Govinda Bhat, J. - (1.)THIS is a reference under section 18 of the Companies (Profit) Surtax Act, 1964, hereinafter called "the Act" read with section 256(1) of the Income-tax Act, 1961.
(2.)THE question referred for our opinion are :
"1. On the facts and circumstances of the case, whether the Tribunal was justified in law in holding that the sum of Rs. 2,56,000 representing plaint modernisation and rehabilitation reserve was not to be considered in computing the assessee's capital for the purpose of the Companies (Profits) Surtax Act, 1964 ?

2. On the facts and circumstances of the assessee's case, whether the Tribunal was justified in law in holding that the sum of Rs. 1,00,000 representing loan redemption reserve was not to be considered in computing the assessee's capital for the purpose of the Companies (Profits) Surtax Act, 1964 ?

On the facts and circumstances of the assessee's case, whether the Tribunal was justified in law in holding that the sum of Rs. 89,557 representing development rebate reserve, was not to be considered in computing the assessee's capital for the purpose of the Companies (Profit) Surtax Act, 1964 ?

On the facts and circumstances of the assessee's case, whether the Tribunal was justified in law in holding that the sum of Rs. 3,15,000 representing dividend reserve was not to be considered in computing the assessee's capital for the purpose of the Companies (Profits) Surtax Act, 1964 ?

(3.)ON the fact and circumstances of the assessee's case, whether the Tribunal was justified in law in holding that the sum of Rs. 1,03,162 representing excess provision for depreciation was not to be considered in computing the assessee's capital for the purpose of the Companies (Profits) Surtax Act, 1964 ?
On the fact and circumstance of the case, whether the Tribunal was justified in law in holding that the sum of Rs. 2,85,000 representing super profits tax reserve was not to be considered in computing the assessee's capital for the purpose of the companies (Profits) Surtax Act, 1964 ?"

3. The assessee is assessable to surtax under the Act for the assessment year 1964-65. The capital for surtax purpose is the aggregate of paid up capital, development rebate and other reserves. The capital has to be computed for the assessment year 1964-65 as on the first day of the previous year to the relevant assessment year and that day is the 1st of April, 1963. Section 2(5) defines the expression "chargeable profits" to mean the total income of an assessee computed under the Income-tax Act, 1961, and adjusted in accordance with the provisions of the First Schedule of the Act. Section 2(8) defines the expression "statutory deduction" to mean the amount equal to 10 per cent. of the capital of the assessee as computed in accordance with the provisions of the Second Schedule or an amount of the rupees two hundred thousand, whichever is greater. The excess of the chargeable profits over the statutory deduction is chargeable to tax under section 4. The provisions of the Act are substantially in accordance with the provisions of the Super Profits Tax Act, 1963, which remained operative only for the assessment year 1963-64. Rule 1 of the Second Schedule provides for computation of the capital of a company for the purpose of Surtax. The Explanation to Rule 1, which is relevant for the purpose of this case reads :

"For the removal of doubts it is hereby declared that any amount standing to the credit of any account in the books of a company as on the first day of the previous year relevant to the assessment year which is of the nature of item (5) or item (6) or item (7) under the heading 'Reserves and surplus' or of any item under the heading 'Current liability and provisions' in the column relating to 'Liabilities' in the 'Form of balance sheet' given in Part I of Schedule VI to the Companies Act, 1956 (1 of 1956), shall not be regarded as a reserve for the purposes of computation of the capital of a company under the provisions of this Schedule."

4. The above Explanation is new; there was no corresponding provisions in the Super Profits Tax Act, 1963. The Explanation has resolved doubts as to whether the items falling under the heading "Current liabilities and provisions" in the column relating to "Liabilities" and the items in the nature of items (5), (6) or (7), under the heading "Reserves and surplus" in the balance-sheet of a company have to be computed as "Other reserves" for the purpose of computation of the capital of a company.

5. The paid up capital of the assessee as on April 1, 1963, was Rs. 34,93,000. Some of the items of "reserves" of the assessee as on 1st of April, 1962, were as follows :
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6. On the 8th of August, 1963, the directors of the assessee in their report to the general body of shareholders proposed the following appropriation out of the profits of the year ending on 31st March, 1963 :
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