Revaluation reserves excluded from surtax capital base where statute bars reserves created by revaluing book assets.

Under the Companies (Profits) Surtax Act, a reserve created by revaluing assets and retrospectively recomputing depreciation was excluded from capital because the statute expressly bars reserves brought into existence by revaluation of book assets. The Court treated "book assets" in its ordinary statutory sense and held that clear taxing language could not be displaced by beneficial interpretation. On the further question, the amount of general reserves identified by the Court was also excluded from capital computation in line with the binding precedent relied upon. The referred questions were answered against the assessee and in favour of the Revenue.

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Issues: (i) Whether reserve created by revaluation of assets and retrospective recomputation of depreciation could be treated as capital for determining statutory deduction under the Companies (Profits) Surtax Act, 1964; (ii) Whether the amount of Rs. 57,52,837 was liable to be excluded from general reserves and kept out of capital computation.

Issue (i): Whether reserve created by revaluation of assets and retrospective recomputation of depreciation could be treated as capital for determining statutory deduction under the Companies (Profits) Surtax Act, 1964.

Analysis: The scheme of the surtax law treats chargeable profits and capital as special statutory concepts. Explanation 1 to rule 2 of the Second Schedule excludes from capital any paid-up share capital or reserve brought into existence by creating or increasing, by revaluation or otherwise, any book asset. The expression "book assets" was construed in its ordinary and contextual sense to include all assets entered in the books of account, whether tangible or intangible, and not merely intangible assets. A reserve generated by revaluing assets and adjusting past depreciation was therefore regarded as a revaluation reserve excluded from capital. The rule of beneficial interpretation could not be used to defeat clear statutory language.

Conclusion: The reserve of Rs. 68,64,000 created by revaluation of assets was not capital for surtax purposes, and the answer to the issue was against the assessee and in favour of the Revenue.

Issue (ii): Whether the amount of Rs. 57,52,837 was liable to be excluded from general reserves and kept out of capital computation.

Analysis: This issue stood concluded by the prior binding decision relied upon by the Court. Following that decision, the amount could not be treated as part of capital for the statutory deduction computation.

Conclusion: The issue was answered in the affirmative and in favour of the Revenue.

Final Conclusion: The Court held that the revaluation reserve created by the assessee could not be included in the capital base for surtax computation, and the relevant referred questions were answered against the assessee to the extent decided.

Ratio Decidendi: For surtax computation, a reserve created by revaluation of assets or retrospective restatement of depreciation is excluded from capital where the statute expressly excludes reserves brought into existence by revaluation of book assets; clear taxing language cannot be overridden by beneficial interpretation.

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