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TMI Blog1968 (11) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... 50, it issued bonus shares worth Rs. 3,50,000 and in 1951, further bonus shares worth Rs.1,00,000. That during the said assessment years its paid up share capital stood at Rs. 5,00,000. In applying the proviso the ratio between a company's capital and its " reserves representing accumulations of past profits " has to be determined (the fixed assets of this company being less than the capital). Before the Tribunal and the tax authorities there was a dispute is to both these items, viz., what was the company's capital and what were its reserves. The Tribunal ultimately decided that the company's capital was Rs. 5,00,000 and that finding has not been challenged before us. The only question, therefore, which survives is what were " the reserves representing accumulations of past profits which have not been the subject of an order under this sub-section " within the meaning of those words in the proviso. If the reserves are more than the capital, the proviso would apply and the company would be constrained to distribute the whole of its assessable income as determined for the previous years, less the taxes paid. Otherwise, the profits already distributed by way of dividend would be in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding each of these items we may first of all refer to the nature of the dispute and the finding. So far as the " general reserve " is concerned, there is absolutely no dispute that it would constitute a reserve representing accumulation of past profits within the meaning of the proviso. That item, therefore, will have to be taken into account. As regards the item of " reserve for taxation ", the Income-tax Officer held that the whole amount should be treated as a reserve within the meaning of the proviso to section 23A(1), but the Appellate Assistant Commissioner took the view that only the difference between the amount set apart to provide for taxation less the actual tax payable would be the amount which could be said to be the " reserve ". Accordingly he held that only Rs. 35,686 for the assessment year 1953-54 and Rs. 29,863 for the assessment year 1954-55 could be taken as reserve for taxation. This view was confirmed by the Tribunal in paragraph 8 of its order. Therefore, though we have quoted above the figures for reserve for taxation at Rs. 5,29,319 for the first year and Rs. 5,00,160 for the second year the actual figures which have now to be taken towards reserves unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 183 in each of the two years should be deducted from the figure mentioned in the profit and loss account and the balance should be held to be a reserve representing accumulations of past profits within the meaning of the proviso. When the matter came before the Tribunal they held that the entire amount mentioned in the profit and loss account was nothing more than undistributed profits which had not been " crystallised " in the sense that these profits had not been appropriated to any reserve fund by the company and, therefore, they cannot be said to be " reserves " at all. The Tribunal referred to the decision of this court in Nanubhai Naneklal Co. Ltd. v. Commissioner of Income-tax . This, as we have said, is the principal question involved in this reference. If this item is eliminated, as the Tribunal has eliminated it from the computation, from the figure of reserves, then in none of the two years in question would the figure of reserve exceed Rs. 5,00,000 which is the figure of paid-up capital of this company, and the proviso would not be attracted. It is only if the department succeeds in its contention on this question that it would be necessary to consider the other q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (XXI of 1947), Schedule 11, read with rule 2(1) of the Business Profits Tax Rules. That rule required two circumstances to be established, one of which was that the amount should be treated as a reserve within the meaning of the rule. In that connection the Supreme Court observed at page 504: " A reserve in the sense in which it is used in rule 2 can only mean profit earned by a company and not distributed as dividend to the shareholders but kept back by the directors for any purpose to which it may be put in future " . They also observed generally: " Thus the profits lying unutilized and not specially set apart for any purpose on the crucial date did not constitute reserves within the meaning of Schedule II, rule 2(1)." The Business Profits Tax Act was a taxation statute in pari materia with the provisions of section 23A of the Income-tax Act, and, therefore, this court applied that definition of the expression " reserve " in section 23A in Nanubhai Maneklal Co.'s case . Another decision in point is Rukmani Co.'s case. That decision followed both the definition laid down by the Supreme Court in the Century Spinning and Manufacturing Co.'s case and its application t ..... 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