Commissioner of Income Tax vs U.P. State Industrial Development Corpn.

R.K. Agrawal, J.—The income tax Appellate Tribunal, Allahabad, has referred the following two questions of law u/s 256(1) of the income tax Act, 196 (hereinafter referred to as "the Act") for opinion to this Court : 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal''s view, that underwriting commission earned by the Corporation on the shares subscribed by the public only is taxable as income of the year is legally correct ?

Whether the Appellate Tribunal is legally correct in its opinion that the underwriting commission earned on the shares subscribed by the Corporation is nothing but the discount against the shares and goes to its cost and, therefore, no income is earned by the Corporation ?

Briefly stated the facts giving rise to the present Reference are as follows :

The reference relates to the assessment years 1972-73 and 1973-74. The respondent-assessee is a company owned by the Government of Uttar Pradesh. Out of the numerous activities carried on by it the respondent underwrites issues of shares of various companies and in that connection it receives commission in respect of those shares, which were purchased by the public as well as those shares which if not subscribed by the public had to be purchased by it as an underwriter. The respondent had claimed that no part of underwriting commission was taxable. The plea of the respondent was, however, not accepted by the Assessing Officer who held that underwriting commission is an income earned by the respondent, which is chargeable to tax. The Appellate Assistant Commissioner of income tax had held that the underwriting commission received by the respondent towards the shares subscribed by the general public as its income chargeable to tax whereas the underwriting commission received on the shares which were not subscribed by the general public and had to be taken by the respondent as an obligation of being underwriter did not form part of its income and, therefore, could not be included in the taxable income. It went to reduce the cost of the shares compulsorily purchased by it as an underwriter. The order has been upheld by the Tribunal.

We have heard Sri Shambhu Chopra, learned Standing Counsel appearing for the Revenue and Sri S.N. Shukla, learned counsel for the respondent.

It may be mentioned here that this Court in the case of U.P. State Industrial Development Corporation Ltd. Vs. Commissioner of Income Tax, has held that the commission received by the Corporation in respect of the shares subscribed for by the public is no doubt its income but the commission in respect of the unsubscribed shares which it is bound to buy merely goes to reduce the cost of the shares and cannot be treated its income. The aforesaid decision has been affirmed by the Apex Court in the case of COMMISSIONER OF Income Tax Vs. U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION., . In this view of the matter, we answer both the questions of law referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. However, there shall be no order as to costs.