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Capital employed in business does not include share premium

In Berger Paints India Ltd. Vs. C.I.T., Delhi-V,  the short question before the Supreme Court was  whether “premium” collected by the appellant-Company on its subscribed share capital is “capital employed in the business of the Company” within the meaning of Section 35D of the Act so as to enable the Company to claim deduction of the said amount as prescribed under Section 35D of the Act?

While dismissing the appeal the Hon'ble court held that as rightly pointed out by the learned Attorney General appearing for the Revenue, the Companies Act provides in its Schedule V- Part II (Section 159) a Form of Annual Return, which is required to be furnished by the Company having share capital every year. Column III of this Form, which deals with capital structure of the company, provides the break up of “issued shares capital break up“. This column does not include in it the “premium amount collected by the company from its shareholders on its issued share capital“. This is indicative of the fact that such amount is not considered a part of the capital unless it is specifically provided in the relevant section.

24) Similarly, as rightly pointed out, Section 78 of the Companies Act which deals with the “issue of shares at premium and discount” requires a Company to transfer the amount so collected as premium from the shareholders and keep the same in a separate account called “securities premium account“. It does not anywhere says that such amount be treated as part of capital of the company employed in the business for one or other purpose, as the case may be, even under the Companies Act.

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