COMMISSIONER OF INCOME TAX Vs. GABRIEL INDIA LIMITED

JUDGEMENT

(1.) THIS is a reference at the instance of the Commissioner of Income tax, Bombay City III, Bombay, made by the Tribunal, Bombay Bench "B", under S. 256(1) of the IT Act, 1961. The question referred to us for our consideration to be found in paragraph 5 of the reference reads as under :

(2.) FOR this assessment, we are concerned with the computation of capital under the Companies (Profits) Surtax Act, 1964. The ITO in making the capital computation excluded two amounts, being the amounts shown for General Reserve No. 1 and General Reserve No. 2. The assessee carried the matter in appeal and contended that a sum of Rs. 5,65,000 shown in the balance sheet as at 31st May, 1967, should also be included as a reserve. It is pertinent to note at this juncture that the accounting year of the company ended on 31st May, 1967. Out of the profits for that year, two amounts were appropriated, namely, Rs. 4,10,000 to General Reserve No. 1 and Rs. 1,55,000 to General Reserve No. 2 (tax free). The AAC accepted the assessee's contention that on 1st June, 1967, (sic) which is the first day of the previous year, the General Reserves stood augmented by the aggregate figure of Rs. 5,65,000. Aggrieved by the decision of the AAC, the Department carried the matter further to the Tribunal.

(3.) AS far as the amount of Rs. 4,10,000 was concerned, the Tribunal opined, with which opinion we concur, that the matter was concluded in favour of the assessee by the decision of the Supreme Court in CIT vs. Mysore Electrical Industries Ltd. (1971) 80 ITR 566. According to the decision of the Supreme Court as applied and correctly applied by the Tribunal, the amount would form part of the reserve as on 1st June, 1967, (sic) and would, therefore, have to be taken into account in computing the capital of the company.