TMI Blog1992 (6) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention of the learned counsel for the assessee is that the profit made available for appropriation is a mass of profit which included depreciation difference and there was no indication either under the Surtax Act, or under the Companies Act, as to which part of the mass profit should be appropriated first and, therefore, applying the general law the choice would be left with the assessee. The contention of the assessee was not accepted by the CST (Appeals). According to him, the matter stands covered by the decision of the Bombay High Court in the case of CIT v. Zenith Steel Pipes Ltd. [1978] 112 ITR 215 and also the later case reported in CIT v. Zenith Steel Pipes Ltd. [1990] 181 ITR 291. He, however, accepted the contention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to the assessee. The amount of dividend declared and the investment allowance created were much more than the difference in the amount of depreciation allowed under the Income-tax Act and debited in the books of account and, therefore, nothing should have been excluded front the general reserve. He further submitted that the CST (Appeals), having accepted the claim of the assessee for the issuance of the bonus shares out of such difference of depreciation, was not justified in rejecting the assessee's claim for the dividend and investment allowance, having gone out of the differential depreciation. In any case, he submitted that only the amount of the respective years difference should be deducted and not the cumulative difference of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be deducted merely on the ground that they are credited to 'other reserves', i.e., general reserves in the present case. As the assessee-company provided lesser amount by way of depreciation than what was allowed in the computation of the income of the assessee-company for the purposes of the Income-tax Act, 1961, the difference between the amount of depreciation actually allowed to the assessee and the amount actually provided in its books, was forming part of the general reserve. It is, therefore, quite apparent that the assessee-company when it asked for deduction of depreciation for the purposes of income-tax was conscious of the fact that the depreciation provided for was insufficient as per the provisions of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Assistant Commissioner was right in taking the view that for the first year a sum of Rs. 5,68,112 ought to be deducted from the amount of general reserves of Rs. 7,50,000 and a sum of Rs. 12,52,957 ought to have been deducted from the amount of general reserve of Rs. 37.00,000 for the second year. " (Emphasis supplied) From the underlined portion of the aforesaid extract, it is abundantly clear that the difference in the depreciation allowed in the income-tax assessment and as provided in the books of the assessee has to be deducted from the amount standing to the credit of other reserve. It may also be stated that the fact that the assessee had declared dividend was also before Their Lordships of the Bombay High Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee falls short of the investment allowance, nothing is allowable to the assessee in that year. If there are no profits for the purposes of allowing investment allowance, there cannot be created any reserve, the reserve being a part of the allowance to the assessee under the provisions of section 32A of the Income-tax Act. Here also, the amount of depreciation as allowed under the Income-tax Act has to be considered and not as provided for in the books. We, therefore, do not find any reason to take a contrary view. The fact that the CST (Appeals) has directed to ascertain the difference actually capitalised by the assessee by way of issue of shares would not make any difference in view of the clear pronouncement of the B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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