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TMI Blog1988 (11) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... represented the surplus "received as compensation" when the company's business was taken over on the nationalisation of the bank and rejected the contention. He also stated that in working out the capital, he took note of the reduction in capital and in spite of the objection from the assessee, overruled the same. On appeal, the Appellate Assistant Commissioner held that the company itself had not treated this amount as a reserve and it represented an existing liability which is liable to be distributed among the shareholders. He also held that it was not a reserve within the meaning of the Companies Act or in the parlance of commercial accountancy. As regards the computation of capital, he held that the certificate issued under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the amount of Rs. 1,68,20,000 representing the excess of compensation received at the time of nationalisation of the bank should be treated as a 'reserve' for the purpose of capital computation ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that for the purpose of rule 3 of the Second Schedule to the Companies (Profits) Surtax Act, the date of filing of the return with the Registrar of Companies under section 103 (2) of the Companies Act is the relevant date ?" We shall take up the second question first for consideration: Section 103 (2) of the Companies Act, reads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 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 item under the heading "Current Liabilities and Provisions" in the column relating to "Liabilities" in the " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in CIT v. Saran Engineering Co. Ltd. [1986] 161 ITR 741. The contention of the Department is that there was no earmarking of the amount as a reserve for a specific purpose as held by the Supreme Court in Elgin Mills Co. Ltd.'s case [1986] 161 ITR 733, that reserve is an appropriation of profit to provide for an asset which it represented and that the Tribunal was wrong in holding that the same is a reserve. However, it may been seen that the Supreme Court in that case was concerned with different types of reserves, viz., (i) investment reserve ; (ii) rehabilitation reserve ; (iii) capital reserve ; and (iv) depreciation reserve. In analysing the same, the Supreme Court took the view that the reserve is an appropriation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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