Excess development rebate reserve excluded from capital computation under the Companies (Profits) Surtax Act, following earlier precedent.

The excess development rebate reserve was held not to form part of capital for computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964. The Kerala HC followed its earlier Bench decisions on the same point and found no basis to depart from them, while holding that Vazir Sultan Tobacco Co. Ltd. did not directly govern the references. The Tribunal's view was therefore upheld, in favour of the Revenue and against the assessee.

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Issues: Whether the excess development rebate reserve was to be included in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The answer to the referred question depended on the proper treatment of the excess development rebate reserve while computing capital under the Second Schedule. The Court saw no reason to depart from its earlier Bench decisions on the same point, and held that the Supreme Court decision in Vazir Sultan Tobacco Co. Ltd. did not directly govern the issue arising in the present references.

Conclusion: The question was answered in the affirmative, meaning that the Tribunal was right in holding that the excess development rebate reserve was not to be included in the computation of capital, in favour of the Revenue and against the assessee.

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