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Issues:
1. Inclusion of excess development rebate reserve in the computation of capital under the Companies (Profits) Surtax Act, 1964. 2. Applicability of Circular No. 53-F. No. 7/2/68--TPL dated January 11, 1971, to reassessments for the years 1965-66, 1966-67, and 1967-68. 3. Legal effect of circulars issued by the CBDT and their impact on assessments. 4. Interpretation of relevant provisions of the Companies (Profits) Surtax Act, 1964 in relation to reserves and capital computation. 5. Comparison of decisions in similar cases to determine the applicability of circulars and rectification notices. Analysis: 1. The case involved the Peria Karamalai Tea & Produce Co. Ltd., a private limited company, assessed under the Companies (Profits) Surtax Act, 1964. The issue arose when the excess development rebate reserve created by the company was included in the computation of capital, leading to a reassessment by the Income Tax Officer (ITO) to exclude such excess reserve from the capital amount. 2. The central question revolved around the applicability of Circular No. 53 dated January 11, 1971, issued by the Central Board of Direct Taxes (CBDT), which stated that excess development rebate reserve should be included in the capital. The Tribunal held that this circular was not applicable to reassessments for the years 1965-66, 1966-67, and 1967-68, as the circular was issued after the original assessments were completed. 3. The judgment highlighted the legal effect of circulars issued by the CBDT, emphasizing that while circulars serve as guidelines and are binding on authorities, some may confer rights on the assessee. The court referred to a Full Bench decision emphasizing that the rights of the assessee should not be prejudicially affected by the withdrawal of circulars, especially those impacting assessment procedures. 4. The interpretation of relevant provisions of the Companies (Profits) Surtax Act, 1964, was crucial in determining the treatment of reserves in the computation of capital. The court referred to specific clauses under Schedule II of the Act, outlining the treatment of reserves created under different provisions of the Income Tax Act. 5. A comparison was drawn with a Division Bench decision of the Bombay High Court in a similar case involving rectification notices and circulars issued by the CBDT. The court distinguished the facts of that case from the present case, emphasizing the impact of circulars in force during the assessment period on the rights of the assessee. In conclusion, the High Court of Kerala ruled in favor of the department, holding that the circular issued by the CBDT was not applicable to the reassessments for the years in question. The court emphasized the importance of assessing income based on the provisions in force during the relevant assessment years, highlighting the significance of timely circulars and their impact on assessment procedures.
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