9911796707
TMI Blog1980 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case, the balance to the credit of earned surplus accounts in the books of the assessee as on 1st day of the relevant previous year or any part thereof represented reserves within the meaning of rule I to the Second Schedule to the Companies (Profits) Surtax Act, 1964, as read with the Explanation to the same rule? The facts of this case lie in a very narrow compass and are not disputed. : The assessee is a company incorporated in the United States of America having its head office in that country and one of its branches is in India. The assessee is treated as a company under s. 217(2) of the Companies Act, 1956. The company filed its returns for the assessment years 1966-67, 1967-68, 1968-69 and 1969-70. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT v. Standard Vacuum Oil Co. [1966] 59 ITR 685 (SC), the facts were that the assessee, a non-resident company, incorporated in the USA with the object of taking over the assets of two other companies in consideration of the transfer of assets, allotted to each company a certain number of shares. The said assesseecompany entered in its books of account the book value of the assets taken over from the two companies and the excess of the net value of the assets transferred over the par value of the stock issued and the serial bonds was entered in an account styled " Capital paid in surplus ". Later, the serial bonds issued to one of the two companies were redeemed and after some adjustments the " Capital paid in surplus " account was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the expression ' reserve ' means something specifically kept apart for future use or for a specific occasion. The accumulated profits of the assessee-company, according to the system of accounting at the end of the year, were not carried forward into the account of the next year as they could not be, according to the system of accounting prevalent in the United States. They had to be allocated to some account and they were allocated to 'earned surplus', which was intended for and was used in subsequent years for the purposes of the business of the assessee-company. The account in which this amount was carried retained its identity year after year ...... The table disclosed that the balance of ' earned surplus' at the end of the year did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for proposed allocations, namely Act, 1963, and as such the judgments of the Supreme Court are distinguishable on facts. The Explanation is to the following effect: " 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'...in the 'Form: Dividend, Bonus or Reserves. 6. Proposed additions to reserves. 7. Sinking funds." Item 7 relating to sinking funds has not been relied upon by the counsel for the department and as such we need not discuss the same. In order to decide whether items 5 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that case was dealing with a case of banking company. But the characteristics noted are not peculiar to the accounts of a banking company: they are applicable with appropriate variations to the accounts of all companies, in which different nomenclatures are used in the accounts to designate the residue on hand as 'surplus', 'undivided profits' or 'earned surplus'." Applying the aforesaid observations to the facts of the present case, the Tribunal recorded the following findings: " The addition is an effective allocation which did not require any formality or ceremony for being treated as a part of the general earned surplus account. The addition, therefore, was not a mere proposed addition but an addition which was a fait accompli." ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
