Sen, J. - (1.) THE Tribunal has referred the following question of law to this Court under s. 256(1) of the IT Act, 1961 ('the Act') r/w s. 18 of the Companies (Profits) Surtax Act, 1964:-- "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding that increase in the paid up share capital of the company took place on 15th Nov., 1977 and not on 1st Sept., 1977 ?"
(2.) THE assessment year involved is 1978-79 and the previous year commenced on 1st Jan., 1977 and ended on 31st Dec., 1977. The facts found by the Tribunal as stated in the statement of case is as under :-- As on 1st Jan., 1977 its paid up capital consisted of Rs. 200 only. Some time prior to 30th Aug., 1977 it made an offer to India Foils Ltd., a company incorporated in U.K. to take over its Indian business as a going-concern on certain terms and conditions. There were negotiations between the parties wherein the terms of the offer were discussed. The terms of offer, which were accepted by the U.K. company, included, inter alia, the following :-- (1) The purchaser would discharge all the liabilities of the vendor relating to the Indian business subsisting as at 31st Aug.,1977 including the liability for the remittance of past profit and head office charges of the Indian business accruing from the 1st Jan, 1977 to 31st Aug., 1977. So long as the said profit was not remitted with the permission of the Reserve Bank of India, it was provided that it was provided that the unremitted part will be held by the purchaser as interest- free loan from the vendor to the purchaser in connection with the Indian business of the vendor; (2) The purchaser-company agreed to discharge the liability to the extent of Rs.6,47,000 in connection with the demand for surtax assessment being raised on the vendor for the asst. yr. 1964-65. It was further agreed that in case the said sum of Rs. 6,47,000 or any part thereof was not required for the payment and discharge of the said surtax liability it would be treated as an interest-free loan due to the vendor by the purchaser; (3) the purchaser agreed to continue the Indian business and to continue in employment all employees in India of the Vendor and accord to them the same service terms in all respects as they enjoyed with the Vendor. (4) All income or loss on account of the Indian business from the 1st Sept., 1977 was to accrue to or be borne by the purchaser. It was specifically made clear that 'any agreement resulting from acceptance by the Vendor of the offer of the purchaser to purchase the Indian business will be conditional upon all necessary, or appropriate consents, permissions and authorities being obtained from amongst others Government of India or any other relevant authorities. (5) In addition to the above, it was provided that the Indian company would issue and allot to the Vendor, i.e., the U.K. company or its nominee or nominees 14,00,000 equity shares of Rs. 10 each at par in the capital of the purchaser, credited as fully paid up. In accordance with the aforesaid agreement, a letter was written by the assessee-company to the Controller of capital issues on 29th Aug., 1977 seeking his permission to issue 19 lakhs equity shares of Rs. 10 each. The Controller of Capital Issues conveyed his sanction to issue the shares vide his letter dt. 15th Sept., 1977 in the following terms :-- 19 lakhs equity shares of Rs. 10 each out of which shares worth Rs.140 lakhs will be issued and allotted for consideration other than cash to the U.K. company for the acquisition of the assets and liabilities of their Indian branch and the balance of Rs. 50 lakhs for cash at par to the general public by a prospectus. Out of the public issue, 25,000 shares will be reserved for firm allotment to the employees and 50,000 shares to the director of the company, their relatives, friends (all individuals) and individuals or bodies corporate having or likely to have business connection with the company in such a manner that no individual gets more than 200 shares. In the event of the under-subscription in any of these two groups, there can be a transfer of the excess to the other group. Shares not taken up by these persons will be added to the public quota. Shares allotted to these persons will not be transferable for a period of atleast two years from the date they are made fully paid-up.
(3.) THE following conditions, inter alia, were further attached to the aforesaid permission :-- (j) THE company shall ensure that the prospectus for issue of capital consented to herein shall print the following condition :-- An application should submit only one application (and not more than one) for the total number of shares required. Applications may made in single or joint names (not more than three) Two or more applications in single and / or joint names will be deemed to be multiple applications if the sole and / or the first applicant is one and the same. THE Board of Directors reserves the right to reject in its absolute discretion all or any multiple applications. (k) THE prospectus should clearly mention the name(s) of the Stock Exchange where the shares are proposed to be listed. THE entire public issued shall be got under written by the Financial Institutions/ Stock Brokers of repute. THE company shall list its share with the regional stock exchange nearest to its Registered Office. (l) THE share capital consented to herein shall be made fully paid-up within the validity of this order as in (b)(i) above. (m) THE shares in settlement of purchase consideration will be so issued to the U.K. Company that at no stage the non-resident interest in the enlarged share capital of the Indian company exceeds 74 per cent. (n) So long as the non-resident interest remains at a level higher then 74 per cent the company should not declare any dividend". Steps were also taken to obtain the permission of the RBI for the issue of shares to the non- resident and for carrying on the business in terms of the aforesaid s. 29 of the Foreign Exchange Regulation Act, 1973. The assessee has placed on record copy of letter, dt. 18th Nov., 1977 granting permission to the assessee-company in terms of s. 29(1)(a) of the Act. The letter granting permission for allotment of shares to the non-resident has not been placed on record, but, in the context of course of events indicated above., it would be fair to presume that such permission was obtained sometime after 1st Sept., 1977.;