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Issues:
1. Computation of capital under the Companies (Profits) Surtax Act, 1964. 2. Inclusion of specific amounts in the computation of capital. 3. Interpretation of rules regarding reserves under the Surtax Act. Analysis: The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the computation of capital under the Companies (Profits) Surtax Act, 1964. The issue at hand was whether a specific sum of Rs. 1,55,000 credited to General Reserve No. 2 should be included in the capital computation as per rule 1(iii) of the Second Schedule to the Surtax Act. The Income-tax Officer initially excluded this amount, leading to an appeal by the assessee. The Appellate Assistant Commissioner agreed with the assessee's contention that the sum should be included, resulting in the Department appealing to the Tribunal. The Tribunal divided the consideration into two parts: the amount of Rs. 4,10,000 allocated to General Reserve No. 1 and the sum of Rs. 1,55,000 allocated to General Reserve No. 2. Regarding the former, the Tribunal aligned with the Supreme Court's decision in CIT v. Mysore Electrical Industries Ltd., stating that it should be considered in the capital computation. Concerning the latter amount, the Department argued that since it was eligible for relief under section 80J, it should not be included in the reserves under the Surtax Act. However, the Tribunal, citing precedent cases, rejected this contention and ruled that General Reserve No. 2 must be considered in computing the company's capital. The judgment emphasized that the Tribunal's conclusion regarding the inclusion of Rs. 1,55,000 in General Reserve No. 2 for capital computation was correct. Therefore, the question posed in the reference was answered affirmatively in favor of the assessee. It was also mentioned that each party would bear its own costs related to the reference.
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