Nizam Sugar Factory Ltd. vs Commissioner of Income Tax

Sambasiva Rao, C.J.—The point for consideration in this reference case arises under the C. (P.) S.T. Act, 1964. The question referred to us by the Income Tax Appellate Tribunal is as under :

" Whether, on the facts and in the circumstances of the case, the reserve for the purpose of computing the capital for purposes of deduction under the Second Schedule should be Rs. 36,11,279 or Rs. 80 lakhs ? "

The answer to this question holds no difficulty. The assessee is a public limited company carrying on business of manufacturing and selling sugar. For the accounting year ended with 30th September, 1968, the company was charged to surtax as per the assessment order dated November 29, 1972. While determining the capital as on the first day of the accounting year, the ITO took into account a reserve of Rs. 80 lakhs. However, suo motu exercising his powers u/s 16 of the Surtax Act, the CIT called for the records and examined as to whether the acceptance by assessing officer of Rs. 80 lakhs as forming the capital was correct or not. The Commissioner found that the reserve after deducting the loss for the relevant year would only be Rs. 36,11,279 and not Rs. 80 lakhs as thought by the assessing officer. This was confirmed by the Tribunal in an appeal by the assessee.

Sri Swamy, learned counsel for the assessee at whose instance this reference has been made, contends that though the balance-sheet shows the reduced figure, the actual books of the company show a general reserve of Rs. 80 lakhs and, therefore, that should be accepted as the capital for the purpose of the Surtax Act. This contention cannot be accepted. The balance-sheet for the year ending September 19, 1967, shows that a general reserve of Rs. 80 lakhs was taken from the preceding year''s balance-sheet. There was a debit balance in the profit and loss account for the year ended with 30th September, 1967, amounting to Rs. 43,88,721. If this was deducted, the balance of Rs. 36,11,279 would remain and that was shown actually in the balance-sheet under the head " General reserve ".

Sri Swamy''s contention is that the books of the company alone should be taken into account as per the Explanation to Rule 1 of Schedule II of the Act. The balance-sheet itself is one of the books or records of the company. That shows a general reserve of Rs. 36,11,279. That apart, even the actual books of account would show that in the profit and loss account the sum of Rs. 43,88,721 was deducted towards loss thus showing a balance of Rs. 36,11,279. The simple failure of the assessee to further deduct this amount from the general reserve of Rs. 80 lakhs in the book is only an omission on its part. The accounts themselves would show the actual balance after deducting the loss clearly shown in the profit and loss account at Rs, 36,11,279. Therefore, the Tribunal was right in holding that the general reserve was not Rs. 80 lakhs but only Rs. 36,11,279.

Sri Swamy relies on Commissioner of Income Tax Vs. Rohit Mills Ltd., ; Commissioner of Income Tax, West Bengal Vs. Gangadhar Banerjee and Co. (Private) Ltd., and SREE MEENAKSHI MILLS LIMITED Vs. COMMISSIONER OF Income Tax, MADRAS., . An examination of these decisions would show that they are of. no assistance to the learned counsel''s contention.

In the result, we answer the question against the assessee by holding that the reserve for the purpose of computing the capital under the Second Schedule should be Rs. 36,11,279 and not Rs. 80 lakhs. The revenue will have its costs from the assessee. Advocate''s fee Rs. 250.