784/CBDT. - Income Tax - 784/CBDT

INSTRUCTION NO. 784/CBDT Dated : November 11, 1974 Section(s) Referred: 34(3) of IT Rule Statute: Income - Tax Act, 1961 Under the companies (Profits) surtax tax Act, 1964 - hereinafter referred to as the Surtax Act, surtax is leviable on companies on the amount by which the 'chargeable profits' exceed the statutory deduction equal to 10 per cent. of capital of the company or an amount of Rs.2 lakhs, whichever is greater. The Second Schedule to the Surtax Act lays down the mode of computing the capital of a company. 2. Rule 1 of the Second Schedule lays down that the capital of a company shall be the aggregate of the amounts as on the first day of the previous year relevant to the assessment year, among other things, of- (a) its reserves, if any, created under proviso (b) to clause (vi-b) of sub-section (2) of section 10 of Income-tax Act, 1922 or under sub-section (3) of section 34 of Income-tax act, 1961, i.e., development rebate reserve; (b) its other reserves as reduced by the amounts credited to such reserves as have been allowed as a deduction in computing the income of the company for the purposes of Income tax act, 1922 or 1961. Explanation to Rule 1 further clarifies that any amount standing to the credit of any account in the books of a company as on the first day of the previous year relevant to the assessment year which is of the nature of item (5) or item (6) or item (7) under the heading "RESERVES AND SURPLUS" or any item under the heading "Current Liabilities and Provision" in the column relating to 'Liabilities' in the form of balance-sheet given in Para I of Schedule VI to Companies Act, 1956 shall not be regarded as a reserve for the purpose of computation of capital of a company under the provisions of the Schedule.