TaxTMI 
TaxTMI 
1992 (12) TMI 42
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..... Four questions were referred by the Income-tax Appellate Tribunal, Ahmedabad, under section 256(1) of the Act, two at the instance of the assessee and two at the instance of the Revenue. The questions referred at the instance of the assessee are : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was a mistake apparent from the record in its order dated July 1, 1971, and in passing its miscellaneous order dated February 15, 1972 ? (2) If the answer to question No. (1) is in the positive, whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing that the following amounts should be excluded in computing the capital of the compan....
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..... 67,001. The Incometax Officer did not agree with the several claims made in the return. He determined the chargeable profits at Rs. 4,72,534 and the net tax payable at Rs. 1,86,338.44. An appeal preferred by the assessee was dismissed by the Appellate Assistant Commissioner of Super Profits Tax, A-Range, Ahmedabad. The assessee then carried the matter to the Income-tax Appellate Tribunal. By its order dated July 1, 1971, the Tribunal allowed the appeal allowing several claims of the assessee. Soon thereafter, the Revenue filed an application bringing to the notice of the Tribunal the Explanation appended to rule I in the Second Schedule to the Act. The Tribunal allowed the application on February 15, 1972. It held that several items which....
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.... cent. of the capital of the company as computed in accordance with the pro visions of the Second Schedule, or an amount of two hundred thousand rupees, whichever is greater. " The Second Schedule contains the rules for computing the capital of a company for the purposes of the Act. It would be appropriate to read the entire rule 1 including the Explanation at this stage: "1. Subject to the other provisions contained in this Schedule, the capital of a company shall be the aggregate of the amounts, as on the first day of the previous year relevant to the assessment year, or (i) its paid-up share capital; (ii) its reserves, if any, created under the proviso (b) to clause (vib) of sub-section (2) of section 10 of the Indian Income-tax Ac....
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....em (6) or item (7) under the heading 'Reserves AND SURPLUS' or of any item under the head 'CURRENT LIABILITIES AND PROVISIONS' in the column relating to 'Liabilities' in the 'Form of Balance-Sheet' given in Part I of Schedule VI to the Companies Act, 1956 ( 1 of 1956 ), shall not be regarded as a reserve for the purposes of computation of the capital of a company under the provisions of this Schedule." A reading of rule 1 shows that, subject to the other provisions contained in the said Schedule, the capital of a company shall be the aggregate of the several amounts mentioned in the rule as on the 1st day of the previous year relevant to the assessment year. The items which have to be so aggregated include the paid-up share capital, reser....
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.... of the Act. A mistake apparent from the record is made a ground for rectifying the order. The first question was, thus, rightly answered in favour of the Revenue and against the assessee. The second question contains four items and the question is whether they are merely provisions or reserves. For a proper appreciation of the first item of Rs. 4,50,000, being the amount set apart for contingent liabilities, it is necessary to state a few facts. On August 18, 1956, the assessee had applied to the Commissioner of Income-tax requesting him not to invoke the provisions of section 23A of the Indian Income-tax Act, 1922, against it. Pending the said application, it had set apart a sum of Rs. 6,52,000 for meeting the liability in the accounting....