Decided on July 08,1982



Anand Prakash, Accountant Member - (1.) THE first ground of appeal in this case is with regard to the exclusion of the sum of Rs. 86,24,000 from the capital account of the assessee-company in terms of the Second Schedule of the Companies (Profits) Surtax Act, 1964 ('the Act') on the ground that the said amount represented dividend declared out of the general reserve. THE point in issue stands now concluded against the assessee vide the ratio of the decision of the Hon'ble Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559. THE issue is, therefore, decided against the assessee and the order of the learned Commissioner (Appeals) upholding the exclusion of the said sum is upheld.
(2.) The next controversy is with regard to the exclusion of a further sum of Rs. 78,69,681 representing the amount transferred to 'general reserve' from 'revaluation reserve' while computing the assessee's capital base in terms of Explanation 1 to Rule 2 of the Second Schedule of the Act. The revaluation reserve had been created by the assessee-company in 1966 when the devaluation of rupee had taken place by valuing the assets in question at a higher sum than the book value of the said assets at that time and creating the corresponding credit by crediting the revaluation reserve account. Up to the assessment year 1974-75, the said revaluation reserve was not being included in the capital of the assessee-company in terms of the above referred Explanation 1 to Rule 2 of the Second Schedule which reads as follows : A paid-up share capital or reserve brought into existence by creating or increasing (by revaluation or otherwise) any book asset is not capital for computing the capital of a company for the purposes of this Act. At the end of the accounting period corresponding to the assessment year 1974-75, i.e., on 30-9-1973, the amount in question standing to the credit of revaluation reserve account was transferred to general reserve account by debiting the revaluation reserve account and crediting general reserve account, so that, as on 1-10-1973, revaluation reserve account did not appear in the balance sheet of the company at all. While transferring the revaluation reserve account to the genera! reserve account, the board of directors of the company made the following report to the shareholders in their annual report for the year ended 30-9-1973 : Consequent upon the devaluation of rupee in June 1966, the values of imported fixed assets of the company were written up on 30-9-1966 to the extent of 57.5 per cent of their c.i.f. costs as depreciated up to that date. This resulted in an increase in the value of such imported assets in the company's books by Rs. 11,01,697 and a corresponding amount was credited to the revaluation reserve. Many of these assets have since been fully depreciated and it has been decided to transfer from revaluation reserve to general reserve a sum of Rs. 78,69,681 equivalent to the amount by which the value of such assets, now fully depreciated, were written up at the time of devaluation.
(3.) THE aforesaid amount was nevertheless excluded by the ITO while computing the capital of the assessee-company, as in his opinion, despite such transfer, the nature of the said reserve had not changed and the said reserve had not ceased to exist. On appeal, the Commissioner (Appeals) confirmed this action of the ITO. Hence, the present appeal on the point before us.;

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