1953 (10) TMI 4 - SUPREME COURT

Whether the amount of ₹ 5,08,637 is a part of the ' reserves ' of the assessee company as on 1st April, 1946, within the meaning of rule 2(1) of the Rules in Schedule II to the Business Profits Tax Act?

Whether the profits of the assessee company from 1st January to 1st April, 1946, should be included in the said reserves as on 1st April, 1946?

Held that:- The nature of the amount which was nothing more than the undistributed profits of the company, remained unaltered. Thus the profits lying unutilized and not specially set apart for any purpose on the crucial date did not constitute reserves within the meaning of Schedule II, rule 2(1).The balance sheet drawn up by the assessee as showing the profits was prepared in accordance with the provisions of the Indian Companies Act. These provisions also support the conclusion as to what is the true nature of a reserve shown in a balance sheet. We are of the opinion that the view taken by the Bombay High Court is erroneous and must be set aside. The appeal of the Commissioner of Income-tax is allowed

As regards the second question, Mr. Kolah, the learned counsel for the company, frankly conceded that the view taken by the High Court on this part of the case is not open to challenge and is correct. The High Court held that the profits for three months from the 1st January, 1946, to the 1st April, 1946, were not reserves which would attract the application of rule 2 of Schedule II. With this conclusion we agree. The assessee's appeal is, therefore, dismissed