SETH, J. - (1.) THE assessee in these three references is M/s. U.P. State Industrial Development Corporation Ltd., Kanpur, a State undertaking, whose object is to develop industries in the State. With this object in view it arranges finance for various industrial projects whether owned or run by the Government, statutory body, private companies, firm or individual, etc., and also works as an underwriter. One of the conditions on which the assessee undertakes to finance the companies is that on the shares of such companies subscribed by the public it would get underwriting commission and brokerage at the rate of 2% and 1% respectively. In the various years, the assessee is shown to have received the following amounts by way of underwriting commission and brokerage : Assessmentyears 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 ITR No.31 of 1976 1971 -72 1,15,000 ITR No.37 of 1976.
(2.) THE assessee did not include the aforementioned amounts of commission and brokerage in the profit and loss accounts of the relevant years, but showed these amounts as going to reduce the cost of the shares acquired by the corporation as an underwriter. While dealing with the assessment for the years 1965 -66, the ITO did not find the technique of underwriting commission and brokerage in order. Accordingly, after giving opportunity to the corporation to explain the basis of the considerations on which the shares of the company underwritten by it had been purchased, he held that in relation to the underwritten shares purchased by the assessee, its position was not that of a dealer in shares, but it merely was that of an investor in shares which investment was of a capital nature. These shares, accordingly, did not form part of assessee's stock -in -trade. He, therefore, held that the underwriting commission and brokerage was liable to be added back to the profits earned by the assessee. In the result, he added a sum of Rs. 1,23,806 in the assessee's taxable profits for the year 1965 -66. He followed his order for the assessment year 1965 -66, while making assessment for the years 1966 -67, 1967 -68, 1969 -70, 1970 -71 and 1971 -72 as well. The AAC took up the appeal for the assessment years 1965 -66, 1966 -67, 1967 -68 and 1969 -70, together and disposed of them by a consolidated order dated October 25, 1972. He held that the underwriting commission was includible in the assessee's income in the year in which it accrued and that it accrued in the years in which the underwriting agreement was completed. He also held that the brokerage on shares was not includible in the income of the assessee and that it had to be adjusted against the cost of shares. The profit and loss on sale of shares in a particular year was to be arrived at by deducting from the sale proceeds of the shares, the appropriate cost price, which was includible in the income of the relevant year. He, accordingly, after allowing partial relief to the assessee, confirmed the addition of the underwriting commission. The AAC followed his decision in the appeal for the assessment years 1970 -71 and 1971 -72 as well.
(3.) 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 underwriting commission charged by the assessee on the shares subscribed by the public alone was taxable as the income of the assessee. The commission referable to the shares underwritten by the assessee and purchased by it, did not represent the assessee's taxable income. Further, the commission income in respect of the shares subscribed by the public accrued not on the date when the underwriting agreement was made but it accrued between the period during which the offer for public subscription of shares indicated in the prospectus remained open. Such period commenced with the start of banking hours on the date on which subscription for the shares opened and according to the period stated in the prospectus, ended with the end of the banking hour on the date on which such subscription was closed. The Tribunal further opined that so far as the underwriting commission referable to the underwritten shares purchased by the assessee was concerned it went to reduce the cost of those shares in the hands of the assessee. In the result, the Tribunal allowed the appeal and directed the ITO to modify the assessment of the assessee accordingly. The Tribunal followed its decision in the appeals disposed of by it in respect of the assessment years 1970 -71 and 1971 -72.;