TaxTMI 
TaxTMI 
1971 (8) TMI 63
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.... company. During assessment proceedings under the Super Profits Tax Act, 1963, for the assessment year 1963-64 (the relevant previous year being the financial year ending March 31, 1963), the assessee claimed that the following three items of reserves should be considered while computing its capital investment. (a) provision for bonus Rs. 5,000 (b) provision for taxation Rs. 81,000 (c) provision for proposed dividends Rs. 52,500 The Income-tax Officer rejected the claim on the ground that these amounts were designed to meet a contingent liability and, therefore, could not be treated as reserves. The Appellate Assistant Commissioner of Income-tax affirmed the decision. The Tribunal examined the balance-sheet of the assessee, and upon a c....
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....ompany shall be the sum of the amounts, as on the first day of the previous year relevant to the assessment year, of its paid up share capital and of its reserve, if any, created under the proviso (b) to clause (vib) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (3) of section 34 of the Income-tax Act,. 1961 (43 of 1961), and of its other reserves in so far as the amounts credited to such other reserves have not been allowed in computing its profits for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961), diminished by the amount by which the cost to it of the assets the income from which in accordance with clause (iii) or clause (vi....
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....ich rule 3 of Schedule I applies, its capital shall be the sum of the amounts of its paid-up share capital and of its reserves in so far as they have not been allowed in computing the profits of the company for the purposes of the Indian Income-tax Act, 1922. . .." The Supreme Court observed : " The term 'reserve' is not defined in the Act and we must resort to the ordinary natural meaning as understood in common parlance. The dictionary meaning of the word 'reserve' is : 1(a) To keep for future use or enjoyment ; to store up for some time or occasion ; to refrain from using or enjoying at once.' (b) To keep back or hold over to a later time or place or for further treatment. 6. To set apart for some purpose or with some end in view; t....
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....y such sum as they might think proper as a reserve fund for acquiring property for the company or providing for payment of rent for meeting contingencies or for equalising dividends or for any other purpose of the company which they may think fit. " In Commissioner of Income-tax v. Vasantha Mills Ltd. the Madras High Court upheld the assessee's claim that a sum of Rs. 9,00,000 shown as provision made in the relevant year of account for the payment of income-tax and excess profits tax should be treated as a reserve for the purposes of rule 2(1) of the Second Schedule to the Business Profits Tax Act. The learned judges observed : "...... that the sum of Rs. 9,00,000 was set apart for a specified purpose with a specified end in view, payment....
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.... reserve as I have endeavoured to explain is by its very nature a fund which is created and maintained for the purpose of being drawn upon in future. . . . A reserve is created only out of the whole or a part of the surplus profits as they are found to be in the hands of the company at the end of the year and it is a reserve against a contingency which still lies in the future." Our attention was drawn on behalf of the revenue to Aluminium Industries Ltd v. Commissioner of Income-tax , where the Kerala High Court considered the meaning of the expression " reserve " in rule 1 of the Second Schedule to the Super' Profits Tax Act, 1963, the question with which we are concerned. The High Court applied the test propounded by the Supreme Court i....