TaxTMI 
TaxTMI 
1986 (7) TMI 88
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.... been defined in clause (9) of section 2 as follows: " An amount equal to six per cent. of the capital of the company as computed in accordance with the provisions of the second schedule, or an amount of Rupees fifty thousand rupees, whichever is greater. " The Second Schedule contained rules for computation of the capital of a company for the purpose of the said Act. None of the reserves claimed by the assessee had been allowed as deductions in the computation of its profits under the relevant Income-tax Act. The question was whether these represented reserves. The Tribunal has referred to the High Court the following question: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that: (a) Capital reserve, (b) Stocks and stores reserve, (c) Bad and Doubtful debts reserve, (d) Obsolescence reserve, (e) Loans and Insurance reserve, (f) Investment reserves, and (g) Forfeited moneys reserve were to be included in the computation of capital according to the provisions in the Second Schedule to the Super Profits Tax Act, 1963 ? " We must observe that so far as the capital reserve is concerned, in view of the findings recorded ....
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....appears to be a provision to meet future liability and contingency. But there are not much facts about it. Had it been necessary, we might have remanded the matter to the High Court to direct the Tribunal to find facts on this aspect. But as, in that view of the matter, this item was not pressed before us, so this item is deleted from the reserve of the assessee. So far as Loan and Insurance Reserve is concerned, this was created prior to 1947. It was found that it was free from any burden and it was not utilised for any purpose and was transferred to the General Reserve account in 1963. Therefore, it was rightly treated, in view of the principles mentioned hereinbefore as a reserve. The next item is Investment Reserve. This fund was created out of the surplus on the sale of investment which was not held by the respondent company as its stock-in-trade. The surplus did not have its origin in business profits and was transferred directly to the reserve account but this was created prior to 1954 and was further credited in 1955 to 1957 out of the profits on sale of investments. In the later years, whenever a loss of a capital nature was incurred, it was debited to this account. ....
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....eal No. 1546 of 1974-CIT v. British India Corporation Ltd.-the High Court was right in treating this account as reserve. It must be further noted that so far as capital reserve was concerned, the Appellate Assistant Commissioner had allowed a sum of Rs. 7,19,488 out of a claim of Rs. 9,41,488. In appeal, the Tribunal upheld the order of the Appellate Assistant Commissioner. The assessee did not seek a reference against this in the High Court. The controversy before the High Court was confined to the claim allowed by the Appellate Assistant Commissioner. The High Court held in favour of the assessee in treating it as a reserve. The High Court was right. So far as the rehabilitation reserve and stores reserve are concerned, in view of the facts found by the Tribunal and in the light of the reasons indicated in Civil Appeal No. 1546 of 1974, in our opinion, this must be treated as reserve as was held by the Tribunal. The High Court has disallowed the Forfeited Money reserve to be treated as reserve. We are of the opinion that the High Court was right. So far as Bad and Doubtful Debts are concerned, in the light of the observations made in Civil Appeal No. 1546 of 1974 and in ....
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....lance of Rs. 13,04,600 was carried forward. This amount was to be included in the capital base. (iii) Reserve for Contingencies : Rs. 56,00,000: This reserve account was meant to be utilised in case of contingencies and there was no specific liability for spending even a part of this amount on the first day of the accounting year and it was, therefore, includible in the capital base. (iv) Fleet replacement reserve : Rs. 54,35,250 : This reserve was like the reserve for contingencies. Here also there was no liability in praesenti towards purchase of any vessel on the first day of the accounting year and this sum also was includible in the capital base. (v) Reserve for exempted profits tinder section 84 of the Income-tax Act Rs. 1,64,900 : This was not meant for meeting any liability and had, therefore, to be included in the capital base. (vi) Reserve for Investment depreciation : Rs. 7,09,144 : This reserve was created originally in order to cushion the effect of fluctuations in the prices of foreign securities held by the assessee. This amount was ultimately transferred in 1971 to the Profit and Loss Appropriation account. Here also the reserve was not created by way of....