Capital computation under surtax law depends on the true reserve shown by accounts, not an unadjusted book figure.

For capital computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964, the relevant reserve was the amount actually reflected after adjusting the preceding year's general reserve for the debit balance in the profit and loss account. The balance-sheet and accounts showed that the Rs. 80 lakhs reserve stood reduced on that adjustment, leaving an available reserve of Rs. 36,11,279. The absence of a corresponding further book entry did not change the true position disclosed by the accounts, so the lower figure alone was to be taken for capital computation and the assessee's contention failed.

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Issues: Whether, for computing capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964, the reserve was Rs. 36,11,279 or Rs. 80 lakhs.

Analysis: The balance-sheet and the accounts showed that the general reserve of Rs. 80 lakhs from the preceding year stood reduced by the debit balance in the profit and loss account for the relevant year. On that adjustment, the actual reserve available was Rs. 36,11,279. The omission to make the corresponding further book entry did not alter the true position reflected by the accounts.

Conclusion: The reserve for capital computation was Rs. 36,11,279 and not Rs. 80 lakhs, and the answer was against the assessee.

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