Actual transfer to reserve fund governs surtax deduction; later year-end appropriation cannot qualify under the banking rule.

Rule 1(xi) of the First Schedule to the Companies (Profits) Surtax Act, 1964 permits deduction for a banking company only of sums actually transferred to the reserve fund during the previous year under section 17(1) of the Banking Regulation Act, 1949. A later appropriation approved after year-end cannot be treated as an actual transfer for deduction purposes. On the facts, only Rs. 27,000 was transferred during the relevant year, while Rs. 1,23,000 was appropriated later by resolution and approval. The larger amount was therefore not deductible, and the reference was answered against the assessee.

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Issues: Whether, for deduction under rule 1(xi) of the First Schedule to the Companies (Profits) Surtax Act, 1964, the amount deductible in respect of a banking company is the sum actually transferred to the reserve fund during the previous year or the larger amount subsequently appropriated and approved after the close of that year.

Analysis: Rule 1(xi) allows deduction only of any sum which during the previous year is transferred by a banking company to a reserve fund under section 17(1) of the Banking Regulation Act, 1949. The wording of the rule was treated as controlling, and the Court distinguished decisions dealing with the Second Schedule to the Companies (Profits) Surtax Act, 1964, where the relevant language and the computation date were different. On the facts, only Rs. 27,000 had been actually transferred during the previous year, whereas Rs. 1,23,000 was merely appropriated by a later resolution and approval after the end of the previous year. Such later appropriation could not be treated as an actual transfer within the meaning of the rule.

Conclusion: The larger amount of Rs. 1,23,000 was not deductible under rule 1(xi); only the amount actually transferred during the previous year qualified, and the answer was against the assessee.

Final Conclusion: The reference was answered against the assessee because deduction under the surtax schedule depended on actual transfer to the reserve fund during the relevant previous year, not on a later appropriation related back to that year.

Ratio Decidendi: For purposes of rule 1(xi) of the First Schedule to the Companies (Profits) Surtax Act, 1964, only amounts actually transferred to the reserve fund during the previous year qualify for deduction, and a subsequent appropriation approved after the close of the year cannot be treated as such transfer.

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