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Issues: Whether the amount standing to the credit of the preference share redemption reserve at the beginning of the accounting period was includible in the capital base under the Second Schedule to the Companies (Profits) Surtax Act, 1964.
Analysis: The reserve was created in connection with redemption of preference shares and the controversy was whether it was to be treated as a provision excluded from capital computation or as a reserve forming part of the capital base. The governing scheme under Rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and the character of capital redemption reserve under Section 80 of the Companies Act, 1956, supported inclusion. The amount was treated as part of the company's reserves and not as an excluded provision.
Conclusion: The amount representing preference share redemption reserve was includible in the capital base and the question was answered in the affirmative, against the assessee and in favour of the Revenue.
Final Conclusion: The reference was answered by holding that preference share redemption reserve forms part of the capital base for surtax computation.
Ratio Decidendi: A capital redemption reserve created for redeemable preference shares is a reserve, not a provision, and is includible in the capital base for purposes of surtax computation.
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