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1965 (10) TMI 24 - SC - Income TaxWhether Tribunal was right in holding that the sum of $ 117,000,000 appearing in the balance-sheet of the assessee-company under the head ' Capital paid in Surplus ' and constituting the excess of the book value of the assets over the face value of the shares represented premium realised from the issue of the shares as contemplated by rule 3 of Schedule II of the Business Profits Tax Act, 1947 ? Whether the Tribunal was right in holding that the fact that the amount in question had been built up out of capital and not out of taxed profits would not prevent it from being reserve as contemplated by sub-rule (1) of rule 2 of Schedule II of the Business Profits Tax Act? Whether the Tribunal was right in holding that the sum of $ 29,000,000 odd, $ 43,000,000 odd, $ 56,000,000 odd and $ 73,000,000 and odd for the respective years appearing in the balance-sheets of the assessee as " earned surplus " would be treated as a reserve within the meaning of sub-rule (1) of rule 2 of Schedule II of the Business Profits Tax Act ? Held that:- The assets received by the assessee-company are real and tangible assets. It is only for accountancy purposes that a part of the value of the assets is allocated to the par value of the shares and the balance to the " Capital Surplus brought in " account. The High Court was, therefore, right in holding that the account " Capital Surplus brought in " in the balance-sheet represents premium realised from the issue of its shares within the meaning of rule 3, or in the alternative represents reserves not allowed in computing the profits of the company for the purpose of the Indian Income-tax Act, 1922. The High Court was therefore right in holding that the " earned surplus " represented reserves. The method in which the accounts are maintained in the light of the accountancy practice clearly indicates that, at the end of each year, there have been specific appropriations in tne account, and the conditions which this court regarded as essential in Century Spinning & Manufacturing Company's case for constituting the fund into reserve are fulfilled. Appeal dismissed.
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