COMMISSIONER OF INCOME TAX Vs. ORISSA CEMENT LIMITED

JUDGEMENT

(1.) THE question as to how far certain funds can be held to constitute "reserves" has assumed great importance in the context of certain legislations by which the Revenue attempted to syphon off, by way of tax, a portion of the profits earned by a business over and above a particular standard of return on the funds invested in the business.

(2.) THE Super Profits Tax Act, 1963, also laid down a similar rule. Here again, the super profits represented the excess of its chargeable profits of a previous year over the standard deduction, which represented an amount equal to 6per cent of the capital of the company as computed in accordance with the provisions of the Second Schedule. The Second Schedule contained rules for computing the capital of a company for the purposes of the Act. Rule 1 of the Schedule, in effect, so far as is material for our purposes, provided that the capital of a company 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 reserves except those which are allowed as deductions in computing the profits of the company for the purposes of the Indian IT Act, 1922, or the INCOME TAX ACT, 1961. It will be seen that both the above enactments were identical in their terms. They did not contain any definition of the expression "reserves".

(3.) PROPOSED additions to Reserves.