Capital base computation excludes provision for taxation as deductible cost reduction when Supreme Court precedent overrules earlier contrary view.

Provision for taxation could not be deducted from the cost of investments while computing capital base under rule 2 of the Second Schedule, because it was not a surplus fund eligible for such reduction. The Madras High Court noted that the earlier Calcutta High Court view supporting the assessee had already been reversed by the Supreme Court on the same legal question, and the Tribunal erred in relying on the overruled precedent. The issue was therefore resolved against the assessee and in favour of the Revenue.

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Issues: Whether the provision for taxation amounting to Rs. 57,86,074 was deductible from the cost of investments while computing the capital base under rule 2 of the Second Schedule.

Analysis: The answer depended on whether the provision for taxation could be treated as a surplus fund eligible for reduction from the cost of investments. The Court noted that the earlier Calcutta High Court view in favour of the assessee had been reversed by the Supreme Court in relation to the same legal question, and that the Tribunal had therefore erred in following the overruled view. In light of the Supreme Court's ruling, the provision for taxation could not be treated as deductible from the cost of investments for capital base computation.

Conclusion: The issue was decided against the assessee and in favour of the Revenue; the provision for taxation was not deductible from the cost of investments under rule 2 of the Second Schedule.

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