COMMISSIONER OF INCOME TAX Vs. MODI INDUSTRIES LTD

JUDGEMENT

(1.) The Income-tax Tribunal has referred, under Section 256(1) of the Income- tax Act in relation to the Companies (Profits) Sur-tax Act, 1964 (hereinafter referred to as the said Act) the following question to this Court:

(2.) Whether on the facts and in the circumstances of the case the Income-tax Tribunal was right in holding that Rs.40,50,000.00 appearing in the head debenture redemption fund called for be included in the capital base?"

(3.) The facts as found by the Tribunal are that in respect to the Assessment Year 1971-72, the assessee company, while computing the capital for purposes of Sur-tax under the provisions of the Second Schedule to the said Act, included therein Rs. 40,50,000.00 appearing in the balance sheet under the head "Debenture Redemption Fund". The Income-tax Officer was of the view that the said fund was a "sinking fund" and it had to be excluded in computing the quantum of reserve, as per explanation to Rule 1 of the Second Schedule of the said Act. The assessee filed an appeal to the Appellate Assistant Commissioner. It was contended that the said Fund was not a sinking fund because corresponding to this amount there was no investment earmarked. The Appellate Assistant Commissioner came to the conclusion that the said fund was in the 'nature of a provision because it was provided for meeting a known liability arising in future. He held that the assessee had to draw up its balance sheet in accordance with acepted principles and for that purpose the Companies Act, 1956 laid down a form of balance sheet in Schedule VI. He further observed that certain notes were given in the said Schedule which defined various items. It was provided therein that the expression "reserve" shall not include any amount written off or retained by way of providing for depreciation, renewals or diminution in the value of assets or retained by way of providing for any liability. He accordingly confirmed the order of the Income-tax Officer.