9911796707
TMI Blog2001 (9) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case, the reserve on account of retrocessions ceded by the company could form a part of capital and/or reserve of the assessee-company under the Second Schedule to the Companies (Profits) Surtax Act, 1964?" The dispute relates to the assessment year 1971-72. The factual position in a nutshell is as follows: The assessee (hereinafter referred to in short as "BG") at the relevant point of time was engaged in the business of general reinsurance of fire, marine, motor and miscellaneous policies. Reinsurance is made by ceding a part of the premium by the original insurer to the reinsurer for sharing the risk. The reinsurer, in its turn, may give off a share of cession which has been ceded to it. If it do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts disclosed by the annual account of a general insurance company, which are required to be prepared under the Insurance Act, 1938, and to be furnished to the Controller of Insurance subject to annual adjustments as were permissible under the said rule 5. The Tribunal with reference to the factual position came to hold that the amount in question is not a part of either the assessee's own capital or reserves. It is the amount due to CI on which interest is payable by the assessee. Accordingly, it was concluded that the amount stands on the same footing as any other item of liability. Therefore, there was no question of its inclusion in the computation of the capital. On being moved for reference the question as set out above has been refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of subsection (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (3) of section 34 of the Income-tax Act, 1961 (43 of 1961); (iii) its other reserves as reduced by the amounts credited to such reserves as have been allowed as a deduction in computing the income of the company for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961)... Explanation--For the removal of doubts it is hereby declared that any amount standing to the credit of any account in the books of a company as on the first day of the previous year relevant to the assessment year which is of the nature of item (5) or item (6) or item (7) under the heading 'Reserves and surplus' or of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccasion to deal with the question. It was held that "provision" and "reserve" are not defined in the Act, therefore, the two concepts which are fairly well known in commercial accountancy and which are used in the Companies Act, 1956, dealing with preparation of balance-sheets and profit and loss accounts will have to be gathered from the meaning attached to them by the Companies Act, 1956, itself. It was pointed out that even if a sum of money which had been set apart for a certain purpose was held not to be a "provision", it did not automatically follow that it would be a "reserve". In the prescribed form of balance-sheet under the heading "Reserves and surpluses' seven types of reserves have been shown: "(1) Capital reserves; (2) Capit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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