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1997 (7) TMI 113 - SC - Income TaxWhether a sum of ₹ 79 lakhs representing debenture redemption reserve was includible in computing the capital of the assessee-company for the purpose of the Companies (Profits) Surtax Act, 1964? Held that: The basic principle is that any amount retained by way of providing for a known liability will not be " reserve ". Explanation to rule 1 of the Second Schedule to the Surtax Act takes this principle to its logical conclusion by providing that even a sinking fund, which has to be shown as a reserve in the prescribed form of balance-sheet, will not be treated as " reserve " for the purpose of computation of capital. It is further to be noted that the surplus and unallocated balance in the profit and loss account has been specifically excluded from " reserves " for computation of capital under the Surtax Act. Therefore, availability of the amount for utilisation as working capital of the company or for distribution of dividend cannot be a criterion for deciding whether a particular amount retained from the profits of the company will be treated as its reserve or not. Appeal dismissed.
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