1951 (3) TMI 42

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....achinery, for buildings, for provision for taxation and for compulsory excess profits tax deposit ; and a sum of Rs. 5,08,637 was carried over as balance to the balance sheet. Now the question that falls to be determined is whether this sum of Rs. 5,08,637 can be called a reserve for the purpose of Rule 2(1) in Schedule II of the Business Profits Tax Act. That Rule provides that "Where a company is one to which clause (a) of Rule 3 of Schedule I applies, its capital shall be the sum of the amounts of its paid up share capital and of its reserves in so far as they have not been allowed in computing the profits of the company for the purposes of the Indian Income-tax Act, 1922". Therefore in order to determine the capital of the company for t....

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....sum of Rs. 5,08,637 would be a reserve provided it had been appropriated for some specific purpose, or for some general purpose. Our attention is drawn to the fact that other amounts have been appropriated for specific purposes, e.g., machinery, building, provision for taxation etc., but no purpose has been mentioned as far as this sura of Rs. 5,08,637 is concerned. Therefore, the contention of the Advocate-General is that this sum is not a reserve at all. I do not see any reason at all why in order that a certain amount should be a reserve it should be appropriated for a specific purpose. It was open to the Directors to distribute the sum of Rs. 5,08,637 as dividends. They did not choose to do so and have kept back this amount. Therefore, ....

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....m "reserve fund" instead of "reserves", there would have been considerable force in the argument of the Advocate-General; but considering that the Legislature has used the term "reserves" and not "reserve fund" we must give that expression its plain natural meaning. Therefore, the sum of Rs. 5,08,637 shown in the profit and loss account as balance carried to the balance sheet must be deemed to be a reserve for the purposes of Rule 2 of the second Schedule. The second question that arises on this reference is with regard to the profits of the assessee company from the 1st of January, 1946, to the 1st of April, 1946. The accounting year of the company is from the 1st of January to the 31st of December and the chargeable accounting period f....