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TMI Blog1981 (9) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... lities which had already accrued in the years in which the provision was made and were not in respect of anticipated liabilities which might arise in future and, therefore, the court held that the said provision was not reserve but a provision In the context of the question whether while incurring any expenditure or making any disbursement a commercial concern will resort to current income or past savings, the normal rule, in the absence of express indication to the contrary, would be to resort to the current income rather than past savings. In our view, therefore, the Tribunal was right in excluding the sum of ₹ 3,10,450 from the general reserves while computing the capital of the assessee-company for the assessment year 1974-75 in the absence of express indication to the contrary. Civil Appeal is partly allowed and the issue whether the appropriation for retirement gratuity is a reserve or not is remanded to the taxing authority and the rest of the appeal is dismissed. - Judge(s) : E. S. VENKATARAMAIAH., AMARENDRA NATH SEN., V. D. TULZAPURKAR JUDGMENT [The judgment of TULZAPURKAR and VENKATARAMIAH JJ. was delivered by TULZAPURKAR J. A. N. SEN J. delivered a separate judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of the assessee-company and on that basis he determined the capital, and the standard deduction and levied super profits tax on that portion of the chargeable profits of the previous year which exceeded the standard deduction. In the appeal preferred by the assessee-company against the assessment, the AAC upheld the assessee's contentions and held that those items were reserves and took them into account while computing the capital of the assessee-company. In the further appeal preferred by the Super Tax Officer, the Income-tax Appellate Tribunal accepted the department's contention and held that these were not reserves within the meaning of r. 1 of the Second Schedule to the Act and as such these could not enter into the capital computation of the assessee-company. In the reference that was made under section 256(1) of the I.T. Act, 1961, read with s. 19 of the Super Profits Tax Act at the instance of the assessee-company, the following question of law was referred to the Andhra Pradesh High Court for its opinion : Whether, on the facts and in the circumstances of the case, the provisions, (a) for taxation ₹ 33,68,360, (b) for retirement gratuity ₹ 9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Income-tax Appellate Tribunal. It was not a case of proposed dividend but the assessee-company after transferring ₹ 29,77,000 out of the current year's profit amounting to ₹ 61,03,382 to general reserves, paid out of ₹ 3,10,450 as dividend to its shareholders from such augmented general reserves and the question was whether while computing the capital of the assessee-company for the purpose of levy of surtax the general reserves should or should not be reduced by the aforesaid sum of ₹ 3,10,450. In other words, the question was whether the amount of ₹ 3,10,450 could not form part of the general reserves on the relevant date (being January 1, 1973) for the computation of the capital ? The taxing authorities as well as the Appellate Tribunal, Bombay, held that the said amount of ₹ 3,10,450 had to be ignored for the purpose of computation of capital for surtax purpose because it was not a reserve. The assessee-company has challenged this view of the Tribunal before us in this direct reference made to this court under s. 257 of the I.T. Act, 1961 read with s. 18 of the C. (P.) S. T. Act, 1964. It may be stated that the scheme and the main p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he concerned assessee's case had been allowed in computing the assessee's profits under the 1961 Act has not been disputed; in other words, the second condition indicated above has been satisfied. The question is whether any of these items could be treated as or falls within the expression other reserves occurring in the said rule. The expression reserve has not been defined in the Act and, therefore, one would be inclined to resort to its ordinary natural meaning as given in the dictionary but it seems to us that the dictionary meaning though useful in itself, may not be sufficient, for, the dictionaries do not make any distinction between the two concepts reserve and provision while giving their primary meanings whereas in the context of the legislation with which we are concerned in the case, a clear distinction between the two is implied. According to the dictionaries (both Oxford and Webster) the applicable primary meaning of the word reserve is: to keep for future use or enjoyment; to set apart for some purpose or end in view ; to keep in store for future or special use: to keep in reserve , while provision according to Webster means: something provided for future . I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which they are represented being retained to form part of the capital employed in the business. Provisions are usually shown in the balance-sheet by way of deductions from the assets in respect of which they are made whereas general reserves and reserve funds are shown as part of the proprietor's interest. (See Spicer and Pegler's Book keeping and Accounts, 15th Edn. p. 42) . In other words the broad distinction between the two is that whereas a provision is a charge against the profits to be taken into account against gross receipts in the P. L. account, a reserve is an appropriation of profits, the asset or assets by which it is represented being retained to form part of the capital employed in the business. Bearing in mind the aforesaid broad distinction we will briefly indicate how the two concepts are defined and dealt with by the Companies Act, 1956. Under s. 210 of the Companies Act, 1956, it is incumbent upon the board of directors of every company to lay before the annual general meeting of its shareholders, (a) the annual balance-sheet, and (b) the profit and loss account pertaining to the previous financial year. Section 211(1) provides that every balance-sheet o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in value of assets, not being an amount written off in relation to fixed assets before the commencement of this Act; or (b) any amount retained by way of providing for any known liability ; is in excess of the amount which in the opinion of the directors, is reasonably necessary for the purpose, the excess shall be treated for the purposes of this Schedule as a 'reserve' and not a 'provision'. On a plain reading of cl. 7(i)(a) and (b) and cl. 7(2) above it will appear clear that though the term provision , is defined positively by specifying what it means the definition of reserve is negative in form and not exhaustive in the sense that it only specifies certain amounts which are not to be included in the term reserve . In other words the effect of reading the two definitions together is that if any retention or appropriation of a sum falls within the definition of provision it can never be reserve but it does not follow that if the retention or appropriation is not a provision it is automatically a reserve and the question will have to be decided having regard to the true nature and character of the sum so retained or appropriated depending on several factors i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 2 3/1977 (M/s. Echjay Industries Pvt. Ltd.)-the common question is whether the concerned amounts appropriated or set apart by these assessee-companies from out of the profits and other surpluses by way of making provision for taxation constitute a provision or reserve on the relevant date, being the first day of the previous year relevant to the assessment year in question? Taking Vazir Sultan Tobacco Company's case as an illustration, for the assessment year 1963-64, the relevant accounting period was the year which ended on September 30, 1962 ; under r. 1 of the Second Schedule to the S.P.T. Act, the first day of the previous year would be October 1, 1961, and, therefore, the balancesheet of that company as on September 30, 1961, and the profit and loss account which ended on September 30, 1961, would be relevant it cannot be disputed that on the expiry of September 30, 1961, the assessee-company incurred the taxation liability in respect of the profits which it had earned during that year, though the exact amount of such liability could not be determined with substantial accuracy at that time and the same would have to be ascertained by reference to rate of taxes appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was a debt owed within the meaning of s. 2(m) on the valuation date, namely, March 1, 1957, and was as such deductible in computing the net wealth. The ratio of this decision clearly suggests that the appropriation of the amounts set apart by the assessee-companies before us for taxation would constitute a provision made by them to meet a known and existing liability and as such the concerned amounts would not be includible in the capital computation. Counsel for the assessee-company in Vazir Sultan Tobacco Company's case, however, attempted to raise a further plea that the provision for taxation in the sum of ₹ 33,68,360 was an excess provision in the sense it was in excess of the amount which was reasonably necessary for the purpose of taxation and, therefore, the excess should be treated as a reserve and not a provision and in this behalf reliance was placed on cl. 7(2) of Pt. III of Sch. VI and three decisions of the Madras High Court in CIT v. Indian Steel Rolling Mills Ltd. [1973] 92 ITR 78, of the Himachal Pradesh High Court in Hotz Hotels Pvt. Ltd. v. CIT [1975] 101 ITR 596 and of the Allahabad High Court in CIT v. Modi Spinning Weaving Mills [1979] 117 ITR 23. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court that the appropriation was of an ad hoc sum without undertaking any actuarial valuation. It must be observed that whereas the assessee-company did urge a contention before the lower authorities that different treatments for the same item could not be given for purposes of income-tax assessment and super profits tax assessment, the assessee-company did not clarify by placing material on record as to whether the appropriation of the amount was based on any actuarial valuation or whether it was an appropriation of an ad hoc amount,-an aspect which, as we shall presently point out, has a vital bearing on the question whether the appropriation could be treated as a provision or a reserve. In the absence of proper material touching this vital aspect, we are afraid, the issue in question will have to be remanded to the taxing authorities through the Tribunal for disposal in the light of the well settled principles in that behalf, which we shall presently indicate. Ordinarily an appropriation to gratuity reserve will have to be regarded as a provision made for a contingent liability, for, under a scheme framed by a company the liability to pay gratuity to its employees on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge against each year's receipts the cost of making provision for the retirement payments which would ultimately be thrown on it, calculating the sum required to be paid to each employee if he retired without forfeiture at the close of the year and setting aside the aggregate of what was required in so far as the year had contributed to the aggregate. The House of Lords rejected the deductions on the ground that in calculating the deductions the company had ignored the factor of discount. But, their Lordships recognised the principle that the company was entitled to charge, against each year's receipts, the cost of making the provision for the retirement payments which would ultimately be payable as the company had the benefit of the employee's services during that year Provided the Present value of the future Payments could be fairly estimated. Lord MacDermott observed at p. 345 (32 ITR) as follows : ... as a general proposition it is, I think, right to say that, in computing his taxable profits for a particular year, a trader, who is under definite obligation to pay his employees for their services in that year an immediate payment and also a future payment in some su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability under gratuity schemes even if it amounted to a contingent liability and was not a debt under the W.T. Act, if properly ascertainable and its present value was fairly discounted, was deductible from the gross receipts while preparing the P L account. The material portion of the headnote appearing at p. 54 of the report (of 73 ITR) runs thus : Contingent liabilities discounted and valued as necessary, can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into consideration. An estimated liability under a scheme of gratuity, if properly ascertainable and its present value is discounted, is deductible from the gross receipts while preparing the profit and loss account. This is recognised in trade circles and there is nothing in the Bonus Act which prohibits such a practice. Such a provision provides for a known liability of which the amount can be determined with substantial accuracy. It cannot, therefore, be termed a 'reserve'. Therefore, the estimated liability for the year on account of a scheme of gratuity should be allowed to be deducted from the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 547 as follows: The provision for gratuity, furlough, salary, passage, service and commission in the present case was all made in respect of existing and known liabilities, though, in some cases, the amount could not be ascertained with accuracy. It was not a case where it was an anticipated loss or anticipated expenditure which would arise in future. Such provision is therefore, not a reserve at all and cannot be added back under item 2(c) of the Second Schedule. In the above case also the court was concerned with the question whether a particular provision made for gratuity, furlough, salary, passage, etc., was a reserve or a provision for the purpose of the Second Schedule to the Payment of Bonus Act, 1965. At p. 546 of the report this court has categorically observed that all these items, namely, gratuity, furlough salary, passage, service, commission, etc., were clearly in respect of liabilities which had already accrued in the years in which the provision was made and were not in respect of anticipated liabilities which might arise in future and, therefore, the court held that the said provision was not reserve but a provision. From the aforesaid discussion of the case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich it recommends to be paid by way of dividend. Till the company in its general body meeting accepts the recommendation and declares the dividend, the report of the directors in that regard is only a recommendation which may be withdrawn or modified, as the case may be. As on the valuation date (under the Wealth-tax Act) nothing further happened than a mere recommendation by the directors as to the amount that might be distributed as dividend, it is not possible to hold that there was any debt owed by the assessee to the shareholders on the valuation date. All that follows from the above is that in the instant cases the appropriation of the concerned amounts by the board of directors by way of providing for proposed dividend would not constitute provisions , for, the appropriations cannot be said to be by way of providing for any known or existing liability, none having arisen on the date when the directors made the recommendation much less on the relevant date being the first day of the previous year relevant to the assessment year in question. But, as stated earlier, this by itself would not automatically convert the appropriations into reserves , regard being bad to the negativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was shortly afterwards distributed as dividend. In computing the capital of the assessee-company on 1st April, 1946, under the Business Profits Tax Act, 1947, the assessee claimed that, the sum of ₹ 5,08,637 and the profit earned by it during the period 1st January, 1946, to 1st April, 1946, should be treated as reserves for the purpose of r. 2(1) of Sch. II. The High Court held that the sum of ₹ 5,08,637 must be treated as a reserve for the purpose of r. 2, but the profit made by the assessees during the period 1st January, 1946, to 1st April, 1946, could not be included in the reserves. On appeal to this court, it was held that the sum of ₹ 5,08,637 as well as the profits earned by the assessee during the period 1st January, 1946, to 1st April, 1946, did not constitute reserves within the meaning of r. 2(1) of Sch. II. After noting that the expression reserve had not been defined in the Business Profits Tax Act, 1947, and after noting the dictionary meanings of that expression the court observed (p. 504): What is the true nature and character of the disputed sum, must be determined with reference to the substance of the matter and when this is borne in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose and on a specific occasion, and (c) a clear conduct on the part of the directors in setting apart a sum from out of the mass of undistributed profits avowedly for the purpose of distribution as dividend in the same year would run counter to any intention of making that amount a reserve. It was because of these aspects obtained in the case that this court took the view that neither the sum of ₹ 5,08,637 nor the profits earned by the assessee during the period 1st January, 1946, to 1st April, 1946, constituted reserve within the meaning of r. 2(1) of the Second Schedule to the Business Profits Tax Act, 1947. Two more decisions of this court, one in First National City Bank v. CIT [1961] 42 ITR 17 and the other in CIT v. Standard Vacuum Oil Co. [1966] 59 ITR 685, which provide two more guidelines, may now be considered. In both these cases, the court was concerned with the question whether the amount set apart as undivided profit or set apart as earned surplus in accordance with the system of accountancy which obtained in the United States amounted to a reserve liable to be included in the capital computation under r. 2 of Sch. II to the Business Profits Tax Act, 1947. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of the business of the bank was a part of the reserve and had to be taken into account while computing the capital under r. 2(1) of Sch. II to the Business Profits Tax Act; similarly, in the second case the court held that the amount which had been allocated to earned surplus which was intended for the purpose of the business of the assessee-company and was used in subsequent years in business, represented reserves within the meaning of r. 2 of Sch. II of the Business Profits Tax Act, 1947. From these two decisions two aspects emerge very clearly. In the first place, the nomenclature accorded to any particular fund which is set apart from out of the profits would not be material or decisive of the matter and, secondly, having regard to the purpose of r. 2 of Sch. II of the Business Profits Tax Act, 1947, if any amount set apart from out of the profits is going to make up the capital fund of the assessee and would be available to the assessee for its business purposes, it would become a reserve liable to be included in the capital computation of the assessee under that Act. The provisions of the Companies Act, 1956, also lend support to the proposition that an appropriation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory of the existing legal position. Dealing with the last case of Hyco Products Pvt. Ltd., Bombay (Tax Reference Case No. 5 of 1978), where the question pertaining to dividend but in a different form arises for consideration, the admitted facts may briefly be stated. The question relates to the assessment year 1974-75, the relevant previous year being the calendar year 1973 and the material date being January 1, 1973. After the accounts of the calendar year 1972 were finalised the directors transferred out of the profits of ₹ 61,03,382 of that year a sum of ₹ 29,77,000 to the general reserve. With such transfer the general reserve of the assessee-company as on January 1, 1973, stood at ₹ 86,07,712. At the end of the calendar year 1973, admittedly, the directors did not make any provision for proposed dividend in its accounts but there was a note on the balance-sheet to the following effect : The directors have recommended dividend for the year 1972, at the rate of ₹ 10 per share free of tax. The dividend, if approved by the shareholders at the forthcoming annual general meeting, will be paid out of general reserve and no separate provision has been made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has to be paid either from the current year's profits or from the past years' profits. He further urged that once from out of the current year's profits a certain sum is transferred to the general reserve it merges into the latter and the general reserve so augmented becomes a conglomerate fund and if out of such conglomerate fund any sum is recommended or paid out as dividend it will be difficult to say that such payment has come out of a portion of the current year's profits that has been transferred and merged and there is no reason why the principle Last-in, First-out should be invoked, for drawing the inference that the payment has been made out of the current year's profits. He pointed out that such a principle was applied by the Bombay High Court in two decisions, namely, CIT v. Bharat Bijlee Ltd. [1977] 107 ITR 30 and CIT v. Marrior (India) Ltd. [1977] 107 ITR 35 but urged that there was no warrant for it. In support of his contention that the entire general reserve of ₹ 86,07,712 without any deduction should have been taken into account while computing the capital of the assessee-company, counsel relied upon a decision of the Andhra Pradesh Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve the augmented general reserve becomes a conglomerate fund but having regard to the natural course of human conduct of hard-headed men of business and commerce it is not difficult to predicate that the dividends would ordinarily be paid out from the current income rather than from the past savings, unless the directors in their report expressly or specifically state that payment of dividends would be made from the past savings. From the commercial point of view if any amount is required for incurring any expenditure or making any disbursement like distribution of dividends in a current year, then ordinarily the same will come out of the current income of the company if it is available and only if the same is insufficient then the past savings will be resorted to for the purpose of incurring that expenditure or making that disbursement; such a course would be in accord with the common sense point of view. We may point out that this aspect of the matter was not considered by the Andhra Pradesh High Court in Super Spinning Mills Ltd.'s case [1979] 120 ITR 512 and the view of the Bombay High Court in the cases of Bharat Bijlee Ltd. [1977] 107 ITR 30 and Marrior (India) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try for these appeals would be seriously inconvenienced, but also the litigant public who had been waiting for, years for the hearing of these matters would be prejudiced. It was further pointed out to me that the judgment which was delivered by me was not under appeal and further it would appear from the judgment which I had earlier delivered in Braithwaite matter ([1978] 111 ITR 729), there was in fact a concession made by the learned counsel appearing on behalf of the assessee that the said case was covered by the decision of the Supreme Court in the case of CIT v. Century Spinning and Manufacturing Co. Ltd. [1953] 24 ITR 499. The learned counsel appearing on behalf of the parties further represented to me that the earlier judgment was delivered by me as a judge of the High court and it was always open to me to reconsider my views, particularly as a judge of this court after hearing the submissions to be made on behalf of the learned counsel appearing on behalf of the parties. In view of the aforesaid representations and submissions made by the learned lawyers, I was persuaded to hear these appeals with my learned brothers to avoid inconvenience not only to the lawyers but to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational Dictionary, Second Edition, page 2118 'reserve' is defined as follows : 1. To keep in store for future or special use ; to keep in reserve to retain, to keep, as for oneself. 2. To keep back; to retain or hold over to a future time or place. 3. To preserve. The Supreme Court further observed at p. 504: What is the true nature and character of the disputed sum, must be determined with reference to the substance to the matter? The Supreme Court held at pp. 504-505 as follows : ...'A reserve in the sense in which it is used in rule 2 can only mean profit earned by a company and not distributed as dividend to the shareholders but kept back by the directors for any purpose to which it may be put in future. Therefore, giving to the reserve its plain natural meaning, it is clear that the sum of ₹ 5,08,637 was kept in reserve by the company and not distributed as profits and subjected to taxation. Therefore, it satisfied all the requirements of rule 2.' The directors had no power to distribute the sum as dividend. They could only recommend, as indeed they did, and it was up to the shareholders of the company to accept that recommendation in which case alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the said decision, this court held at pp. 697-98 as follows : The court was dealing in this case with the accounts of an Indian company, the balance-sheet of which was prepared according to the provisions of the Indian Companies Act, 1913. Regulation 99 of the First Schedule, Table A, required that reserves must be set apart before the directors recommended any dividend, but out of the profits of the company no amount was set apart towards reserves before the directors recommended payment of dividend to the shareholders. The identity of the amount remaining on hand at the foot of the profit and loss account was not preserved. It is on these facts that the court held that there was no allocation of the amount to reserve and from the mere fact that it was carried forward in the account of the next year and ultimately applied in payment of dividend, it could not be said to be specifically set, apart for any purpose at the relevant date, i.e., the end of the year of account. This court then proceeded to hold at pp. 697-98 as follows: We are in this case dealing with a foreign company and the system of accounting followed by the company is different in important respects from the syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC), the facts were briefly as follows ; Out of the profits of the company for the accounting period ending March 31, 1963, the directors of the company appropriated the following amounts towards reserves on August 8, 1963: (i) ₹ 2,56,000 as plant modernisation and rehabilitation reserve: (ii) ₹ 89,557 as development rebate reserve. The question was whether these amounts could be included in computing the capital of the respondent as on April 1, 1963, under r. 1 of Sch. II to the C.(P.) S.T. Act, 1964, for the purpose of the statutory deduction for the assessment year 1964-65. The contention of the department was that since the appropriations were made on 8th August, 1963, they could not be treated as components of capital as on the first day of the previous year, i. e., 1st April, 1963. Negativing the contention of the department, this court held that the determination of the directors to appropriate the amounts of the three items of reserve on 8th August, 1963, had to be related to 1st April, 1963, viz., the beginning of the accounts for the new year, and had to be treated as effective from that day and the said three items had to be added to the other items for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [1953] 24 ITR 499. The further argument is that the recommendation for dividend by the directors of the company does not create any kind of liability, immediate or future. It is argued that the obligation to pay the dividend arises only when the shareholders at the annual general meeting of the company decided to accept the recommendation of the directors and pass a resolution for the declaration of dividend. It is submitted that it is open to the directors to withdraw or modify the recommendations made by them any time before the shareholders accept the recommendations and in support of this contention reference is made to the decision of this court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 and reliance is placed on the following observations at p. 772 : The directors cannot distribute dividends but they can only recommend to the general body of the company the quantum of dividend to be distributed. Under section 217 of the Indian Companies Act, there shall be attached to every balance-sheet laid before a company in general meeting a report by its board of directors with respect to, inter alia, the amount, if any, which it recommends to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a taxing statute specially applicable to companies only. The word reserve should be so construed as to give the said word the meaning in which it is ordinarily understood by persons interested in companies or in dealing with companies. In other words, the word reserve for the purpose of this Act should be understood in the sense in which it is understood in company circles and by persons interested in companies and in dealing with companies. It may be noticed that while considering the true meaning and true nature of reserve , the Supreme Court in the case of CIT v. Century Spinning and Manufacturing Co. Ltd. [1953] 24 ITR 499 has referred to ss. 131 (a) and 132 of the Indian Companies Act, to the Form marked F in Sch. III in which the balance-sheet of the company has to be prepared and also to regln. 99 of the First Schedule, Table A. have earlier quoted the relevant observations of the Supreme Court. It is, no doubt, true that the recommendations of the directors for the payment of any dividend does not create any kind of liability for the payment of the said amount. The liability for payment of any amount by way of dividend arises only when the shareholders accept the recommend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides: (1) The board may, before recommending any dividend, set aside out of the profits of the company such sums as it thinks proper as reserve or reserves which shall, at the discretion of the board, be applicable for any purpose to which the profits of the company may be properly applied, including provisions for meeting contingencies or for equalising dividends; and pending such application, may, at the like discretion, either be employed in the business of the company or be invested in such investments (other than shares of the company) as the board may from time to time, think fit. (2) The board may also carry forward any profits which it may think prudent not to divide, without setting them aside as a reserve. This regulation contemplates that the board may set aside out of the profits of the company such sums, as it thinks proper, as a reserve or reserves which shall, at the discretion of the board, be applicable for any purpose to which the profits of the company may be properly applied including the provisions for meeting contingencies or for equalising the dividends, before recommending any dividend. In other words, the sums out of the profits of the company have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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