01 June 2012
A Ltd. Company has an Accumulated Losses of Rs.8 crores during the financial year ended 31st March,2011 and in the same Rs.1 crore lying in Share Premium a/c.Can this Share Premium balance be utilised towards adjustment of accumulated losses? If so adjusted,will it amount to Reduction of Capital?
Securities Premium Account can be used only for the four purposes as stated in Sec 78 (2) of the CA, 1956 + For buying back of securities as stated in Sec 77A (1)
Writing off of Accumulated Losses does not form part of any of the aforesaid purposes. Therefore, no adjustment from Securities Premium Account is permitted
Revaluation reserves should be adjusted only to write off the revalued value of the asset over the useful life. Hence even that is not permitted.
The following judgement will help you:
J. K. Lakshmi Cement Ltd. (Taxpayer) v. ACIT (ITAT Kolkata) – in computing the book profit for the assessment years 2006-07 and 2007-08, the assessee was entitled to deduction in terms of clause (iii) of the Explanation to section 115JB(2) of the Act the adjustment of debit balance in the Profit and Loss Account with share Premium Account and Revaluation Reserve made on September 30, 2000, which is required to be excluded from consideration and accordingly, AO is required to determine amount of loss brought forward or unabsorbed depreciation for each of years without taking said adjustment into consideration and allow deduction in respect of lesser of two amounts.
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