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TMI Blog1991 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... urtax Act, 1964, for the assessment year 1972-73 ? The facts found by the Tribunal are that the assessee-company issued 1,500 debentures of Rs. 1,000 each in the previous year ending December 31, 1961 (the company was then observing the calendar year as its accounting year). For the security of these debentures, a trust deed dated July 26, 1951, was executed in favour of the trustees by the assessee-company. Clause 13 of the conditions of the said trust deed mentions as under : "13. The company shall open a debenture redemption account in accordance with the following provisions, namely : (a) During the year ending December 31, 1953, and, during every succeeding year ending December 31, whilst any debenture remains outstanding, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account and was created to preserve the working capital of the company. The Revenue sought a reference from the aforesaid order and this court remanded the matter to the Tribunal with the observations that no facts could be ascertained from the order of the Income-tax Officer or the Appellate Assistant Commissioner". The Tribunal once again took up the matter as per directions of the High Court and called for a report from the Assessing Officer. The report dated January 29, 1988, was submitted to the Tribunal. The Tribunal once again heard the parties in the light of the above report. It was explained by counsel for the assessee that, as per the terms and conditions of the debentures, the company was required to red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of transferring profits to the capital redemption reserve fund is to prevent reduction of capital. The assessee has followed the same method. The debenture redemption reserve is necessarily a reserve and in no sense a provision since, in redeeming, cash was applied from the funds other than the debenture redemption reserve. It is, therefore, held that the reserve for debenture redemption of Rs. 11,00,000 should be taken into account for the purpose of computation of capital according to the Second Schedule to the Companies (Profits) Surtax Act, 1964." Mr. Sunil Mitra, learned counsel appearing for the Revenue, has drawn our attention to the decision of the Madras High Court in CIT v. Gordon Woodroffe and Co. (Madras) Ltd [1990] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the test of a reserve because (a) the reserve had been created out of appropriation from profits and not by way of a charge on the revenue ; (b) the fund had been retained to form part of the capital employed in the business, i.e., it had not been invested in securities or otherwise so as to take it out of the business ; (e) none of the debentures became redeemable during the accounting period. The liability to redeem the debentures was a future liability ; and (d) the debentures had been separately shown in the balance-sheet as liability. It was also found that the debenture redemption reserve had not been converted into a sinking fund by investment. Therefore, the Tribunal was right in holding that the debenture redemption fund could no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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