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Issues:
1. Interpretation of funds as reserves for computation of capital under the Companies (Profits) Surtax Act, 1964. Analysis: The judgment pertains to an application under section 256(2) of the Income-tax Act, 1961, seeking a direction to the Tribunal to refer a question of law arising from the Tribunal's order. The question revolves around whether certain funds, including reserves under the Drugs Order (Price Control), provisions for contingencies, reserve for depreciation, provision for taxation, and provision for doubtful debts, should be considered as reserves for the computation of the assessee company's capital under the Companies (Profits) Surtax Act, 1964. The reserve under the Drugs Order (Price Control) was created in compliance with the Drugs (Price Control) Order, 1970, and represents an amount set aside from profits and surpluses not designated to meet any liability. Similarly, provisions for contingencies were established to address potential liabilities related to additional salary claims and bonus payments. The judgment distinguishes between reserves that exceed actual requirements, such as reserve for depreciation and provision for taxation, and those like provision for doubtful debts, which are not claimed as deductions and are treated as reserves due to specific accounting practices. The court noted that a previous application for a similar question was rejected by the High Court, indicating that raising the proposed question would be redundant as the answer is evident. Consequently, the court discharged the rule without imposing any costs. This judgment provides clarity on the classification of various funds as reserves for capital computation under the Companies (Profits) Surtax Act, 1964, based on specific criteria and accounting practices followed by the assessee company.
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