TaxTMI 
TaxTMI 
1953 (10) TMI 4
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....tions of law referred by the Tribunal were as follows :--- " (1) Whether the amount of Rs. 5,08,637 is a part of the ' reserves ' of the assessee company as on 1st April, 1946, within the meaning of rule 2(1) of the Rules in Schedule II to the Business Profits Tax Act, and (2) Whether the profits of the assessee company from 1st January to 1st April, 1946, should be included in the said reserves as on 1st April, 1946." The High Court answered the first question in the affirmative and the second in the negative. The accounting year followed by the assessee is the calendar year and the chargeable accounting period is the 1st of April, 1946, to the 31st of December, 1946, in respect of the profits ending with 31st December, 1945. T....
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....ment. Hence the two appeals. The Business Profits Tax Act (No. XXI of 1947) came into force on the 11th April, 1947, having taken the place of the Excess Profits Tax Act which was repealed on the 30th March, 1946. This Act, as is well known, was designed to assess large profits made by companies carrying on business during the boom years of the war. It was revived, as it were, after a year in the shape of the present Act, though in a modified form. Section 4 which is the charging section, so far as it is material for our purposes, permits the levying on the amount of the taxable profits " during any " chargeable accounting period ", a tax called the " business profits tax " which shall be equal to sixteen and two-thirds per cent of the t....
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....ds that amount, it becomes liable to pay business profits tax. Schedule II lays down the rule for computing the capital of a company for purposes of business profits tax and rule 2(1) of the Schedule which admittedly applies to the present case lays down that " Where the company is one to which 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 .................. ". The point that arises for consideration on the first question is whether the assessee is entitled to treat the sum of Rs. 5,08,637 as a reserve and to add it to its paid-up share c....
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....ed a " reserve. " The term " reserve " is not defined in the Act and we must resort to the ordinary natural meaning as understood in common parlance. The dictionary meaning of the word " reserve " is :--- " I (a) To keep for future use or enjoyment ; to store up for some time or occasion ; to refrain from using or enjoying at once. (b) To keep back or hold over to a later time or place or for further treatment. 6. To set apart for some purpose or with some end in view ; to keep for some use. II. To retain or preserve for certain purposes " (Oxford Dictionary, Vol. VIII, P. 513). In Webster's New International Dictionary, Second Edition, page 2118, " Reserve " is defined as follows :--- " 1. To keep in store for future o....
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....eriod, there was merely a recommendation by the directors that the amount in question should be distributed as dividend. Far from showing that the directors had made the amount in question a reserve, it shows that they had decided to ear-mark it for distribution as dividend. By the resolution of the shareholders on the 3rd April, 1946, the amount was shortly afterwards distributed as dividend. The High Court appear to have been under a misapprehension as to the real position, for they observed :---" It was open to the directors to distribute the sum of Rs. 5,08,537 as dividends. They did not choose to do so and have kept back this amount. Therefore, by keeping back this amount they constituted it a reserve. A reserve in the sense in which i....
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....rve account. The latter section refers to the contents of the balance sheet which is to be drawn up in the Form marked F in Schedule III. This Form contains a separate head of reserves. Regulation 99 of the 1st Schedule, Table A, lays down " that the directors may, before recommending any dividend set aside out of the profits of the company such sums as they think proper as a reserve or reserves which shall, at the discretion of the directors, be applicable for meeting contingencies, or for equalising dividends, or for any other purpose to which the profits of the company may be properly applied ,......... " The Regulation suggests that any sum out of the profits of the company which is to be made as a reserve or reserves must be set aside ....