CA. RAJIV GOEL, VICE-CHAIRMAN, NIRC OF THE ICAI
Income Tax Laws WALLSTREET CONSTRUCTON LIMITED V/s JCIT
CITATION: 101 ITD 156
Laws Involved: Sec. 36 (1) (iii) of the Income tax Act, 1961

Summary of facts: The Assessee is simultaneously constructing multiple projects and accounts are separately maintained for each p+roject. The assessee has borrowed on interest substantial funds, which are used as working capital for execution of the various construction projects. The assessee is following project completion method of accounting.

Issue Involved: Whether, where an assessee following project completion method of accounting, the interest identifiable with that project should be allowed as deduction in the year when the project is completed and income is offered from the project or it should be allowed on year to year basis.

Decision: Where an assessee is following project completion method of accounting, the interest identifiable with that project should be allowed only in the year when the project is completed and the income from that project is offered for taxation.
CIT V/s General Insurance Corporation Limited
Citation: 286 ITR 232
Summary of facts: The Assessee is Insurance Company. For the assessment year 1991-92 the assessee filed a return of income along with the Audit report. The assessing Officer disallowed a few expenses incurred as revenue expenditure one of them being incurred towards the stamp duty and registration fees paid in connection with the increase in authorized share capital. The respondent-assessee had during the accounting year, incurred expenditure separately for:
(i) The increase of its authorized share capital and
(ii) The issue of bonus shares.

Issue involved: Whether the expenditure incurred in connection with the issuance of bonus shares is capital expenditure of revenue expenditure.

Decision: Issue of bonus shares does not result in the expansion of capital base of the company and hence is revenue expenditure.

Reasoning: The issue of bonus shares by capitalization of reserves is merely a reallocation of company's funds. There is no inflow of fresh funds or increase in the capital employed, which remains the same. If that be so, then it cannot be held that the Company has acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and the issue of bonus shares will not result in any change in the capital structure of the company.

Corporate Laws

MOTOROLA INDIA (PRIVATE) LIMITED
Citation: 73 CLA 1

Subject : Sanction to Scheme of amalgamation could not be denied merely because a contingent liability was not reflected in the list of unsecured creditors. The contingent liability was not required to be reflected, as it had not crystallized at that stage of the proceedings.

The Transferee company was not required to increase ___ authorized share capital by following the procedure laid down in the Companies Act 1956. The authorized capital was automatically increased once the court sanctioned the scheme.

Facts: Contingent liability of Rs.176.48 Crores is not reflected in the list of unsecured creditors.

Regional Director, Northern Region, Ministry of Company Affairs, has pointed out that the authorized share capital of the transferee-Company is not sufficient to allot shares to the members of the transferor-companies and, therefore, the transferee-company may be directed to increase its authorized share capital after following the procedure, prescribed under the relevant provisions of the Act.

Decision: The argument that contingent liability is nit reflected in the list of unsecured creditors is without any merit. Mere filing of the suit to claim the said amount cannot be said to be a cause of accrued or contingent liability. The claim of the said amount is based upon unliquidated damages in respect of loss expected future profits. Since the claim is required to be established before the competent court of law, therefore, the same amount cannot be said to be a liability of the transferee-company, which was required to be reflected in the list of unsecured creditors.

With effect from the appointed date, the entire authorized share capital of the transferor-companies shall stand merged and transferred to and re-organized and reclassified as the authorized share capital of the transferee-company. Thus, the authorized share capital of the transferee-company prior to merger was Rs.2,000,000,000 would become Rs.3,461,000,000. The said authorized capital would be sufficient to allot equity share to the shareholders of the transferor-companies and there is not need to pay separate stamp duty and requisite fees as the transferor-companies had already paid requisite fee at the time when its authorized share capital was increased.

BANARAS BEADS LIMITED IN RE
Citation: 132 COM CAS 548

Subject: The scheme of amalgamation could not be sanctioned as shareholders holding 32.15 percent of shares were restrained from participating in the meetings. The award passed for interim injunction was also found without any jurisdiction and moreover, the meeting of the shareholders of the companies was not held in accordance with the provisions of the Companies Act 1956

Facts: The meetings of the shareholders of the companies were not held in accordance with the provisions of the Companies Act. A group of shareholders of the companies representing 32.15 per cent, shareholders were restrained by police force to enter the venue of the meeting on February 6, 1999, in pursuance to the orders passed by the District Judge having no jurisdiction to interfere in the matter. They were sought to be represented through their attorneys, who used proxies in terms of the arbitration award, without their consent.

Decision: The scheme cannot be said to be approved by the statutory majority, which acted in a bona fide manner. Further, the scheme is not found to be based on any broad or general principles inherent in any compromise or settlement. Thus, overall as the scheme was not found to be based on any broad or general principles inherent in any compromise or settlement, it could not be sanctioned.

SEIL POWERGEARS LTD. IN RE
Citation: 68 SCL 483

Subject:The transferee company's application for directions to dispense with meetings of its equity shareholders and unsecured creditors was allowed.

Facts: This is an application under sections 391 (1) and 393 of the Companies Act, 1956 read with rule 9 of the Companies (Court) Rules, 1956 for directions to dispense with the meeting of the equity shareholders and unsecured creditors of the applicant-transferee company.

Decision: >The holding of meeting of equity shareholders and unsecured creditors was dispensed with as they would get ample opportunity to file their objections, if any, against the scheme of amalgamation with the transferor company when the matter would come up for court's sanction.