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Issues:
1. Treatment of a specific sum as a reserve under the Companies (Profits) Surtax Act. 2. Determining the relevant date for capital computation under the Companies (Profits) Surtax Act. Analysis: Issue 1: Treatment of a specific sum as a reserve under the Companies (Profits) Surtax Act: The case involved a dispute regarding whether a sum of Rs. 1,68,20,000 should be considered a reserve for the purpose of the Companies (Profits) Surtax Act. The Income-tax Officer initially rejected the claim, stating that the amount represented surplus compensation received during the nationalization of a bank. The Appellate Assistant Commissioner concurred, emphasizing that the amount did not meet the criteria of a reserve under the Companies Act. However, the Tribunal disagreed, deeming the sum as a reserve based on the circumstances of the case and commercial accountancy practices. The High Court, after referencing various Supreme Court decisions, upheld the Tribunal's decision, emphasizing that the substance of the matter must be considered. As the amount was not earmarked for any known liability and was left with the company post-nationalization, it qualified as a reserve in line with commercial accountancy principles. Issue 2: Determining the relevant date for capital computation under the Companies (Profits) Surtax Act: The second question pertained to the relevant date for capital computation under the Companies (Profits) Surtax Act. The Tribunal had considered the date of filing the return with the Registrar of Companies as the effective date, which the High Court affirmed based on Section 103(2) of the Companies Act. This decision was crucial in determining the capital of the company for surtax purposes. In conclusion, the High Court ruled in favor of the assessee on both issues, affirming the Tribunal's decision. The judgment clarified the treatment of specific sums as reserves under the Companies (Profits) Surtax Act and the relevance of the date of filing returns for capital computation.
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