1995 (9) TMI 64 - SC - Income Tax

Whether the sums of ₹ 4,12,780 and ₹ 5,50,000 are liable to be excluded under rule 1(xi)(a) of Schedule I to the Surtax Act, 1964, in computing the chargeable profits in surtax assessments for the assessment years 1971-72 and 1972-73 ? Held that - None of these circular letters sent by the Reserve Bank of India nor the letters written specifically to the assessee-bank go to show that the Reserve Bank of India had directed the banks or the assessee-bank to transfer a larger amount than what was required by section 17(1) of the Banking Regulation Act. Therefore, this argument that the assessee had been directed by the Reserve Bank of India under section 35A to contribute a larger amount to the reserve fund than what was required by section 17(1) is misconceived. The question referred to the High Court was correctly answered by it. Appeal dismissed.

Summary

Issues:
Computation of chargeable profits for banking company under the Companies (Profits) Surtax Act, 1964 based on the provisions of section 17 of the Banking Regulation Act, 1949.

Analysis:
The judgment pertains to appeals from the Andhra Pradesh High Court regarding the exclusion of specific sums under rule 1(xi)(a) of Schedule I to the Surtax Act, 1964 in computing chargeable profits for the assessment years 1971-72 and 1972-73. The dispute revolves around the interpretation of clause (xi)(a) which pertains to the exclusion of sums in the case of a banking company, specifically related to transfers to a reserve fund under section 17(1) of the Banking Regulation Act, 1949. The key issue is whether the entire amount transferred to the reserve fund should be deducted or only the amount required by section 17(1) of the Banking Regulation Act.

The judgment emphasizes that the legislative intent behind clause (xi)(a) is to limit the deduction to the amount mandated by section 17(1) of the Banking Regulation Act, which requires banking companies to transfer not less than 20% of their profits to the reserve fund. Any excess transfer beyond this statutory requirement does not qualify for deduction under the Surtax Act. The court clarifies that the phrase "not exceeding the amount required" in clause (xi)(a) restricts the deduction to the specific amount mandated by section 17(1).

Furthermore, the judgment addresses the argument that excess contributions to the reserve fund, made under the direction of the Reserve Bank of India, should be fully deductible. However, the court rejects this argument, stating that deductions under clause (xi)(a) are limited to the statutory requirement of section 17(1) and do not encompass amounts transferred based on other directives. Circular letters from the Reserve Bank of India are examined to determine if any specific directions were given under section 35A for larger transfers, concluding that no such explicit directives were issued.

Ultimately, the court upholds the High Court's decision, emphasizing that deductions under clause (xi)(a) are confined to the amount required by section 17(1) of the Banking Regulation Act. The appeals are dismissed, and no costs are awarded. Additionally, a separate civil appeal is also dismissed based on the judgment in related appeals.