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TMI Blog1989 (3) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... sset in the surtax assessment for the purpose of working the capital base. The Income-tax Officer rejected the claim of the assessee by applying Explanation I to rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ("Act" for short). He also reduced the capital base with reference to income exempt from tax under section 80-1 of the Income-tax Act, 1961. On appeal, the Commissioner (Appeals) held that the Explanation had no application to the case, and in his view, a book asset would be an intangible asset such as goodwill. He also held that the reserve had not been brought into existence by revaluing or by creating a book asset but by including the value of an asset which was brought into the accounts so as to truly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that Explanation I to rule 2 of the Second Schedule to the Surtax Act does not apply to the capital reserve created by the assessee by bringing into the books the value of land received as gift from the U. P. Government ?" Inasmuch as, in directing the inclusion of the income exempt under section 80-1 of the Income-tax Act in assessing the capital base, the Commissioner (Appeals) and the Tribunal have merely followed a judgment of this court in Second ITO v. Stumpp, Schuele and Somappa P. Ltd. [1977] 106 ITR 399, which is binding upon us, we answer the first question referred to us in the affirmative and against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok asset" is not defined under the Act or under the Income-tax Act, 1961. But, by referring to similar expressions such as "book profits" and "book debts" as understood by well-known authors and with reference to decisions, the conclusion we can draw is that book assets are assets owned and possessed in connection with the company's trade which are entered, or, commonly required to be entered in the books (see Paget's Law of Banking, 9th Edn., page 50; Palmer's Company Law, 22nd Edn. Vol. 1, para 44-06 ; Dawson v. Isle [1906] 1 Ch. D. 633 ; Independent Automatic Sales Ltd. v. Knowles and Foster [1962] 1 WLR 974 (Ch. D.) and Paul and Frank Ltd. v. Discount Bank (Overseas) Ltd. [1967] 1 ch.D.348. Thus, the expression "book asset" used in Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of a reserve thereon. Learned counsel also submitted that the said decision does not lay down the correct law. In that case, the Andhra Pradesh High Court was concerned with the increase in the assessee's account on the devaluation of the rupee and that was included under the head "Gain on devaluation" and in the balancesheet the assessee-company showed that sum under the head "Reserve and surplus". The objection of learned counsel to adopting the reasoning of the Andhra Pradesh High Court, in the present case is that in that decision a distinction is made between an amount credited by the assessee to "gain on devaluation account" as representing a real increase in the value of the assets which is realised as opposed to any unrealised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectify the same and claim the benefit notwithstanding Explanation 1 to rule 2 in the Act. The Andhra Pradesh High Court stated that what was done in that case was only to truly reflect the value on the devaluation of the rupee and, therefore, the inhibition in Explanation 1 to rule 2 was not attracted with which we respectfully agree. The submission on behalf of the Revenue that the decision of the Andhra Pradesh High Court proceeds on a wrong premise is plainly incorrect. In the present case, it may be seen that the asset, i.e., the land, was in existence, the same having been granted to the assessee by the Uttar Pradesh Government free of cost. Though the assessee had not incurred any expenditure in acquiring the asset, without that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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