2007 (11) TMI 401

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..... ('Income-tax Act') and the Constitution of India?" 2. M/s. J.K. Industries Ltd. is a public limited company. It was incorporated in 1951. It carries on the business of manufacture and sale of automotive tyres, tubes, sugar and agrigenetics. It has a registered office at Calcutta. It seeks to challenge AS 22 issued by Institute of Chartered Accountants of India (for short, 'Institute') which has been made mandatory for all companies listed in Stock Exchanges in India in preparation of their accounts for the financial year 2001-02 onwards. 3. On 7-12-2006 the Central Government prescribed AS 22 under section 211 (3C) of the Companies Act by the Companies (AS) Rules, 2006. Before that date, AS 22, when issued in 2001, was challenged in writ petitions filed before Madras, Karnataka, Calcutta and Gujarat High Courts. On transfer petitions, under section 139A of the Constitution, filed by the Institute, this Court vide order dated 17-2-2003 was pleased to transfer the writ petitions filed in various High Courts to the Calcutta High Court. Meaning and purpose of AS 4. In its origin, Accounting Standard is a policy statement or document framed by Institute. Accounting Standards establ .....

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..... erence between total assets less liabilities but the value attributable to each asset and each liability is often subjective. It depends on estimates. This is where the Accounting Standards help. They reduce the subjectivity. Therefore, Accounting Standards help to arrive at the best possible estimates. This estimation/subjectivity is also on account of the conceptual difference between 'accounting income' and 'taxable income'. Accounting income is the real income. Tax laws lay down rules for valuation of inventories, fixed assets, depreciation, bad debts, etc., based on artificial rules and not on the basis of accounting estimates, which results in mismatch between accounting and taxable incomes. For example, a fixed rate of depreciation may, for some companies, result in computing lower than the actual income if the actual erosion in the value of the asset is lower than the depreciation calculated at the fixed rate and higher than actual income for others where assets erode faster. Accounting income is normally used as a relevant measure by most stakeholders. However, on account of artificial set of rules used in computation of taxable income one finds that accounting income diff .....

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..... r example, exchange difference in respect of unpaid liability for acquisition of an imported asset has been allowed in the past to be adjusted with the carrying costs of the fixed assets instead of recognizing the exchange difference in the profit and loss account. 10. Lastly, it is important to note that Accounting Standards and taxation of income are two independent subjects. The object behind AS is to remove this divergence by making Accounting Income a Taxable Income. Accounting income can never negate True Income. Relevant provisions of the Companies Act, 1956 and Analysis thereof 11. Before analyzing the provisions of the Companies Act, we quote hereinbelow the following provisions from the Companies Act, which read as follows : "PREAMBLE The Companies Act, 1956 (ACT 1 OF 1956) [18th January, 1956] An Act to consolidate and amend the law relating to companies and certain other associations. Be it enacted by Parliament in the Sixth Year of the Republic of India as follows:-" "PRELIMINARY Section 2(33) 'prescribed' means, as respects the provisions of this Act relating to the winding up of companies except sub-section (5) of section 503, sub-section (3) of section 55 .....

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..... ks of account and other books and papers shall be open to inspection by any director during business hours. (4A) The books of account of every company relating to a period of not less than eight years immediately preceding the current year together with the vouchers relevant to any entry in such books of account shall be preserved in good order : Provided that in the case of a company incorporated less than eight years before the current year, the books of account for the entire period preceding the current year together with the vouchers relevant to any entry in such books of account shall be so preserved. (5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company thereunder, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both : Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to .....

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..... as a 'financial year' and it may be less or more than a calendar year, but it shall not exceed fifteen months : Provided that it may extend to eighteen months where special permission has been granted in that behalf by the Registrar. (5) If any person, being a director of a company, fails to take all reasonable steps to comply with the provisions of this section, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both : Provided that in any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeing that the provisions of this section were complied with and was in a position to discharge that duty : Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully. (6) If any person, not being a director of the company, having been charged by the Board of directors with the duty of seeing that the provisions of this section are complied with, makes default in doing so, he shall, in re .....

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..... mined by the Central Government at the time of their appointment and any vacancy in the membership in the Committee shall be filled by the Central Government in the same manner as the member whose vacancy occurred was filled. (5) The non-official members of the Advisory Committee shall be entitled to such fees, travelling, conveyance and other allowances as are admissible to the officers of the Central Government of the highest rank. Section 211. Form and contents of balance sheet and profit and loss account.-(1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading 'Notes' at the end of that Part: Provided that nothing contained in this sub-section shall apply to any insurance or banking .....

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..... the Board of directors of the company, by order, modify in relation to that company any of the requirements of this Act as to the matters to be stated in the company's balance sheet or profit and loss account for the purpose of adapting them to the circumstances of the company. (5) The balance sheet and the profit and loss account of a company shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose- (i )in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938; (ii )in the case of a banking company, any matters which are not required to be disclosed by the Banking Companies Act, 1949; (iii)in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by both the Indian Electricity Act, 1910, and the Electricity (Supply) Act, 1948; (iv)in the case of a company governed by any other special Act for the time being in force, any matters which are not required to be disclosed by that special Act; or (v )in the case of any company, any matters which are not requi .....

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..... re enter the date as at which the balance-sheet is made out.] Instructions in accordance with which liabilities should be made out Liabilities Assets Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b )   *Share Capital   *Fixed Assets     *Terms of redemption or conversion Authorised ... shares of Rs. ... each.   Distinguishing as far as possible   *Under each head the original cost, and the additions   Instructions in accordance with which liabilities should be made out Liabilities Assets Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b ) (if any), or any redeemable preference capital to be stated, together with earliest date of redemption or conversion     between expenditure upon ( a .....

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..... rred to in this paragraph may be made in the first balance-sheet made out after the issue of the said notification.           Explanation 2: In this paragraph, unless the context otherwise re-quires, the expressions   Instructions in accordance with which liabilities should be made out Liabilities Assets Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b )           'rate of exchange', 'foreign currency' and 'Indian Currency' shall have the meanings respectively assigned to them under sub-section (1) of section 43A of the Income-tax Act, 1961 (43 of 1961), and Explanation 2 and Explanation 3 of the said sub-section shall, as far as may be, apply in relation to the said paragraph as they apply to the said sub-section (1).           In every case where the original cost cannot be ascertained, without unreasonable expense or delay, the valuation shown by the books shall be given. For the purpo .....

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.....       Instructions in accordance with which liabilities should be made out Liabilities Assets Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b )   a contract without payments being received in cash.         +Specify the soure from which bonus shares are issued, e.g., capitalisation of profits or Reserves or from Share Premium Account. Of the above shares... shares are allotted as fully paid- up by way of bonus shares+         +Any capital profit on re-issue of forfeited shares should be transferred to Capital Reserve. Less : calls unpaid :           1[( i) By managing agent or secretaries and treasurers and where the managing agent or secretaries and treasurers are a firm, by the partners thereof, and where the managing agent or secretaries and treasurers are a private company by           Instructions in accordance with whi .....

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..... ; (3) Immovable properties.       Less: Debit balance in profit and loss account (if any) (h).   (4) Investments in the Capital of partnership firms.       (5) Surplus i.e., balance in profit and loss account after providing for proposed allocations, namely:-   (5) Balance of unutilised monies raised by issue.       Dividend, Bonus or Reserves.           (6) Proposed additions to Reserves.           (7) Sinking Funds.]           Instructions in accordance with which liabilities should be made out Liabilities Assets Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b )   SECURED LOANS:   CURRENT ASSETS, LOANS AND ADVANCES:     Loans from Directors, Manager should be shown separately. +(1) Debentures ++   A. CURRENT ASSETS   +Mode of valuation of stock shal .....

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..... hown under this head should not exceed the amounts of debts stated to be considered doubtful or bad and any surplus of such provision if already created, should be shown at every closing under 'Reserves and Surplus' (in the liabilities side) under a separate sub-head 'Reserve for doubtful or bad debts'.       ( a) Debts outstanding for a period exceeding six months.   In regard to bank balances, particulars to be given separately of-       ( b) Other debts.   (a) the balances lying with Scheduled   Instructions in accordance with which liabilities should be made out Liabilities Assets Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b )           Banks on current accounts, call accounts and deposit accounts;       Less: Provision   (b) the name of the bankers other than Scheduled Banks and the balance lying with each such banker on current accounts, call accounts .....

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..... Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b ) guaranteed by managers and/ or directors, a mention thereof shall be made and also aggregate amount of such loans under each head. Advances from subsidiaries   commission or brokerage on underwriting or subscription of shares or debentures.     *See note (d) at foot of Form +*(3) Short Term Loans and Advances:   (3) Discount allowed on the issue of shares or debentures.       ( a) From Banks.   (4) Interest paid out of capital during construction (also stating the rate or interest.)       ( b) From others.   (5) Development expenditure not adjusted.       (4) Other Loans and Advances:   (6) Other items (specifying nature).       ( a) From Banks.           ( b) From others.           CURRENT LIABILITIES AND PROVISIONS: .....

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..... ;         (12) For insurance, pension and similar staff benefit schemes.           (13) Other provisions.           A foot-note to the balance-sheet may be added to show separately:           (1) Claims against the company not acknowledged as debts.           (2) Uncalled liability on           Instructions in accordance with which liabilities should be made out Liabilities Assets Instructions in accordance with which assets should be made out Figures for the previous year Rs. (b ) Figur- es for the curre- nt year Rs. (b ) Figures for the previous year Rs. (b) Figu- res for the curr- ent year Rs. (b )   shares partly paid.         The period for which the dividends are in arrear of if there is more than one class of shares, the dividends on each such class are in arrear, shall be stated. ++ (3) Arrears of fixed cumulative dividends.         The amount shall be stated before deduction of income-tax, except that in the cas .....

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..... to be separately stated; the amounts due from other companies under the same management within the meaning of sub-section (1B) of section 370 should also be given with the names of the companies the maximum amount due from every one of these at any time during the year must be shown. (j )Particulars of any redeemed debentures which the company has power to issue should be given. (k )Where any of the company's debentures are held by a nominee or a trustee for the company, the nominal amount of the debentures and the amount at which they are stated in the books of the company shall be stated. (l )A statement of investments (whether shown under 'Investment' or under 'Current assets' as stock-in-trade) separately classifying trade investments and other investments should be annexed to the balance sheet, showing the names of the bodies corporate (indicating separately the names of the bodies corporate under the same management) in whose shares or debentures, investments have been made (including all investments whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investment; so made in each such bo .....

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..... nventories (b)Sundry debtors (c)Cash and bank balances (d)Other current assets (e)Loans and advances Less: Current liabilities and provisions: (a)Liabilities (b)Provisions Net current assets (4)(a ) Miscellaneous expenditure to the extent not written off or adjusted (b) Profit and Loss account TOTAL: Notes 1.Details under each of the above items shall be given in separate Schedules. The Schedules shall incorporate all the information required to be given under A-Horizontal Form read with notes containing general instructions for preparation of balance sheet. 2.The Schedules, referred to above, accounting policies and explanatory notes that may be attached shall form an integral part of the balance sheet. 3.The figures in the balance sheet may be rounded off to the nearest '000' or '00' as may be convenient or may be expressed in terms of decimals of thousands. (TO BE COMPARED) 4.A foot-note to the balance sheet may be added to show separately contingent liabilities. PART II Requirements as to profit and loss account.-(1) The provisions of this Part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act, in like .....

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..... f a company, which falls under more than one of the categories mentioned in (a), (b) and (c ) above, it shall be sufficient compliance with the requirements herein if the total amounts are shown in respect of the opening and closing stocks, purchases, sales and consumption of raw material with value and quantitative break-up and the gross income from services rendered is shown. (e )In the case of other companies, the gross income derived under different heads. Note 1 - The quantities of raw materials purchases, stocks, and the turnover shall be expressed in quantitative denominations in which these are normally purchased or sold in the market. Note 2 - For the purpose of items (ii)( a), (ii)( b) and (ii)( d), the items for which the company is holding separate industrial licences, shall be treated as separate classes of goods, but where a company has more than one industrial licence for production of the same item at different places or for expansion of the licensed capacity, the item covered by all such licences shall be treated as one class. In the case of trading companies, the imported items shall be classified in accordance with the classification adopted by the Chief Contr .....

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..... ure incurred on each of the following items, separately for each item:- (a )Consumption of stores and spare parts. (b )Power and fuel. (c )Rent. (d )Repairs to buildings. (e )Repairs to machinery. (f )(1) Salaries, wages and bonus. (2) Contribution to provident and other funds. (3) Workmen and staff welfare expenses to the extent not adjusted from any previous provision or reserve. Note 1 - Information in respect of this item should also be given in the balance sheet under the relevant provision or reserve account. Note 2** ** ** (g )Insurance. (h )Rates and taxes, excluding taxes on income. (i )Miscellaneous expenses : Provided that any item under which the expenses exceed one per cent of the total revenue of the company or Rs. 5,000 whichever is higher shall be shown as a separate and distinct item against an appropriate account head in the profit and loss account and shall not be combined with any other item to be shown under 'Miscellaneous expenses". ( xi)( a)The amount of income from investments, distinguishing between trade investments and other investments. (b )Other income by way of interest, specifying the nature of the income. (c )The amount of income-t .....

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..... r contain or give by way of a note detailed information in regard to amounts paid to the auditor, whether as fees, expenses or otherwise for services rendered- (a )as auditor; (b )as adviser, or in any other capacity, in respect of- (i )taxation matters; (ii )company law matters; (iii)management services; and (c )in any other manner. 4C. In the case of a manufacturing companies, the profit and loss account shall also contain, by way of a note in respect of each class of goods manufactured, detailed quantitative information in regard to the following, namely :- (a )the licensed capacity (where licence is in force); (b )the installed capacity; and (c )the actual production. Note 1 - The licensed capacity and installed capacity of the company as on the last date of the year to which the profit and loss account relates, shall be mentioned against items (a) and ( b) above, respectively. Note 2 - Against item (c), the actual production in respect of the finished products meant for sale shall be mentioned. In cases where semi-processed products are also sold by the company, separate details thereof shall be given. Note 3 - For the purposes of this paragraph, the items for whi .....

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..... se of companies preparing quarterly or half-yearly accounts, relate to the profit and loss account for the period which entered on the corresponding date of the previous year." "AUDIT Section 227. Powers and duties of auditors.-(1) Every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company, whether kept at the head office of the company or elsewhere, and shall be entitled to require from the officers of the company such information and explanations as the auditor may think necessary for the performance of his duties as auditor. (1A) Without prejudice to the provisions of sub-section (1), the auditor shall inquire- (a )whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are not prejudicial to the interest of the company or its members; (b )whether transactions of the company which are represented merely by book entries are not prejudicial to the interests of the company; (c )where the company is not an investment company within the meaning of section 372 or a banking company, whether so much of the assets of the compa .....

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..... rofit and loss account and balance-sheet comply with the accounting standards referred to in sub-section (3C) of section 211; (e )in thick type or in italics the observations or comments of the auditors which have any adverse effect on the functioning of the company; (f )whether any director is disqualified from being appointed as director under clause (g) of sub-section (1) of section 274; (g )whether the cess payable under section 441A has been paid and if not, the details of amount of cess not so paid. (4) Where any of the matters referred to in clauses (i) and (ii ) of sub-section (2) or in clauses (a), (b ), (bb), (c) and (d )] of sub-section (3) is answered in the negative or with a qualification, the auditor's report shall state the reason for the answer. (4A) The Central Government may, by general or special order, direct that, in the case of such class or description of companies as may be specified in the order, the auditor's report shall also include a statement on such matters as may be specified therein : Provided that before making any such order the Central Government may consult the Institute of Chartered Accountants of India constituted under the Chartered Ac .....

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..... ette, make rules- (a )for all or any of the matters which by this Act are to be, or may be, prescribed by the Central Government; and (b )generally to carry out the purposes of this Act. (2) Any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues. (3) Every rule made by the Central Government under sub-section (1) shall be laid as soon as may be after it is made before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be, so, however, that any such modification or annulment shall be .....

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..... rnment as contemplated by section 2(33). The object behind section 210A was to make it obligatory on the part of the companies to comply with the Accounting Standards. NAC was constituted vide Notification dated 18-9-2003. Under section 211(3C) it is provided, that till such time the Accounting Standards are prescribed by the Central Government in consultation with NAC on Accounting Standards; the Accounting Standards prescribed by the Institute shall be deemed to be the Accounting Standards to be complied with by all the companies. In all, the Institute has so far framed 29 Accounting Standards. 14. Section 211(1) requires the balance-sheet to be in the form set out in Part I of Schedule VI 'or as near thereto as circumstances admit'. The said phrase 'or as near thereto as circumstances admit' allows adoption of improved techniques in the presentation of accounts to shareholders. It is important to note that the information which is required to be given to shareholders pursuant to Schedule VI should be given in a manner which they will understand and which must give a true and fair view of the company's affairs as also it must give a proper picture of the company's profits (losse .....

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..... of Part II of Schedule VI so far as they are applicable thereto. It may be noted that the balance-sheet prescribed by Part I of Schedule VI has to be in the form of a proforma. However, the Companies Act does not prescribe a proforma of P & L account. Part I of Schedule VI prescribes a proforma of balance-sheet. Part II of Schedule VI only prescribes the particulars which must be furnished in the P & L account. Therefore, as far as possible, the P & L account must be drawn up according to the requirements of Part II of Schedule VI. It is important to note that section 211 read with Part I and Part II of Schedule VI prescribes the form and contents of balance-sheet and P&L account. However, section 211(1), inter alia, states that every balance-sheet of a company shall subject to the provisions of that section, be in the form set out in Part I of Schedule VI. The words 'subject to the provisions of this section' would mean that every sub-section following sub-section (1) including sub-sections (3A), (3B) and (3C) shall have an overriding effect and consequently every P & L account and balance-sheet shall comply with the Accounting Standards. Therefore, implementation of the Accountin .....

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..... ents, as per the specific requirements of section 211 read with Schedule VI. However, with the insertion of sub-sections (3A), (3B) and (3C) in section 211 the P & L account and the balance-sheet have to comply with the Accounting Standards. For this purpose the expression 'Accounting Standards' shall mean the standards of accounting recommended by the Institute as may be prescribed by the Central Government in consultation with NAC on Accounting Standards. Thus, the Accounting Standards are prescribed by the Central Government. Thus, the Accounting Standards prescribed by the Central Government are now mandatory qua the companies and non-compliance with these Standards would lead to violation of section 211 inasmuch as the annual accounts may then not be regarded as showing a "true and fair view". 18. Section 641 empowers the Central Government to alter any of the regulations, rules, tables, forms and other provisions contained in Schedule VI to the Companies Act. However, this power can be used only for making simple alterations which will not affect the legislative policies enshrined in the Companies Act. 19. Section 642 refers to the powers of the Central Government to make r .....

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..... edium Sized Company' (SMC) means, a company- (i )whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India; (ii )which is not a bank, financial institution or an insurance company; (iii)whose turnover (excluding other income) does not exceed rupees fifty crore in the immediately preceding accounting year; (iv)which does not have borrowings (including public deposits) in excess of rupees ten crore at any time during the immediately preceding accounting year; and (v )which is not a holding or subsidiary company of a company which is not a small and medium-sized company. Explanation.-For the purposes of clause (f), a company shall qualify as a Small and Medium Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant accounting period. (2) Words and expressions used herein and not defined in these rules but defined in the Act shall have the same meaning respectively assigned to them in the Act. 3. Accounting Standards.-(1) The Central Government hereby prescribes Accounting Standards 1 to 7 and 9 to 29 as recommended by the Institute of Chartered Accountants o .....

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..... t shall disclose the standard(s) in respect of which it has availed the exemption or relaxation. 1.4If an SMC desires to disclose the information not required to be disclosed pursuant to the exemptions or relaxations available to the SMCs, it shall disclose that information in compliance with the relevant accounting standard. 1.5The SMC may opt for availing certain exemptions or relaxations from compliance with the requirements prescribed in an Accounting Standard : Provided that such a partial exemption or relaxation and disclosure shall not be permitted to mislead any person or public. 2. Accounting Standards, which are prescribed, are intended to be in conformity with the provisions of applicable laws. However, if due to subsequent amendments in the law, a particular accounting standard is found to be not in conformity with such law, the provisions of the said law will prevail and the financial statements shall be prepared in conformity with such law. 3. Accounting Standards are intended to apply only to items which are material. 4. The accounting standards include paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type .....

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..... t and loss, before deducting income-tax expense or adding income-tax saving. 4.2 Taxable income (tax loss) is the amount of the income (loss) for a period, determined in accordance with the tax laws, based upon which income-tax payable (recoverable) is determined. 4.3 Tax expense (tax saving) is the aggregate of current tax and deferred tax charged or credited to the statement of profit and loss for the period. 4.4 Current tax is the amount of income-tax determined to be payable (recoverable) in respect of the taxable income (tax loss) for a period. 4.5 Deferred tax is the tax effect of timing differences. 4.6 Timing differences are the differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods. 4.7 Permanent differences are the differences between taxable income and accounting income for a period that originate in one period and do not reverse subsequently. 5. Taxable income is calculated in accordance with tax laws. In some circumstances, the requirements of these laws to compute taxable income differ from the accounting policies applied to determine accounting income. The .....

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..... period as the revenue and expenses to which they relate. Such matching may result into timing differences. The tax effects of timing differences are included in the tax expense in the statement of profit and loss and as deferred tax assets (subject to the consideration of prudence as set out in paragraphs 15-18) or as deferred tax liabilities, in the balance sheet. 11. An example of tax effect of a timing difference that results in a deferred tax asset is an expense provided in the statement of profit and loss but not allowed as a deduction under section 43B of the Income-tax Act, 1961. This timing difference will reverse when the deduction of that expense is allowed under section 43B in subsequent year(s). An example of tax effect of a timing difference resulting in a deferred tax liability is the higher charge of depreciation allowable under the Income-tax Act, 1961, compared to the depreciation provided in the statement of profit and loss. In subsequent years, the differential will reverse when comparatively lower depreciation will be allowed for tax purposes. 12. Permanent differences do not result in deferred tax assets or deferred tax liabilities. 13. Deferred tax should b .....

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..... rise has unabsorbed depreciation or carry forward of losses under tax laws, deferred tax assets should be recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be released. Explanation.-(1) Determination of virtual certainty that sufficient future taxable income will be available is a matter of judgment based on convincing evidence and will have to be evaluated on a case to case basis. Virtual certainty refers to the extent of certainty, which, for all practical purposes, can be considered certain. Virtual certainty cannot be based merely on forecasts of performance such as business plans. Virtual certainty is not a matter of perception and is to be supported by convincing evidence. Evidence is a matter of fact. To be convincing, the evidence should be available at the reporting date in a concrete form, for example, a profitable binding export order, cancellation of which will result in payment of heavy damages by the defaulting party. On the other hand, a projection of the future profits made by an enterprise based on the future capital expen .....

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..... consideration of prudence) on the amount which can be carried forward and set-off in future years as per the provisions of the Act. 18. The existence of unabsorbed depreciation or carry forward of losses under tax laws is strong evidence that future taxable income may not be available. Therefore, when an enterprise has a history of recent losses, the enterprise recognises deferred tax assets only to the extent that it has timing differences the reversal of which will result in sufficient income or there is other convincing evidence that sufficient taxable income will be available against which such deferred tax assets can be released. In such circumstances, the nature of the evidence supporting its recognition is disclosed. 19. Re-assessment of Unrecognised Deferred Tax Assets.-At each balance sheet date, an enterprise reassesses unrecognised deferred tax assets. The enterprise recognises previously unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be (see paragraphs 15 to 18), that sufficient future taxable income will be available against which such deferred tax assets can be released. For example, an impr .....

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..... discounting would result in deferred tax assets and liabilities which would not be comparable between enterprises. Therefore, this Standard does not require or permit the discounting of deferred tax assets and liabilities. 26. Review of Deferred Tax Assets.-The carrying amount of deferred tax assets should be reviewed at each balance sheet-date. An enterprise should write-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be (see paragraphs 15 to 18), that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down may be reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be (see paragraphs 15 to 18), that sufficient future taxable income will be available. 27.Presentation and Disclosure.-An enterprise should offset assets and liabilities representing current tax if the enterprise : (a)has a legally enforceable right to set off the recognised amounts; and (b )intends to settle the asset and the liability on a net basis. 28. An enterprise will normally have a legally enforceable right .....

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..... of assets and liabilities for accounting purposes and for tax purposes are compared and the differences, if any, are determined. The tax effects of these differences, if any, should be recognised as deferred tax assets or liabilities, if these differences are timing differences. For example, in the year in which an enterprise adopts this Standard, the opening balance of a fixed asset is Rs. 100 for accounting purposes and Rs. 60 for tax purposes. The difference is because the enterprise applies written down value method of depreciation for calculating taxable income whereas for accounting purposes straight line method is used. This difference will reverse in future when depreciation for tax purposes will be lower as compared to the depreciation for accounting purposes. In the above case, assuming that enacted tax rate for the year is 40 per cent and that there are no other timing differences, deferred tax liability of Rs. 16 [(Rs. 100 - Rs. 60) x 40 per cent] would be recognised. Another example is an expenditure that has already been written off for accounting purposes in the year of its incurrance but is allowable for tax purposes over a period of time. In this case, the asset re .....

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..... he form set out in Part I of Schedule VI or as near thereto as circumstances admit or in such other form as may be approved by the Central Government. According to learned counsel, section 211(1) of the Companies Act should be read with the proviso which inter alia provides that nothing contained in section 211(1) shall apply to insurance company, banking company, electricity company etc. for which a separate balance-sheet has been specified in the Companies Act. Therefore, according to learned counsel, what is contemplated by the expression "subject to the provisions of section 211" is that where there is inconsistency or conflict between the other provisions of section 211, the other provision will prevail as there are circumstances when insurance and banking company or any company for which a form or balance-sheet has been specified under the Act. Therefore, according to learned counsel, because section 211 is subject to the said provision, the provision contained in the proviso shall apply whenever there is any inconsistency or conflict between section 211(1) and the proviso. 23. Learned counsel next contended that the impugned rule has been framed in exercise of power under s .....

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..... ction 642(1) of the Act do not have any effect as if enacted in the Companies Act; that, the effect of amendment of Schedule under section 641 is as if enacted in the Act but rules framed under section 642 do not have that effect. Therefore, the effect of the notifications under section 641 on the one hand and the notifications issued under section 642 on the other hand is entirely different. According to learned counsel, so long as Schedule VI to the Companies Act is not altered or amended by exercising the power under section 641(1) of the Act the AS prescribed by the rules notified under section 642(1) cannot alter or amend Schedule VI and if the said rules are contrary to or inconsistent with Schedule VI then the same are liable to be struck down as inconsistent with the provisions of the Companies Act. 24. Learned counsel further submitted that in any case the requirement of maintaining accounts on accrual basis and on double entry system of accounting as required under section 209 of the Companies Act is mandatory and it is not subject to any provisions of section 211 of the Companies Act. Therefore, according to learned counsel, the rule prescribing AS 22 under section 642( .....

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..... y stated that the Standards are intended to be in conformity with the provisions of applicable laws and, therefore, according to learned counsel, the intention is not to treat the Accounting Standards as part of the Companies Act but as a subordinate legislation. Therefore, AS 22 cannot be treated as amending or altering Schedule VI which is part of the Companies Act and which can only be done under section 641(2) by way of appropriate notification. That, under section 641(2), any amendment to the schedules by way of notification is treated as if it is enacted in the Act. Such a provision is absent in section 642. That, as the Accounting Standards in the present case have not been notified under section 641, they cannot alter or amend the Schedule VI to the Companies Act. 27. As regards matching principle, learned counsel submitted that the said principle has to be applied in two ways : (i)on revenue basis; and (ii)on time basis. That, the said principle can be applied for both the profits, namely, accounting profits and taxable profits. That, broadly speaking, the matching principle can be applied by matching expenditure against specific revenues as having been used in generat .....

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..... no power to apply the matching principle or timing difference across the board to bring the accounting depreciation in line with tax depreciation. The rates of depreciation are not prescribed statutorily in U.K. In U.K., the assessee is at liberty to adopt any rate of depreciation he chooses and, therefore, according to learned counsel, there could be some justification for invoking the matching principle and applying an accounting standard for deferred taxation. 28. On the concept of "true and fair" view, learned counsel urged that under section 211(1), a balance-sheet has to present a true and fair view. Similarly, under section 211(2), P&L account must also be true and fair. However, according to learned counsel, the said concept does not mean that Accounting Standards can alter Schedule VI or enable alteration of accounting profits which have been computed as per sections 205 and 209 read with Schedule VI and Schedule XIV to the Companies Act. Learned counsel further pointed out that in fact under section 211(5)(v) there is a stipulation that anything not disclosed as per Schedule VI will not render the balance-sheet/P&L account as not disclosing the true and fair view. 29. .....

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..... d counsel, AS 22 does not in any way help collection of higher taxes. That, as long as a company continues to be profitable, it is impossible for any reversal by timing difference. In this connection, learned counsel urged that, in India, income-tax depreciation is substantially higher than accounting depreciation as per Schedule XIV and, therefore, the accounting profits will always be more than the book profits. Therefore, every year, there would be DTL which will keep on accumulating. For example, according to learned counsel, accumulated DTL of Reliance Industries Ltd. was Rs. 6,982 crores as on 31-3-2007 and this liability will keep on accumulating. According to learned counsel, except in the case of companies which are likely to make loss in the near future, reversal will never take place. Therefore, the basic stipulation of timing difference getting reversed will never happen. Learned counsel further submitted that DTL is made chargeable to the P&L account even when it is a non-existent or fictional liability; that the amount which is reduced from the profit is not even treated as a reserve and, therefore, DTL cannot be utilized if the company runs into financial difficulty. .....

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..... this Court (See : State of Kerala v. Madras Rubber Factory Ltd. AIR 1998 SC 723 at 730 and Shree Digvijay Cement Co. Ltd. v. Union of India [2003] 2 SCC 614 at 627, paras 26 and 27). 33. On the question of effect of section 211(3A), (3B) and (3C), learned counsel submitted that section 211(3A) cannot be read to imply that Accounting Standards have to be complied with even if they are inconsistent with the Act or that they alter/amend any provisions of the Companies Act. As regards section 211(3B), learned counsel submitted that any deviation from the Accounting Standards has to be qualified by the auditors which may lead to adverse consequences for the company. According to learned counsel, unless the company is likely to make loss in near future, timing difference can never arise. According to learned counsel, tax depreciation, in India, is higher than book depreciation and, therefore, DTL will exist in the financial statements indefinitely. This is one more effect of AS 22 being implemented in India. On the other hand, according to learned counsel, the very purpose of AS 22 of presenting true and fair view can be easily achieved by making AS 22 a disclosure requirement as Notes .....

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..... company is required to recognize, measure and account for DTL. According to the learned counsel, if there is no income in future, there would be no liability for tax in future and if there is income and additions to assets in future, the difference in depreciation under the Companies Act and under the Income-tax Act for the accounting period will not result in any tax liability in future and there would be no reversal of the DTL created in the accounting period. According to learned counsel, AS 22 requires recognition of the tax effect, whether current or deferred, in respect of individual transaction during the accounting period as if in future the company would have to make payment on account of deferred tax. According to learned counsel, the aforestated concept is merely an assumption. Under the Income-tax Act, tax is determined with reference to the total income and not with reference to any individual transaction. The total income in future is uncertain. The total statutory tax liability in future is also uncertain. The difference between the current accounting income and the current taxable income, for example, on account of depreciation, may or may not have any impact on the .....

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..... e basis of existing tax rates, it cannot be said that such tax effect represents a real liability payable today or tomorrow. According to learned counsel, the difference between accounting and taxable income in a given year may or may not give rise to a liability or outflow of money in future. According to learned counsel, this is an assumption. This is totally uncertain. Therefore, according to learned counsel, to give tax effect on such difference cannot be treated as an accrued liability and in respect of such difference, no income-tax is payable under the income-tax Act for the accounting period. 35. Mr. Bagaria, learned counsel, further submitted that "accrual" is a legal concept. It has not been defined under Income-tax Act. It has not defined under the Companies Act. An accrued liability arises only if that liability has arisen in the accounting year concerned. This position has been settled by various decisions of this Court. It has been further held in numerous decisions by this Court that provision for taxation is the provision for tax liability under the Income-tax Act as on the last date of the accounting year and that if anything is provided in excess of such tax liab .....

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..... e under the Income-tax Act with reference to the taxable income for the period covered by the account computed in accordance with the provisions of that Act can constitute a charge for income-tax and is, therefore, an accrued liability. Any amount in excess of such tax is a reserve and not a provision for taxation. According to learned counsel, therefore, for the above reasons AS 22 insofar as it relates to deferred tax is contrary to the concept of "accrual" which concept is recognized under section 209(3)(b) read with section 209(1) of the Companies Act. 37. On the question of matching principle, learned counsel urged that the matching concept is fully complied with when a provision is made for tax computed in accordance with the provisions of the Income-tax Act with reference to the taxable income derived from the accounting income after making appropriate deductions, allowances and disallowances in accordance with the statutory provisions. According to learned counsel, matching tax in respect of accounting income is only the tax computed for the accounting period, according to the provisions of the Income-tax Act. It is not any assumed future taxation dependent upon any assume .....

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..... be kept unless they are kept on accrual basis and double entry system of accounting; that, the auditor has to report that the balance-sheet and the P&L account are in agreement with the books of account and that the auditor has also to report whether profit and loss account as well as balance-sheet complies with the Accounting Standards referred to in section 211(3C). According to learned counsel, sub-section (3A) of section 211 requires every P&L account and balance-sheet of the company to comply with the Accounting Standards; that, sub-sections (3A), (3B) and (3C) do not refer to keeping of proper books of account; that this subject is covered by section 209 only which mandates that proper books of account shall not be deemed to be kept unless the same are kept on accrual basis and double entry system of accounting; that, the said mandate of section 209 cannot be altered by the Accounting Standards and since the Accounting Standards as per sub-section (3A) can only relate to the P&L account and balance-sheet and not to keeping proper books of account which are basic primary records from which the P&L account and balance-sheet are prepared and since P&L account and balance-sheet .....

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..... rred by sub-sections (3A), (3B) and (3C) nor by any other sub-sections of section 211 to prescribe Accounting Standards relating to maintenance of proper books of account. In this connection, learned counsel pointed out that the duty of the auditor is to report in terms of section 227(3)(d) about compliance with the Accounting Standards referred to in sub-section (3C) of section 211 which applies only in respect of P&L account and balance-sheet; that, the said provision makes it clear that compliance with the Accounting Standards is to be made only in respect of the P&L account and balance-sheet whereas keeping of books of account in terms of section 209 is required to be reported upon by the auditor only in terms of section 227(3)(d) and, therefore, AS 22 exceeds the power conferred by sub-sections (3A), (3B) and (3C) of section 211. Learned counsel submitted that AS 22 is confined to prescribing Accounting Standards for presentation of P&L account and balance-sheet. It does not deal with preparation of books of account. That subject falls under section 209(3). Therefore, AS 22 prescribes Accounting Standards only for P&L account and balance-sheet without directing that exercise t .....

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..... fair view' as a requirement and, therefore, the said requirement in section 211 and in section 209 would have the same meaning. However, according to learned counsel, the expression 'subject to the provisions of this section' in section 211(1) only qualifies the requirement of balance-sheet being in the form set out in Part I of Schedule VI; that, similarly the expression 'subject as aforesaid' in sub-section (2) of section 211 only qualifies the requirement of Part II of Schedule VI in respect of P & L account; that, sub-section (3A) of section 211 inter alia provides that every P&L account and balance-sheet of the company shall comply with the Accounting Standards and, therefore, according to learned counsel in the entire scheme relating to accounts and audit in Part VI, Chapter I, section 209 to section 233B of the Companies Act, the statutory mandate of keeping proper books of account on accrual basis is not allowed to be altered or encroached upon by any Accounting Standards. According to learned counsel, it is the statutory mandate that P & L account and balance-sheet shall be in consonance with the books of account. Therefore, sub-sections (3A), (3B) and (3C) can only relate .....

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..... id Standard so that the company is only required to make a disclosure in the P & L account and balance-sheet as regards DTA or DTL without requiring the company to make any entry in the books of account or without making any company to reduce or increase its net profit. 42. Lastly, learned counsel submitted that vide para 33 of AS 22 DTL is sought to be created in respect of individual transactions since the inception of the company which may be long before the AS 22 came into effect resulting in reduction of the revenue reserve by the amount of such DTL. That, the working required to be made in terms of para 33 of AS 22 is complicated. In this connection, learned counsel pointed out that under para 34 of AS 22, not only opening balances of assets but also opening balances of liabilities for accounting purposes and for tax purposes have got to be compared; that, para 33 requires a working to be made in respect of individual transactions since the inception of the company in order to ascertain DTAs or DTLs. That, in case of DTL, the revenue reserve has to be reduced and conversely in case of a DTA, the revenue reserve has to be increased. This is, according to learned counsel, indi .....

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..... inal writ petition as to how the impugned Accounting Standard contravenes the provisions of the Companies Act. Therefore, according to learned counsel, the entire original writ petition filed by the appellant is misplaced, misconceived and not maintainable for want of details. Learned counsel urged that AS-22 provides for a different manner than Schedule VI in which account of a company required to be prepared. It is submitted that Schedule VI is the form set out under the Companies Act in which a company is required to submit its balance-sheet and profit and loss account. Section 211(1) requires the companies to prepare their balance-sheet in the form set out in Part-I of Schedule VI. A plain reading of section 211 reveals that the requirement of submission of balance-sheet in the said form is subject to the other sub-sections of section 211 and hence the format of the said balance shall necessarily be guided by the Accounting Standards provided under sub-section (3A) as same is having overriding effect on Part I of Schedule VI. According to learned counsel, when any provision made is subject to other provisions of that section, then the said provision (Part I of Schedule VI) has .....

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..... -sheet [See : section 211(3C)]. According to learned counsel, since AS 22 is an Accounting Standard prescribed under sub-section (3C) it has a statutory status, required to be followed while preparing the books of account in terms of section 211 of the Companies Act. Lastly, learned counsel urged that the Companies Act is a special statute; that, section 211 is a special provision aimed at providing the form and content of P & L account and balance-sheet required to be prepared by the company; that, a special provision like section 211 ordinarily overrides the general provision; that, if a special provision is made on a particular subject then that subject is excluded from the general provision and since AS 22 is a special provision notified under section 211(3C) with respect to form and content of accounts of the company, the same will override other provisions of the Companies Act as well as any other statute to the extent provided therein. In this connection, learned counsel placed reliance on the judgment of this Court in the cases : Gadde Venkateswara Rao v. Government of Andhra Pradesh AIR 1966 SC 828; State of Bihar v. Dr. Yogendra Singh GOL [1982] 1 SCC 664; Maharashtra .....

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..... Accounting Standards emphasize the importance of Substance over Form. The said view of the Institute is duly affirmed by Parliament when Parliament decreed that corporate accounts shall comply with the proper Accounting Standards [See : sub-sections (3A) and (3B) of section 211 of the Companies Act]. The basic reason for issuing AS 1 through Notification dated 25-1-1996 of Government of India, to be followed by all assessees following mercantile system of accounting, was to lay down that accounting policies adopted by an assessee should represent a 'true and fair' view of the state of affairs of the business in the financial statements prepared and presented based on such accounting policies. Therefore, the requirement 'true and fair' view overrides all other statutory requirements as to the matters to be included in the corporate accounts. In order to give a 'true and fair view' it is not necessary to provide information, additional to the one needed to comply with all other statutory requirements or even to depart from compliance with one or the other requirements. Any departure has to be disclosed in a Note to the Financial Statements giving reasons for such departure and its ef .....

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..... bmitted that the matching principle is the most important concept in 'accrual accounting'. The matching principle indicates as to when expenses should be recorded against the revenue. The Institute had issued Guidance Note on Accrual Basis of Accounting in 1988, since after the amendment of section 209, requiring all companies to maintain their accounts on accrual basis of accounting. All relevant abovementioned expressions relating to accrual basis of accounting including recognition of revenue and expenses, assets and liabilities have been explained in the said Guidance Note on Accrual Basis of Accounting which, inter alia, lays down the matching principle of recognizing costs against revenue or against the relevant time period to determine the periodic income. Ac-cording to learned counsel, in order to understand the relevance of Accounting Standards issued by the Institute for preparation and presenta-tion of financial statements vis-a-vis the accrual system of accounting and vis-a-vis the matching principle it is necessary to refer to the concepts that underline the preparation and presentation of such statements. The main purpose of Accounting Standards is, therefore, to assi .....

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..... g' was introduced in the Companies Act in 1988 through section 209. Under section 209(1) every company is required to maintain proper books of account with respect to receipts and expenses, sales and purchases of goods, assets and liabilities of the company, utilization of material or labour and such other items of costs incurred in production, process, manufacturing etc. Under section 209(3) proper books of account sshall not be deemed to be kept if such books of account do not give true and fair accounts and if such books fail to explain its transactions further if such books are not kept on accrual basis they have to be rejected for not giving a true and fair view of the state of affairs of the company. This position is also reflected in section 211. Therefore, according to learned counsel, under the scheme of Companies Act, two requirements have to be satisfied, namely, 'accrual' system of accounting and 'true and fair view'. Both must read together with each other. According to learned counsel, the accrual basis of accounting must be applied so that 'true and fair' accounts are presented. Indeed, the requirement to present a 'true and fair view' precedes the requirement for ac .....

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..... he disclosure of a 'true and fair' view, since the entire structure of corporate credibility is built on this foundation. Therefore, if any rules for technical disclosure are not consistent with the true and fair view requirement, then the company has to depart from the technical provisions, to the extent necessary, to give a 'true and fair' view. That, the disclosure requirements are subservient to the overriding requirement of presenting a 'true and fair' view. Therefore, in other words, the need to present a 'true and fair' view should override technical compliance of the law on the basis of true and correct accrual. Therefore, according to the learned counsel, AS 22 goes far beyond technical compliance in order to ensure a 'true and fair presentation'. Therefore, according to learned counsel, since section 211(1) requires true and fair presentation, AS 22, is not beyond the mandate of the Companies Act. 50. Coming to the concept of 'prudence', learned counsel submitted that when financial statements are prepared, sometimes, the accountant comes across uncertainties that surround many events and in such case caution in exercise of the judgments is required while making estimate .....

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..... n accor-dance with the rates laid down in Schedule XIV of the Companies Act, having regard to the provisions contained in sections 205 and 350 of the said Act, the said Act does not lay down the procedure for recognition and measurement of either the income or expenses and/or the assets and liabilities. For example, Schedule VI nowhere lays down as to which assets should be recognized as 'Investments' and also the method of valuing 'Investments'. Similarly, AS 6 deals with 'Depreciation Accounting', how-ever, except the statutorily fixed rate of depreciation as laid down in Schedule XIV of the Companies Act, all other aspects relating to recogni-tion and measurement of depreciation are dealt with only in AS 6. They are not dealt with in the Companies Act. Similarly, under Part II of Schedule VI to the Companies Act the manner of presentation of various items of income and expenses in the P & L account has been laid down. However, the said Act nowhere lays down as to how and when income or expendi-ture should be measured and/or recognized. This aspect is dealt with by AS 9 alone and not by the provisions of the Companies Act. According to learned counsel, events and contingencies oc .....

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..... for an enterprise to follow the taxes payable method as an alternative. After 10 years, AS 22 was finally issued by the Institute in 2001 in order to ensure a 'true and fair' view of the profits earned during a financial year, and the taxes payable with reference thereto, to be presented in the corporate accounts. That is the reason why, AS 22 leaves out of account differences between book profits and taxable profits which are of permanent nature. But AS 22 requires that DTL/DTA arising on account of timing differences should be reflected in the corporate accounts through what is called as 'deferred tax account'. According to learned counsel, deferred tax accounting ensures that profits are measured in a real and factual manner. It also ensures that the benefit obtained in one year, which could be reversed in a subsequent year, is duly recognized as a liability. Therefore, according to learned counsel, AS 22 not only complies with the requirement for accrual accounting, but it applies the need for accrual accounting, in the context of presenting a 'true and fair' view, rather than purely on the basis of a true and correct view. Accounting treatments contained in various Account-in .....

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..... y, there are differences between the amount in respect of a particular item of revenue or expense, as recognized in the P & L account, and the corresponding amount, which is recognized for the computation of taxable income. This happens in the case of depreciation. The tax laws allow 'incentive depreciation' on increased rate, as prescribed in rule 5 read with the percentages mentioned in second column of the table in Appendix I to the Income-tax Rules, 1962 on the written down value of the block of assets, as are used by the assessee for the purpose of the business at any time during the relevant previous year. Depreciation includes amortization of assets whose useful life is predetermined. The commercial accounting principle requires that the original cost of an asset should written off in the accounts by way of charge against income of each year in such a manner that its entire cost is debited against the income arising therefrom during life time of such asset. However, the Income-tax Act lays down incentive rates of depreciation. While for accounting purposes, depreciation is provided for on straight line method, the Income-tax Act allows depreciation by way of incentive at mu .....

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..... learned counsel submitted that AS 22 is in no way contradictory to and/or in conflict of Schedule VI to the Companies Act having regard to the statutory requirement/consideration of presenting the financial statements in "true and fair" manner as laid down in section 211(1)(ii) of the Companies Act. That, clause (vi) under para 3 of Part II of Schedule VI to the Companies Act reference is made only to presentation of income liability in the P&L account. It does not refer to the method of its recognition and/or measurement which aspects are considered and dealt with only by AS 22. Therefore, the portion of income-tax expenses deferred to future tax returns is required to be credited to a Liability Account called as Deferred Income-tax Account. 54. On behalf of the appellants it was vehemently submitted that the DTL is a notional and contingent liability and, therefore, it is not required to be charged to the P&L account as per the requirements of the Companies Act. According to the appellants DTL is a future liability and, therefore, it does not exist on the balance-sheet. Appellants have also argued that DTL is a contingent liability because it may or may not arise in future. They .....

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..... erprise is normally looked upon as a "going concern", i.e., continuing in operation for the foreseeable future. Under that assumption it is assumed that the enterprise has neither the intention nor the necessity of liquidation or to reduce the scale of its operations. Therefore, according to learned counsel, the examples, given on behalf of the appellants, of liquidation or fall in the scale of operations are not apposite illustrations for treating DTL as a notional liability. According to learned counsel, DTL is a liability for the current period, i.e., for the period in which the timing difference originates, on the basis of matching principle also, which is a part of accrual basis of accounting. In the light of the said submissions, learned counsel contended that the charge in the P&L account for deferred tax expense is in respect of a known liability payable in future; and, therefore, it is covered by the definition of the word "Provision" as contained in Part II of Schedule VI to the Companies Act. 55. On the question of ultra vires learned counsel for the Institute had adopted the contentions advanced by learned Additional Solicitor General on behalf of Union of India. Find .....

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..... e entity concept, going concern concept, accrual concept, matching concept etc. Therefore, Accounting Standards are based on a number of accounting principles. For example, the Matching Principle and Fair Valuation Principle. Historically, matching principles ensured that costs incurred matched with revenues they generated, though they resulted in assets and liabilities in the balance-sheet at other than fair values. Similarly, they resulted in assets, which were not assets in the real sense, e.g., deferred revenue expenditure. However, the matching principles ensured purity of the profit and loss statement. Therefore, matching principles ensure ascertainment of true income. Today under Advanced Accountancy, matching principles recognize not only costs against rev-enue but also against the relevant time period to determine the Periodic Income. Therefore, matching principle today forms an important compo-nent of Accrual Basis of Accounting. 60. On the other hand, Fair Valuation principles are important in the context of valuing derivatives and other investments. If one were to describe one single change in accounting practice over the last few years, it would be the use of Fair Val .....

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..... stioned on the ground that it is manifestly arbitrary and unjust. That, any inquiry into its vires must be confined to the grounds on which plenary legislation may be questioned, to the grounds that it is contrary to the statute under which it is made, to the grounds that it is contrary to other statutory provisions or on the ground that it is so patently arbitrary that it cannot be said to be inconformity with the statute. It can also be challenged on the ground that it violates article 14 of the Constitu-tion. Subordinate legislation cannot be questioned on the ground of violation of principles of natural justice on which administrative action may be questioned. A distinction must, however, be made between delegation of a legislative function in which case the question of reason-ableness cannot be gone into and the investment by the statute to exercise a particular discretionary power. In the latter case, the question may be considered on all grounds on which administrative action may be ques-tioned, such as, non-application of mind, taking irrelevant matters into consideration, failure to take relevant matters into consideration etc. A subordinate legislation may be struck down .....

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..... are adequately laid down and the delegate is only empowered to implement such Policy within the Guidelines laid down by the Legislature (see TISCO v. Workmen AIR 1972 SC 1917). 67. In the present case, we are required to consider the scope of section 642(1), which refers to the power of Central Government (rule-making authority) to make rules vis-a-vis section 641, which states that subject to the provision of the section, the Central Government may, by Notification in the Official Gazette, alter any of the regulations, rules, forms, tables and other provisions contained in any of the Schedules to the Companies Act (including Schedule VI). This aspect is of some importance. Section 642 is in addition to the powers conferred by section 641, therefore, the two sections form part of the same scheme. However, the scope of section 641 is different from the scope of section 642. Power to alter any provision of the Schedules and the power to carry out gap-filling exercise are both entrusted to the Central Government. The expression "in addition" to in section 642 indicates that both the above sections constitute one scheme. However, section 642 enables Central Government to provide detai .....

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..... ssessee who was entitled for exemption from payment of sales tax in respect of goods sold to the State Government could no longer claim such exemption by reason of the said Notification. That Notification was challenged on the ground that it was not open to the Government in exercise of the authority delegated to it under section 6(2) to modify or alter what the Legislature had enacted and, therefore, the said Notification was bad as being unconstitutional delegation of legislative authority. It was argued on behalf of the assessee that earlier they had been granted exemption under section 6(1) of the Act which subsisted when the impugned Notification came to be issued and that in consequences, while an exemption under section 6(1) existed any amendment to the Schedule under section 6(2) was bad as it had the effect of deletion of the exemption which had been granted. Section 6(1) of the Act contemplated exemption to be given by the State Government on certain types of transactions whereas section 6(2) empowered the State Government to amend the schedule. It is in this context that the question arose as to whether the impugned Notification was bad as being an unconstitutional deleg .....

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..... an additional power given to the Central Government to make Rules, in addition to its power to alter the Schedule by making appropriate Rules under section 641. There is one more way of looking at the arguments. The Companies Act has been enacted to consolidate and amend the law relating to companies and certain other associations. Under section 211(3A) Accounting Standards framed by National Advisory Committee on Accounting Standards constituted under section 210A are now made mandatory. Every company has to comply with the said standards. Similarly, under section 227(3)(d), every auditor has to certify whether the P&L account and balance-sheet comply with the accounting standards referred to in section 211(3)(c). Similarly, under section 211(1), the company accounts have to reflect "true and fair" view of the state of affairs. Therefore, the object behind insistence on compliance with the A.S. and "true and fair" accrual is the presentation of accounts in a manner which would reflect the true income/profit. One has, therefore, to look at the entire scheme of the Companies Act. In our view, the provisions of the Companies Act together with the Rules framed by the Central Governmen .....

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..... to consider the definition of the word "house" under the Rules framed in 1934. It was held that the rules provided internal legitimate aid for the interpretation of the words and phrases used in the main enactment. 74. In the present case also even under the Rules impugned herein AS 22, which is made mandatory, provides an internal legitimate aid to the meaning of the words in the Companies Act, including Schedule VI, namely, liability, provision for taxes on income, book profit, net profit, depreciation, amortization, etc. Therefore, it cannot be said that the impugned Rules framed under section 642(1) constitute an act on the part of the rule-making authority, namely, the Central Government, in excess of its powers under section 642(1) of the Companies Act. In our view, the impugned Rule/Notification is valid. It has nexus with the matters entrusted to the Central Government to be covered by appropriate rules. Therefore, in our view, the impugned Rule is valid as it has nexus with statutory functions entrusted to Central Government which is the rule-making authority under the Act. It is important to bear in mind that the power to regulate a business or profession implies the pow .....

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..... i.e., on the date on which rights accrue or liabilities are incurred, irrespective of the date of payment. In such cases, a company has to account for its income or loss as per the above system and not otherwise, if that company has adopted mercantile system of accounting which is also known as accrual system of accounting. However, accrual does not mean confinement of items of revenue/expenditure to a given year. As stated above, mergers and acquisitions are undertaken to defer revenue expenditure over future years by invoking matching principles. Therefore, the said principle forms an important part of accrual accounting. Taxes on Income (TOI) : 77. It is an important item of P&L account Taxes on income are considered as expenses incurred by a company in earning revenues. It is an expense which is recognized in the same period as revenue and expense to which they relate. This is called as matching principle. Such matching, results in what is called as Timing Differences. Tax effects of Timing Differences are included as tax expense in the statement of profit and loss and as Deferred Tax Asset (DTA) or as Deferred Tax Liability (DTL) in the balance-sheet. In short, deferred tax .....

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..... of accounting based on Historical Costs Method towards Fair Valuation Principles. Similarly, in the past, companies used to follow alternate system of accounting. The Accounting Standards today are trying to harmonize different accounting concepts and principles and, therefore, timing differences play an important role in harmonizing the matching principle under accrual system of accounting with the Fair Valuation Principles. The object is to achieve proper presentation of balance-sheet and P&L account. The object is to present before the investors, shareholders and other stake-holders the book profits (real income) of the company. The tax effect of timing difference under AS 22 has to be included in the tax expenses in the P&L account as DTA or DTL in the balance-sheet. Therefore, timing difference is the tax effect which forms part of tax expense in the P&L account. The primary object of AS 22 adopted by the impugned Rule is to prescribe an accounting treatment for TOI. In accordance with the matching concept, TOIs are recognized in the same period as revenue and expenses to which they relate. Matching of TOI against revenue for a period poses problems due to the effect that in .....

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..... it made by the business during a period, it is necessary that 'revenues' of the period should be matched with the costs (expenses) of that period. In other words, income made by the business during a period can be measured only with the revenue earned during a period is compared with the expenditure incurred for earning that revenue. However, in cases of mergers and acquisitions, companies sometimes undertake to defer revenue expenditure over future years which brings in the concept of Deferred Tax Accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year. 83. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. As stated above, the object of AS 22 is to reconcile the matching principle with the Fair Valuation Principles. It may be noted that recognition, measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by provisions of the Companies Act. Depreciation : 84. As stated above, timing difference is .....

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..... [1996] 219 ITR 7062 (SC) substantial amounts were set apart by the assessee bank as reserves. No amount of bad debt was actually written off or adjusted against the amounts claimed as reserves. No claim for any deduction by way of bad debts was made during the relevant assessment years. The assessee never appropriated any amount against any 'bad and doubtful' debts. The amount remained in the account of the assessee by way of capital and the assessee treated the said amount as 'reserves' and not as 'provisions' designed to meet any liability, contingency, commitment or diminution in the value of assets known to exist on the date of the balance-sheet. 86. The question which arose for consideration by this Court was whether amounts set apart in the balance-sheet are 'provisions' or 'reserves'. The matter arose under the provisions of Companies (Profits) Surtax Act, 1964 which levied a charge on every company for every assessment year called as surtax, insofar as the chargeable profits of the previous year exceeded the statutory deduction at the rates mentioned in the Third Schedule. Rule (1) of Schedule II stipulated mandatory that the capital of the company shall be the total of t .....

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..... 89. Depreciation in accounting sense is similar to bad and doubtful debts. Provision for bad and doubtful debt like depreciation is not a provision for liability but it is a provision for diminution in value of assets. Where such provision is made and if that provision is not excessive or unreasonable, it is not a reserve, however, any amount in excess of the requirement can be considered to be a reserve. Thus, provision can be made for depreciation, renewal, diminution in the value of an asset or for any known liability. In this case, we are concerned with depreciation mainly because in 99 per cent of the cases the difference between tax depreciation and accounting depreciation results in timing differences. 90. The provision for bad and doubtful debt is always made with reference to debt receivable where there is doubt about full realization of debt. The provision is made in order to cover up the probable diminution in the value of an asset, i.e., debt which is amount receivable. For example, if the receivable is Rs. 1 crore and the assessee is of the opinion that Rs. One crore might not be realized and that only 90 per cent of the debt would be realized and, therefore, he make .....

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..... rences. This is based on the principle that financial statements for a given period should recognize the tax effect, whether current or deferred, of all transactions occurring in a given period. One more principle needs to be noted that assets represent expenditure. Concept of DTL/DTA : 92. DTL/DTA is recognized for all timing differences. AS 22 requires the companies to make a provision for Deferred Tax Accounting with refer-ence to the difference between accounting income and taxable income. In our view, matching principle is an important component of Accrual Accounting. The said principle is not in conflict with accrual accounting as vehemently submitted on behalf of the appellants. Accrual Accounting is the concept recognized by sections 205 and 209 and 211 and Schedule VI to the Companies Act. However, the said provisions of the Companies Act nowhere lays down as to which asset should be recognized as an invest-ment and the method of valuing investments. That exercise is left to the accounting standards. Similarly, the Companies Act nowhere lays down as to how and when income or expenditure should be measured/recognized. That exercise is left to the accounting standards. AS .....

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..... not prescribed statutorily in U.K.. Therefore, in U.K., the tax payer is at liberty to adopt any rate of depreciation and, therefore, there could be justification for invoking the matching principle and for applying AS 22 for deferred taxation. We find no merit in this argument. In our view, on the contrary, since in India we have two separate rates of depreciation statutorily prescribed under two different Acts, introduction of matching principle becomes relevant. Ultimately, AS 22 is for deferred taxation. It brings out for the information of shareholders, investors and stake-holders the hidden liability which earlier could not be brought out. Today, we are living in the world of globalization in which, apart from merger, acquisitions play an important role. The buyer wants to know the income and liabilities of a company. He wants to know the real income of the company, which he proposes to buy. Because of the difference in the rates of depreciation statutorily prescribed under the Income-tax Act and the Companies Act, the concept of deferred taxation has been introduced in order to obliterate the difference between accounting depreciation and tax depreciation. (B)Application o .....

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..... purposes of construction, they are to be treated as forming part of the same scheme. 95. In the present case, the most important question, which we have to decide is whether the impugned Rule adopted AS 22 is contrary to or inconsistent with the provisions of the Companies Act and in that connection our judgment proceeds on the basis that the impugned Rule is an example of subordinate legislation. 96. As stated above, tax expense or tax income represents total amount included in the determination of net profit or loss for the period in respect of current tax and deferred tax. 97. DTL is a tax payable in future period(s) which arises out of taxable temporary differences. 98. DTA is the tax recoverable in future period(s) which arises out of deductible temporary difference, carry forward of unused tax losses and carry forward of unused tax credits. 99. Temporary difference is the difference between the carrying amount of an asset or liability in the balance-sheet and its tax base, which is an amount attributable for tax purpose. 100. Taxable temporary difference will result in future period(s) when carrying amount of the asset or liability is recovered. It will arise when the t .....

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..... sary to review DTA at each balance-sheet date. 107. We would also like to give few more examples of DTA and DTL as follows : Example-3 : 108. Cost of a Plant is Rs. 100 lakhs, its carrying amount is Rs. 80 lakhs whereas its tax base is Rs. 20 lakhs. Therefore, the Taxable Timing Difference is (Rs. 80-20) Rs. 60 lakhs. In case the tax rate is 25 per cent then the DTL shall be computed as follows : DTL = (Taxable Timing Difference) Rs. 60 lakhs x (Tax Rate) 25 per cent DTL= 60 x 25/100 = Rs. 15 lakhs 109. Similarly, if a company recognizes its liability for Provident Fund in its accounts at Rs. 30 lakhs which is not allowed by the Income-tax Department unless actually paid and if the tax rate is 30 per cent then the DTA will be Rs. 30 lakhs x 30/100 = Rs. 9 lakhs as in such a case the tax base is Nil whereas the carrying amount is Rs. 30 lakhs. Example-4 (Matching Concept) : 110. A leasing company deducts an amount of lease equalization charges from lease rental income. For that purpose, the company makes a provision for the said charges in accordance with the guidelines issued by the Institute on 'Accounting of income, depreciation and other aspects for leasing company'. Thi .....

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..... derstood in accounting practice. 112. Applying the above test to the present case, we are now required to interpret the words 'the amount of charge for Indian Income-tax on profits' in clause 3(vi) in Part II of Schedule VI to the Companies Act. Similarly, we are required to interpret the words 'current liabilities and provisions' in the form of balance-sheet in Part I of Schedule VI to the Companies Act. Part III of the said Schedule defines the words 'provision' as well as 'reserve'. 113. As stated above, the form of balance-sheet is prescribed by Part I of Schedule VI. The Act does not prescribe a proforma of P&L account. However, Part II of Schedule VI prescribes the particulars which must be furnished in a P&L account. As far as possible, the P&L account must be drawn up according to the requirements of Part II of Schedule VI. As stated above, section 211(1) emphasizes 'true and fair' view in place of 'true and correct' view of accounting. As stated above, the legislative policy is to obliterate the difference between the accounting income and the taxable income. As stated above, the accounting income/book profit is the real income. Therefore, section 211(1) emphasizes the c .....

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..... occasion that the taxes on income are accounted for in accordance with this Statement, the enterprise should recognise, in the financial statements, the deferred tax balance that has accumulated prior to the adoption of this Statement as deferred tax asset/liability with a corresponding credit/charge to the revenue reserves, subject to the consideration of prudence in case of deferred tax assets (see paragraphs 15-18). The amount so credited/charged to the revenue reserves should be the same as that which would have resulted if this Statement had been in effect from the beginning." 116. As regards para 9, the appellants had no objection to the disclosure of DTL/DTA in their financial statements. They object to a charge being created qua P&L account for DTL mainly because it results in reduction of reserves and net profits. Therefore, the main contention is that the DTL is a notional concept. According to the appellants, DTL is not a liability. Therefore, according to the appellants, there cannot be a charge for DTL to the P&L account of the company. According to the appellants, DTL distorts their financial statements. According to the appellants, Schedule VI forms part of the Com .....

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..... e appellants para 9 and para 33 of AS 22 are inconsistent with the provisions of the Companies Act including Schedule VI. 117. We do not find any merit in the arguments of the appellants on the point of inconsistency. 118. As stated above, recognition and measurements bring in the concept of fair value. When a financial instrument is measured at fair value it brings transparency in financial reporting. Today, companies undertake multifarious activities which warrants segment reporting. For example in RIL we have three segments, namely, refining, industry and infrastructure. Similarly, in the case of Sterlite Industries (India) Ltd., it has different segments. Each segment earns its own revenue. For example, revenue from copper, revenue from aluminium and revenue from others. Under clause 3(vi) of Part II non-provision for taxation would amount to contravention of the provisions of sections 209 and 211 of the Companies Act. Accordingly, it is necessary for the auditor to say in what manner the accounts do not disclose a "true and fair" view of the state of affairs of the company and the P&L account of the company. AS 22 is mandatory. Therefore, it is the duty of the members of the .....

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..... accounting to fair value principles. In our view, with the insertion of the words "true and fair" view in section 211, which is the requirement in the matter of presentation of balance-sheet and P&L account the rule-making authority was entitled to include the concept of "deferred tax" in tax expense. It may be stated that under clause 3(vi) of Part II, Schedule VI the charge for tax on profit is contemplated. Provision for liability for taxation is contemplated by the said clause. Para 9 of AS 22 merely provides for a liability which arises on account of timing difference as explained hereinabove. As stated above, it is known on the balance-sheet date. One has to therefore consider matching principle and fair valuation principles as important concepts in Accrual Accounting. Further, as stated above, recognition and measurement is not covered by the provisions of the Companies Act, therefore, one has to read the presentation of balance-sheet and P&L account together with recognition and measurements. Therefore, one has to read the provisions of the Companies Act along with the impugned Rule which adopts AS 22 as recommended by the Institute. The matching principle recognizes cost .....

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..... ach year. The purchase of machine at a cost of Rs. 1,50,000 in 2001 gives rise to a tax saving of Rs. 60,000. If the cost of the machine is spread over three years of its life for accounting purposes, the amount of the tax saving should also be spread over the same period as shown below : Statement of Profit and Loss (for the three years ending 31st March, 2001, 2002, 2003) (Rupees in thousands)     2001   2002   2003 Profit before depreciation and taxes   200   200   200 Less: Depreciation for accounting Purposes   50   50   50 Profit before taxes   150   150   150 Less:Tax expense             Current tax             0.40 (200-150)   20         0.40 (200)       80   80 Deferred tax             Tax effect of timing differences             originating during the year             0.40 (150-50)   40           Tax effect of timing differences &n .....

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..... tract that will be settled by an entity receiving a fixed number of its own shares is an equity instrument. For example, when an enterprise issues shares in consideration of cash or some other asset/service, the transaction does not result in any cash outflow. For example, a redeemable preference share should be classified as liability and not as equity because it gives rise to an obligation to deliver cash. This example is given to show that DTL is a liability because it results in cash outflow in future on account of timing differences. 124. A company has an option to designate a financial asset at fair value through profit or loss. A financial asset held for trading should be classified as an asset at fair value through profit or loss. The difference in the fair value of financial asset at the beginning of the period and at the end of the period is generally recognized as profit or loss in the P&L account. Similarly, loans and receivables are carried at amortized cost unless the company intends to sell the same immediately. Similarly, there are certain assets like Held-to-maturity-investments which are required to be carried in the balance-sheet at the amortized cost. In all su .....

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..... make rules is limited to particular topics and if that rule falls within the ambit of that topic, namely, taxes on income in the present case, it cannot be said that the rule is inconsistent with the provisions of the Act. As stated above, the Act and the Rules form part of the composite scheme. The provisions of sections 205, 209 and 211 can be put into operation only if the Act and the Rules are read together. In the present case, in our view, the impugned Rule constitutes a legitimate aid to construction of the provisions of the Companies Act. Further, as stated above, the Central Government is the rule-making authority under section 211(3C). As rule-making authority, the Central Government is empowered to enact accounting standards in consultation with NAC which may be at variance with the Standards issued by the Institute. 128. In the case of Union of India v. Cynamide India Ltd. [1987] 2 SCC 720 one of the arguments advanced on behalf of the company was that, in calculating the "net worth" the cost of works-in-progress and the amount invested outside business were excluded from "free reserves" and that such exclusion could not be justified on any known principle of commercia .....

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..... and fair' accrual concept. The said concept is wider than the concept of true and correct accrual. When section 209(3) refers to maintenance of books of account on accrual basis it means 'true and fair' accrual, which would include not only matching principles but also fair valuation principles. These principles do not contravene accrual system of accounting. Moreover, we are concerned with presentation of balance-sheet and P&L account. These are financial statements. An investor, shareholder or stake-holder is entitled to know the real income which the company has earned during the year. Provision for diminution in value of an asset results in emergence of liability. In the past, when timing difference concept was not there, in many cases, profits were overstated, particularly because provision for DTL (deferred taxation) was not recognized. With the introduction of the timing difference concept, it cannot be said that the accrual system of accounting is violated. As stated above, it is the concept of 'timing difference' which obliterates the difference between accounting and tax incomes. Ultimately, the object is to obliterate the difference between accounting income and taxable .....

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..... method or dividend method was not adopted in the case of unquoted equity shares was that bulk of these companies are private limited companies where the divided declared does not represent the correct state of affairs and to estimate the probable yield is no simple exercise. The dividends in these companies is declared to suit the purposes of the persons controlling the companies. Maintainable profits rather than the dividends declared represent the correct index of the value of their shares. The break-up method based upon the balance-sheet of the company, incorporated in rule 1-D, is a fairly simple one. Indeed, no serious objection can also be taken to this course since the basis of the rule is the balance-sheet of the company prepared by the company itself - subject, of course, to certain modifications provided in Explanation-II. 14. We are not satisfied that the break-up method adopted by rule 1-D does not lead to proper determination of the market value of the unquoted shares. The argument to this effect, advanced by the learned counsel for the assessees, is based upon the assumption/premise that the value determined by applying the yield method is the correct market value. W .....

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..... reak-up method is not a recognised method or that yield method is the only permissible method for valuing the unquoted equity shares. It is not as if the rule-making authority has adopted a method unknown in the relevant circles or has devised an impermissible method. There is no empirical data produced before us to show that break-up method does not lead to the determination of market value of the shares. Merely because yield method may be more advantageous from the assessee's point of view, it does not follow that it alone leads to the ascertainment of true market value and that all other methods are erroneous or misleading. This aspect we have emphasised hereinbefore too." (p. 1364) Validity of Para 33 of AS 22 : 130. We have already quoted hereinabove para 33. The said para is challenged on the ground that a subordinate legislation cannot be retrospective unless there is provision to that effect in the parent Act. Therefore, the short question which we have to decide is whether the said para is retrospective. 131. To decide the said question, we have to analyse the scope of para 33. For the purpose of determining accumulated deferred tax in the period in which the Standard i .....

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..... he tax law. It also arises on account of the difference between the amount of revenue/expense as per profit and loss account and the corresponding amount considered for tax purposes, e.g., depreciation. 135. However, we need to comment on one aspect. Before the Calcutta High Court, the impugned Notification adopting AS 22 was also challenged on the ground that the provisions of AS 22 insofar as it relate to 'deferred taxation' is violative of articles 14 and 19(1)(g) of the Constitution of India. In this connection, it was pleaded that by making AS 22 mandatory, the appellants 'companies will suffer erosion of its net worth. That, as a result, the debt equity ratio will also increase and that the lenders may recall the loans and thereby the appellants' rights to carry on business in future would be violated. Although, the aforestated challenge was pleaded in the writ petition, when the matter came for hearing before the High Court, it appears that the said grounds were not argued. According to the appellants, implementation of AS 22 would result in reduction of profits and reserves. In the circumstances, we do not wish to express any opinion on the constitutional validity of the s .....

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