TMI Blog1995 (12) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and in the circumstances of the case and on a proper interpretation of rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the Tribunal was right in holding that the sum of Rs. 57,52,837 out of Rs. 68,64,000 is liable to be excluded from general reserves and could not be treated as part of the capital for the purpose of determining the statutory deduction under section 2(8) of the said Act ? 3. Whether, on the facts and in the circumstances of the case and on a proper interpretation of Explanation 1 to rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the Tribunal was right in holding that the sum of Rs. 11,11,163 could not be treated as part of the capital for the purpose of determining the statutory deduction under section 2(8) of the said Act ? " So far as question No. 2 is concerned, it is fairly stated by counsel for the assessee that in view of the decision of this court in CIT v. Zenith Steel Pipes Ltd. [1978] 112 ITR 215, this question has to be decided in favour of the Revenue. Accordingly, we answer question No. 2 in the affirmative and in favour of the Revenue. We are now left only with questions Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears or so, on a method different from the one followed by it and accepted by the Revenue all those years. Obviously, it is a case of revaluation of assets of the company and the reserve in question has been brought into existence by such revaluation. The question for consideration is whether such reserve can be regarded as capital for computing the capital of the company for the purpose of the Surtax Act. According to learned counsel for the assessee under Explanation 1 to rule 2 of the Second Schedule to the Surtax Act only such reserve which is brought into existence by creating or increasing (by revaluation or otherwise) any " intangible asset " is not regarded as capital for the purposes of that Act. This submission is based on the interpretation of the expression " book assets " appearing in the said Explanation 1 to mean " intangible assets ". All the authorities under the Act rejected the above contention of the assessee and declined to interpret the expression " book assets " to mean only " intangible assets ". The assessee now wants this court to accept its interpretation and to hold that " book assets " referred to in Explanation 1 means only intangible assets and does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A paid-up share capital or reserve brought into existence by creating or increasing (by revaluation or otherwise) any book asset is not capital for computing the capital of a company for the purposes of this Act. " It is clear from the scheme and the provisions of the Surtax Act that for the purpose of this Act, the chargeable profits is an amount different from the total income computed under the Income-tax Act. In fact, a number of adjustments are to be made in the income computed under the Income-tax Act for arriving at the chargeable profits under the Surtax Act. Similarly, the expression " capital " has also been given a special meaning for the purpose of the Surtax Act by specifying in the Second Schedule that the capital of the company shall include and exclude the amounts specified therein. It is thus abundantly clear that the ordinary meaning of the expressions " profits " and " capital " or even the meaning given to these expressions under the Income-tax Act is not applicable in computing the " chargeable profits " or " capital " for the purposes of the Surtax Act. Explanation 1 to rule 2, which has been set out above, in clear terms provides that the paid-up share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Controversy, if at all, may be raised only in a case where it is sought to be construed to mean not only the assets entered in the books but also assets belonging to the company in respect of which entries could be made in the ordinary course of its business but have not been made for one reason or the other. In the present case, we are not confronted with any such situation. Though there is no direct authority on this point, in our opinion, the decision of the court of Common Pleas rendered more than a hundred and twenty-five years ago in Shipley v. Marshall [1863] 14 C. B. N. S. 566, where the meaning of the term " books debts " came up for consideration, is of great assistance in interpreting the expression " book assets ". In the above case, interpreting the term " book debts " as used in section 137 of the Bankruptcy Act, 1861, Erle C. J. said : " By 'book debts', the Legislature doubtless intended to describe debts in some way connected with the trade of the bankrupt ; and I am inclined to give the term a wider range. But it is enough to say that this was a debt connected with and growing out of the plaintiff's trade. " Williams J., said : " The words of section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include all assets, whether tangible or intangible, entered in the books of the company. By no process of reasoning or interpretation can it be interpreted to mean and include only intangible assets and not tangible assets. In view of the foregoing discussion, we do not find any merit in the contention of learned counsel for the assessee that the expression " book asset " should be read to mean " assets other than tangible assets ". We are of the clear opinion, that the term " asset " is wide enough to include all assets which go into forming the paid-up share capital of a company or a reserve of the company. The expression " book " preceding the word " asset " can only be construed to mean assets which are entered in the books of account of the company. This is the only meaning that can reasonably be given to the word " book " preceding the term " asset ". In any event, it is not possible to construe the word " book asset " to mean assets other than tangible assets. Learned counsel for the assessee placed reliance on the decision of the Supreme Court in CIT v. Standard Vacuum Oil Co. [1966] 59 ITR 685 in support of his contention that book assets would mean only intangible as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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