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TMI Blog1978 (10) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount of Rs. 1,50,000 representing the ' preference share capital redemption reserve ' as at the beginning of the relevant accounting period should be included as part of the capital base under the Second Schedule to the Companies (Profits) Surtax Act, 1964 ? " The question referred in T.R.C. No. 42 of 1974 is practically the same except that the sum representing preference share capital redemption reserve is shown as Rs. 6,00,000, instead of Rs. 1,50,000. T.R.C. No. 41 of 1974 relates to the assessment year 1966-67, corresponding to the accounting year ending July 31, 1965, and T.R.C. No. 42 of 1974 relates to the assessment year 1967-68, corresponding to the accounting year ending July 31, 1966. The assessee, in these two ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as reserves had been made by the company at the meetings held subsequent to the first day of the relevant accounting year. The assessee questioned the correctness of the orders of the ITO before the AAC of Income-tax. The appeals were allowed and the orders of the ITO disallowing the claim made by the assessee were reversed in view of the decision of the Supreme Court in CIT v. Mysore Electrical Industries Ltd. [1971] 80 ITR 566, in which the Supreme Court, while affirming the view taken by this court, observed that any appropriation for reserve approved at a meeting held subsequent to the commencement of the accounting year should be deemed to relate back to the date of the commencement of the accounting year and had to be treated as effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits of the previous year or years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule to the Act. The expression " chargeable profits " is defined in s. 2(5) of the Act as the total income of an assessee computed under the I.T. Act, 1961, for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule. The expression " statutory deduction " is defined in s. 2(8) as an amount equal to ten per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of two hundred thousand rupees, whichever is greater. From the foregoing, it is clear that the liability of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is created under s. 80 of the Companies Act, is called capital redemption reserve. In the instant cases, however, the assessee has called the reserve in question as the preference share capital redemption reserve. Even though the nomenclature of the reserve may be slightly different from what is mentioned in s. 80 of the Companies Act, the said reserve is in fact the capital redemption reserve referred to therein and referred to in item (2) under the head " Reserves and Surplus " in Part I of Sch. VI of the Companies Act. In the Explanation to r. 1 of the Second Schedule to the Act it is specifically provided 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 releva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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