TaxTMI 
TaxTMI 
2005 (9) TMI 218
X X X X Extracts X X X X
X X X X Extracts X X X X
....er cent of capital employed or cost of project whatever is higher as per the provisions of section 35D(3) of the Act. He further found that capital employed is defined in Explanation (b) of section 35D(3) of the Act and such capital employed according to the definition given in aforementioned Explanation is a sum aggregate of the issued share capital, debentures and long term borrowings as on the last date of previous year. From the balance sheet Assessing Officer found that issued share capital of the assessee was only Rs. 4,00,71,000 and the cost of project was Rs. 2,69,27,751. Therefore, he took the issued share capital being the higher amount and concluded that assessee is eligible for 2.5 per cent of such capital which he worked out at Rs. 1,00,177. Thus he restricted the claim of assessee from Rs. 4,71,244 to Rs. 1,00,177. In this way an addition of Rs. 3,71,067 was made to the income of assessee. An appeal was filed against the said order of Assessing Officer. From the balance-sheet ld. CIT(A) found that share capital, reserve and surplus of the assessee as on last date of the accounting year was Rs. 18,87,35,238. Therefore, he observed that 2.5 per cent thereof was Rs. 47,1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....should be restored and that of CIT(A) should be set aside. 5. On the other hand, ld. Counsel of the assessee pleaded that share premium comprising in the aggregate sum mentioned against the head "reserve and surplus" should have been considered as an "issued share capital". He in this regard referred to Schedule 2 annexed to the audit report which gives the following details to the "reserve and surplus" outstanding as at the end of the relevant previous year:- Schedule- 2 Reserve and Surplus Rs. INVESTMENT ALLOWANCE (UTILISED) RESERVE Balance as per last Balance Sheet 821849 GENERAL RESERVE Rs. Balance as per last Balance Sheet 64325301 Le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s he pleaded that action of CIT(A) to the extent it relates to share premium should be upheld. 6. We have carefully considered the rival submissions in the light of material placed before us. The Explanation to section 35D(3) reads as under:- Explanation.-In this sub-section- "(a) cost of the project means- (i) in a case referred to in clause (i) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commences; (ii) in a case referred to in clause (ii) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the extension of the industrial undertaking is completed or, as the case may be, the new industrial unit commences production or operation, insofar as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....um of Rs. 14,86,64,238 (the amount outstanding under the head 'reserve and surplus' the details of which have already been reproduced above) as part of issued share capital and has concluded that 2.5 per cent of such capital employed was within the amount of total expenditure incurred by assessee on public issue and thus the assessee was entitled to claim full deduction of Rs. 4,71,244. Here the submission of ld. Counsel of the assessee is that in any case, share premium has to be considered as "issued share capital". There is a force in such contention that the amount outstanding on account of share premium has to be treated as issued share capital. Section 78 of the Companies Act, 1956 deals with the subject "application of premiums received on issue of shares". Said section reads as under: "(1) Where a company issues share at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called "the share premium account", and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premi....