1984 (2) TMI 29

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....ent years 1971-72 and 1972-73 ? " As per the statement of case, the assessee, a scheduled bank, is a banking company. On December 27, 1961, the Reserve Bank of India, which is the controlling authority for all the scheduled banks, issued a general letter stating that reserve should be created in accordance with s. 17(1) of the Banking Regulation Act, 1949 (hereinafter referred to as " the Act "), in order to achieve a ratio of 6% of the deposits. By a subsequent letter dated January 25, 1962, it was clarified that 20% of the profits would mean profits after deduction of tax and other necessary provisions, in other words, 20% of the net profits before deduction of dividends. In para. 3 of the said letter, however, it was added that those ....

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....ordered to be excluded by the Commissioner. According to the Commissioner, since the Reserve Bank had permitted to create reserves at 20% of the profits after taxation, the assessee is under no obligation to create more than the minimum required and what is to be allowed Linder rule 1(xi)(a) of Sch. I to the Surtax Act is only that much which is required to be created. The Tribunal, on appeal, considered the question : whether the Reserve Bank of India could direct higher amount to be created as reserve by asking, the banks to calculate the reserve on the basis of profit before taxation. Though the question was not adverted to by the Commissioner, the Tribunal, however, considered and ultimately held that the banking company is obliged to s....

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....ule 1(xi)(a) of Sch. I to the Surtax Act. The orders of the Commissioner were set aside by the Tribunal and the, appeal of the assessee was allowed. Relevant statutory provisions may now be set out. Section 17(1) of the Banking Regulation Act, 1949: "17. Reserve fund.-(1)Every banking company incorporated in India shall create a reserve fund and shall, out of the balance of profit of each year as disclosed in the profit and loss account prepared under section 29 and before any dividend is declared, transfer to the reserve fund a sum equivalent to not less than twenty per cent. of such profit." Section 35A of the Act: "35A. Power of the Reserve Bank to give directions.-(1) Where the Reserve Bank is satisfied that (a) in the publi....

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.... the amount required under the aforesaid provisions to be so transferred or deposited, as the case may be, or ........." Though there was some debate with regard to the impact of s. 17(1) as to whether the words : " transfer to the reserve fund a sum equivalent to not less than 20% of such profits ", obtaining therein would mean that the bank is restricted to transfer to the reserves only to the extent of 20%, neither more nor less, and also whether the power conferred on the Reserve Bank of India under s. 35A enables it to give directions in contravention of any other provisions in the Act, it is needless to advert and adjudicate inasmuch as, without doing so, the question referred to could be answered. Indeed, the question referred doe....