amount of stock) usually being the difference between the shares (or stock) issued and those taken up by the public. In consideration of this guarantee, the company making the issue agrees to pay a commission termed as underwriting commission. An underwriter thus takes 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 exam....
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....en dealing with the matter, as would be evident from the following observations made by the Tribunal in para. 21 of its order: " The practice of the assessee, as stated by it, is that it first adjusts the brokerage and commission towards the cost of the shares, which are underwritten by it, but the commission and brokerage earned on shares not subscribed by it are taken to the profit and loss account. The practice of the assessee may be illustrated. If the assessee underwrites 100 shares, out of which 50 shares are taken over by the public, the corporation only subscribes 50 shares. In the above circumstances, the commission and brokerage earned on 50 shares, which are subscribed by others are taken to the profit and loss account. But the commission and brokerage earned on 50 shares, which are taken by the corporation, are adjusted towards the cost of shares. " In this view of the matter, it hardly lies in the mouth of the assessee now to contend that, in the circumstances, the underwriting commission, earned by the corporation on the shares subscribed by the public, should not be taxable. The view expressed by the Tribunal that the underwriting commission in the case of shar....