TMI Blog1996 (2) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the term "fund" in the context of the two Acts is what that term is commonly considered to connote when used in a balance-sheet or profit and loss account of a company. A specific provision for an ascertained liability is not a fund within the meaning of that term in the rules in question. In favour of the Revenue - C.A. 595 OF 1978 - - - Dated:- 13-2-1996 - Judge(s) : MS. SUJATHA V. MANOHAR., J. S. VERMA., S. P. BHARUCHA JUDGMENT The judgment of the court was delivered by MRS. SUJATA V. MANOHAR J.--This is an appeal from a decision of the Calcutta High Court (see [1978] 111 ITR 885) in a reference made to it under section 256(1) of the Income-tax Act, 1961. The assessee is a company and the accounting years involved are the years ending on December 31, 1962, and December 31, 1963, relevant to the assessment years 1963-64 and 1964-65, respectively. For the assessment year 1963-64, the assessee claimed that for purposes of the Super Profits Tax Act, 1963, in the computation of its capital, a provision for taxation made by it to the tune of Rs. 16,48,888 should be treated either as a part of its capital under rule 1 of the Second Schedule to the Super Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital under rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ? (2) If the answer to the above question is in the affirmative, whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that in the computation of capital the company was not entitled to the benefit of deduction of the amount of provision for taxation' from its cost of investments in terms of clause (ii) of rule 1 of the' Second Schedule to the Super Profits Tax Act, 1963 ? " For the assessment year 1964-65 : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the computation of capital, the company was not entitled to the benefit of deduction of 'provision for taxation' from its cost of investments in terms of clause (ii) of rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ? " The Calcutta High Court has answered question No. 1 for the assess ment year 1963-64 in the affirmative in favour of the Revenue. It has answered question No. 2 for the assessment year 1963-64 and the question for the assessment year 1964-65 in the negative and in favour of the assessee. The Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (i) its paid-up share capital ; (ii) its reserves . . . . 2. Where a company owns any assets the income from which in accordance with clause (iii) or clause (vi) or clause (viii) of rule 1 of the First Schedule is required to be excluded from its total income in computing its chargeable profits, the amount of its capital as computed under rule 1 of this Schedule shall be diminished by the cost to it of the said assets as on the first day of the previous year relevant to the assessment year in so far as such cost exceeds the aggregate of-- (i) any moneys borrowed . . . . (ii) the amount of any fund, any surplus and any such reserve as is not to be taken into account in computing the capital under rule 1. . . . " In the present case, the assessee has earned income from dividends as envisaged in clause (viii) of rule 1 of the Second Schedule. The assessee contends that while the capital involved in the investment in shares has been deducted in the computation of its capital the amount of such capital deducted should be reduced by the amount of "any fund, any surplus and any reserve" in terms of clause (ii) of rule 1 of the Second Schedule to the Super Profits Tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t fund ; a contingent fund ; a pension fund. 2. Cash, securities, or other assets placed in the hands of a trustee, principal or income or both being expended in accordance with the terms of a formal agreement. Examples : a trust fund created by a will ; an endowment fund ; a sinking fund. 3. (Government accounting) A self-balancing group of accounts asset, liability, revenue and expense relating to specified sources and uses of capital and revenue. 4. pl. Current assets less current liabilities (on an accrual basis) working capital a term used in flow statements. 5. pl. = cash. v. t. 1. To convert currently maturing liabilities into a long-term loan. 2. To provide for the ultimate payment of a liability by the systematic accumulation of cash or other assets in a separate account or trust. A special revenue fund is created for taxes and other revenues levied or set aside for specified purposes. For example, if a separate fund is authorised for schools, a special revenue fund is set up to account for its disposition. The accounting principles, procedures, and final statements of a special revenue fund resemble those of the general fund . . . . Other funds : A bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c liability which would arise at the end of the current accounting year. It cannot, in any manner, be compared to a fund of the kind referred to in the circular of the Board. The assessee, however, has submitted that the circular of the Board has taken the meaning of the term "fund" in its literal or etymological sense. Hence, it must be applied to any sum of money available to the company including a provision for taxation. The argument has no merit. The Board has considered the etymological meaning of "fund" in considering a reserve to meet future unexpired risks. A sum of money set apart to meet such unforeseen risks was considered as a fund. We fail to see, how the circular helps the assessee in the case before us. A provision for taxation of the kind in question is not a fund either etymologically or in accounting parlance. The more relevant meaning of the term "fund" in the context of the two Acts is what that term is commonly considered to connote when used in a balance-sheet or profit and loss account of a company. A specific provision for an ascertained liability is not a fund within the meaning of that term in the rules in question. In the premises, question No. 2 for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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