COMMISSIONER OF INCOME TAX Vs. VASANTHA MILLS LIMITED

JUDGEMENT

(1.) WHAT should be allowed under the head "reserves" within the meaning of rule 2(1) in Schedule II, read with section 2(1)(a) of the Business Profits Tax Act, 1947, is the main question for determination in this reference, which arises out of the assessment of the assessee company to business profits tax for the chargeable accounting periods from 1st April, 1946, to 31st December, 1946, and from 1st January, 1947, to 31st March, 1947.

(2.) THE assessee company adopted the calendar year as its year of account. THE balance sheet for the year of account ending with 31st December, 1945, showed a sum of Rs. 2,00,000 as the amount appropriated to the reserve account from that years profit; and a sum of Rs. 9,00,000 was shown as provision made in that year for the payment of income-tax and excess profits tax. THEse sums the assessee claimed should be included in the reserves for computing its capital under rule 2(1) in schedule II for the chargeable accounting period from 1st April 1946, to 31st December, 1946. In addition, the assessee claimed the inclusion of a sum of Rs. 2,73,504 which stood to its credit in the profits and loss account on 1st April, 1946, and which represented the profits for the period 1st January, 1946, to 31st March, 1946.

(3.) IT was beyond controversy that the crucial dates for the determination of what was the "capital" of the company computed under rule 2(1) to include reserves were 1st April, 1946, and 1st January, 1947, respectively for the two chargeable accounting periods with which we are concerned in this reference.