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TMI Blog1994 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,69,534 being the cost of shares should not be excluded from the computation of capital for levy of surtax by applying rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment year 1969-70 ? " In Tax Case No. 1392 of 1980, the question of law referred lo this court reads as follows : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 8,81,684 being the cost of shares should not be excluded from the computation of capital for levy of surtax by applying rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment year 1972-73 ? " The relevant facts of the case may now be noted. The respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate Assistant Commissioner. At the instance of the Revenue, the Tribunal has referred the above questions, which in substance are common, for the decision of this court. It is not in dispute that in Addl. CIT v. Madras Motor and General Insurance Co. Ltd. [1979] 117 ITR 354, a Division Bench of this court, while construing the scope of rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, after an elaborate consideration, held as follows (at page 361) : " When we look at the provisions in the Act, we find that the Legislature has been guided by a sense of reasonableness and that there has been no attempt made to clutch at all the profits made by a company and subject the same to a surtax under the Act. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reduction of the statutory deduction which would otherwise be available to the assessee. In the light of the above, we consider that the proper interpretation to be placed on the First and the Second Schedules including rule 2 of the Second Schedule, is to understand rule 2 of the Second Schedule as attracting only cases where rule 1 of the First Schedule is attracted. In other words, if there is no income of the kind mentioned in clauses (iii), (vi) and (viii) of rule 1 of the First Schedule at all in a particular assessment year, rule 2 of the Second Schedule will not be attracted at all. This view is in consonance with column 8(2)(a) in Form No. 1, which has already been referred to. This would be the reasonable view that we can gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Assistant Commissioner found that the cost of the shares including the shares on which the appellant did not get any dividend income comes to Rs. 2,81,684 and this amount being far less than the amount of Rs. 12,64,536 available in various funds and reserves, has to be included while computing the capital. Accordingly, he gave directions to the Surtax Officer. For the assessment year 1972-73, the Appellate Assistant Commissioner found that the observation made by him for the assessment year 1969-70 held good for the year in question, namely, 1972-73, and on that ground, directed the Surtax Officer to consider Rs. 8,81,684 while computing the capital. The contention of Mr. J. Jayaraman, is that the Tribunal has not applied its mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts in question in the present case were by way of investment in shares in certain Indian companies. By virtue of rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, income by way of dividends from such shares is to be excluded while computing chargeable profits. Hence, under rule 2 of the Second Schedule, such investment is to be excluded from the capital base of the company. However, as per rule 2, such exclusion or diminution is confined to the extent to which the cost of such assets as on the first day of the previous year exceeds the aggregate of borrowed moneys as set out therein and any fund, any surplus and any reserve as is not to be taken into account in computing the capital under rule 1. Since i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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