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TMI Blog1996 (4) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... capital base under the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?" The assessee is a public limited company and the assessment year involved is 1979-80 for which the accounting year ended on December 31, 1978. The Surtax Officer, while computing the statutory allowance, reduced the capital employed to the extent of Rs. 10 lakhs which represented "preference share redemption reserve" on the view that such reserve was earmarked for a known liability, namely, redemption of preference shares of the company, and as such the reserve was in the nature of a provision which has to be excluded from the capital computation. On appeal by the assessee, the Commissioner of Income-tax (Appeals) overruled the view of the Surtax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Even though the nomenclature of the reserve was different from what was mentioned in section 80 of the Companies Act, 1956, the reserve was capital redemption reserve referred to therein and referred to in item (2) under the heading 'Reserves and Surplus' in Part I of Schedule VI to the Companies Act. Therefore, the Tribunal was right in including the sums of Rs. 1,50,000 and Rs. 6,00,000 in the capital base during the relevant assessment years for purposes of determining the quantum of statutory deduction to which the assessee was entitled during the respective years." The Andhra Pradesh High Court also had an occasion to consider the question of similar nature in the case of CIT v. Vazir Sultan Tobacco Co. Ltd. [1988] 173 ITR 567, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called 'the capital redemption reserve account', a sum equal to the nominal amount of the shares redeemed ; and the provisions of the said Act relating to the reduction of share capital shall apply in that behalf. This provision also gives an indication that 'capital redemption reserve' partakes of the nature of share capital. Hence, capital redemption reserve should be taken into account while determining the capital base of the company for purposes of the Companies (Profits) Surtax Act, 1964." In view of the above cited decisions, we hold that there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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