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TMI Blog1995 (9) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument that the assessee had been directed by the Reserve Bank of India under section 35A to contribute a larger amount to the reserve fund than what was required by section 17(1) is misconceived. The question referred to the High Court was correctly answered by it. Appeal dismissed. - - - - - Dated:- 22-9-1995 - Judge(s) : A. M. AHMADI., S. C. SEN., K. S. PARIPOORNAN. JUDGMENT The judgment of the court was delivered by S. C. SEN J.--These are appeals from a judgment of the Andhra Pradesh High Court (see [1985] 153 ITR 64) which answered the following question of law in the negative and against the assessee : " Whether, on the facts and in the circumstances of the case, the sums of Rs. 4,12,780 and Rs. 5,50,000 are liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or deposited, as the case may be, or " The language of clause (xi)(a) is clear. Whatever amount is deposited in the reserve fund created under section 17(1) of the Banking Regulation Act will not qualify for deduction. The deduction will be limited only to the amount which is required to be transferred to the reserve fund by sub-section (1) of section 17 of the Banking Regulation Act, 1949. Sub-clause (a) of clause (xi) clearly states that when an amount is transferred to the statutory reserve fund, deduction will be limited to a sum " not exceeding the amount required under the aforesaid provisions to be so transferred ". The legislative intent is not to allow the entire sum transferred to the reserve fund as deduction but to limit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 17 of the Banking Regulation Act. Even though the amount of contribution for the relevant accounting period was higher than 20 per cent. of its balance of profits, the entire amount will have to be deducted from its total income in order to arrive at the chargeable profit under clause (xi) of rule 1 of the First Schedule to the Act, because the amount in excess of the statutory minimum was contributed pursuant to the direction given by the Reserve Bank of India. Any direction given by the Reserve Bank of India under section 35A of the Banking Regulation Act is binding on a banking company. Therefore, the bank was under a legal obligation to transfer more than 20 per cent. of its profits to the reserve fund. Since thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The phrase " not exceeding the amount required .... to be so transferred " indicates that any other sum in excess of the requirement of section 17 will not be eligible for deduction. Assuming that the assessee-bank was under a legal obligation to transfer a sum in excess of 20 per cent. by virtue of a direction given by the Reserve Bank of India, then the excess contribution to the reserve fund was not because of any requirement of section 17 but because of the provisions of some other section. The exclusion permissible under clause (xi) of rule 1 of the First Schedule to the Act is limited only to the sum " not exceeding the amount required under the aforesaid provisions to be so transferred. . .". The " aforesaid provisions " in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation. 3. There are several banks the reserves of which Are not equal to their paid-up capital. The intent of the Governor's letter is that such banks should, till they reach parity of paid-up capital and reserves, follow the same basis of computation as they observed in their profit and loss account for 1960. That is to say, if they compute transfers to reserves on profits before tax they should continue to do so till parity is reached." This letter is in the nature of advice and contains directions as to how the profit should be calculated before transfer of the requisite 20 per cent. is made to the reserve fund. The banks, having reserves equal to or in excess of their paid-up capital, should transfer 20 per cent. of the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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