Commissioner of Income Tax vs Andhra Bank Limited

Y.V. Anjaneyulu, J.—This reference arises u/s 18 of the Companies (Profits) Surtax act, 1964, read with section 256(1) of the Income Tax Act, 1961. The matter relates to surtax assessment year 1973-74. At the instance of the Commissioner of Income Tax, the following three question of law are referred for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the amount of Rs. 9 lakhs transferred to the reserve fund as per the direction of the Reserve Bank of India would fall sub-section (1) of section 17 of the Banking Regulation Act, 1949, and the whole of the amount should be duducted from the assessee''s total income of the relevant previous year under rule 1(xi)(a) of the First Schedule to the Companies (Profits) Surtax Act, 1964, in computing the chargeable profits ?"

Whether, on the facts and in the circumstances of the case, teh Tribunal was correct in holding that the sum of Rs. 2,37,085 represented excess provision for taxation and was, therefore, a reserve, within the meaning of rule 1(iii) of the Seconmd Schedule to the Companies (Profits) Surtax Act, 1964, to be included in the assessee''s capital base for the purpose of arriving at the statutory deduction ?

Whether, on the facts and in the circumstance of the case, teh Tribunal was correct in holding that the amount deducted under sections 80G, 80K and 80M of the Income Tax Act, 1961, in the Income Tax assessment were not liable to be taken into account for the purpose of making the Companies (Profits) Surtax Act, 1964 ?"

Learned standing counsel for the Revenue and learned counsel for the assessee are heard. It is represented that the first question abovementioned is covered against the assessee by a judgment of this court in the assessee''s case in Referred Case No. 117 of 1978 dated February 22, 1984 (CIT v. Andhra Bank Ltd. [1985] 153 ITR 4). The question is accordingly answered in the negative, that is to say, in favour of the Revenue and against the assessee.

So far at the second question is concerned, it is stated that the assessee provided a reserve of Rs. 2,37,085 for purpose of taxation. It is admitted that this provision is in excess of the requirement for payment of taxes. Any reserve for taxation in excess of the actual requirement will have to be treated as reserve for purpose of computation of capital under the Companies (Profits) Surtax Act. This principle is clearly set out by the Supreme Court in Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, . In the circumstances, the Tribunal was correct in holding that the sum of Rs. 2,37,085 constituted a reserve for purposes of computing the capital under the Surtax Act. We, accordingly, answer the second question in the affirmative, that is so say, in favour of the assessee and against the Revenue.

The third question concerns the Revenue''s claim for proportionately reducing the capital with reference to the sums deductible under Chapter VI-A of the Income Tax Act, 1961. This question is again settled by a decision of this court in Commissioner of Income Tax, Andhra Pradesh Vs. Indian Detonators Ltd., . Following the ratio of the above judgment, we hold that the Tribunal was correct in holding that the amounts deducted under sections 80G, 80K and 80M of the Income Tax Act, 1961, were not liable to be taken into account for the purpose of making proportionate reduction of capital under rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. We, accordingly, answer the third question in the affirmative, that is to say, in favour of the assessee and against the Revenue.

The reference is answered accordingly. The parties shall bear their respective costs. Advocate''s fee Rs. 300.