1993 (12) TMI 8

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....hat the amount of Rs. 2,64,544 constituted of the sums of Rs. 1,77,358, Rs. 36,237 and Rs. 50,949, respectively, marked by the assessee as "reserve for house", "reserve for doubtful debts" and "reserve for gratuity" could be taken into consideration in the computation of capital employed for the purpose of statutory deduction under the Second Schedule to the Companies (Profits) Surtax Act, 1964 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in affirming the order of the Commissioner of Income-tax (Appeals) holding that deductions allowed under sections 80G and 80M falling under Chapter VI-A of the Income-tax Act, 1961, could not be considered as sums not "includible" in the total income for in....

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....n. Counsel for both the parties have relied upon the decision of the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, wherein a clear distinction was drawn between "provision" and "reserves" as contemplated under the statute (Super Profits Tax Act, 1963, or the Companies (Profits) Surtax Act, 1964). While referring to the earlier decision on the subject, it was observed as under (at page 581): " The following aspects provide some guidelines: (a) a mass of undistributed profits cannot automatically become a reserve and somebody possessing the requisite authority must clearly indicate that a portion thereof has been earmarked or separated from the general mass of profits with a view to constituting it either ....

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.... the amounts from the general reserves while computing the capital of the assessee-company for the assessment year in the absence of express indication to the contrary. The Supreme Court held as under (at page 586): " It is not possible to accept either of these contentions urged by the counsel for the assessee-company. It is true that under section 205(1) of the Companies Act, 1956, it is open to the directors to recommend and the shareholders to approve payment of dividends either from the current year's profits or from the past years' profits. It is also true that on transfer of a portion of the current year's profits to the general reserve, the augmented general reserve becomes a conglomerate fund but having regard to the natural cou....