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TMI Blog2003 (7) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding a sum of Rs. 1,43,89,055 as difference between the value of the assets and consideration paid for computing the capital to determine the statutory deduction under the provisions of section 2(8) of the Companies (Profits) Surtax Act, 1964. At the time of admission, the following questions were formulated for consideration in this appeal: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in treating the amount of Rs. 1,43,89,055 as capital reserve forming part of the capital of the assessee under rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, read with Explanation 1 to rule 2 of the said Second Schedule? (2) Whether, on the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo hundred thousand rupees, whichever is greater, is the statutory deduction permissible under the Second Schedule. Section 4 is the charging section. This section provides for levy of surtax at the rate or rates specified in the Third Schedule on the chargeable profits of the relevant year in excess of the statutory deduction. The respondent, George Williamson (Assam) Ltd., operating in India, acquired twelve sterling tea companies in accordance with a scheme of arrangement for amalgamation under the provisions of sections 391, 392, 393 and 394 of the Companies Act, 1956. The consideration was determined and passed over with the approval of the Reserve Bank of India. The consideration paid fell short of the book value of the net assets. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that the company took over not only the assets of the erstwhile Sterling Tea Company, but also the liabilities and, therefore, the shortfall between the price paid and the book value of the assets acquired could not but be treated as "other capital reserve" in accordance with the normal accounting principles. The learned Tribunal agreeing with the views of the Commissioner further held that at the time of taking over no exercise was taken to tally the assets and the Reserve Bank of India also approved the consideration paid in a lump sum. According to the learned Tribunal, the words "brought into existence" cannot be read in isolation of the words "by creating or increasing (by valuation or otherwise) any book asset" occurring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther reserves. In the books of account of the assessee, the book value of the assets in normal course should have been less by Rs. 1,43,89,055 than what is reflected in the books of account of the Sterling Tea Companies. The assessee after acquisition of the companies disclosed the same book value of the assets as reflected in the books of the sterling tea companies and in the process has brought into existence the amount of reserves. The assessee obviously received benefits in the computation of income-tax on account of this, and as such, this reserve, in our opinion, cannot be treated as a component of the capital for the purpose of surtax assessment. In other words, the reserve created was not subjected to income-tax. Though, on the face ..... X X X X Extracts X X X X X X X X Extracts X X X X
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