Pathak, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question under Section 19 of the Super Profits Tax Act, 1963, read with Section 256(1) of the Income-tax Act, 1961: "Whether, on the facts and in the circumstances of the case, it was rightly held that, (1) proposed dividends, (2) provision for taxation, (3) credit balance of profit and loss account, (4) depreciation reserve (being excess of book depreciation over depreciation allowed in the income-tax assessment) represented 'reserves' and were to be included in the computation of capital under the Super Profits Tax Act, 1963 ?"
(2.) THE assessee is a limited company. It was assessed under the Super Profits Tax Act, 1963, for the assessment year 1963-64 of which the relevant account year ended on December 31, 1962. Section 4 of the Super Profits Tax Act provides for the levy of super profits tax on a company for an assessment year in respect of so much of its chargeable profits of the previous year as exceed the standard deduction at the specified rate. The first assessment year to which the Act applies is the year commencing April 1, 1963. The expression " standard deduction " has been defined by Section 2(8) of the Act to mean an amount equal to six per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule or an amount of Rs. 50,000, whichever is greater. The Second Schedule sets out the rules for computing the capital of the company. Rule 1 declares : " Subject to the other provisions contained in this Schedule, the capital of a company shall be the sum of the amounts, as on the first day of the previous year relevant to the assessment year, of its paid up share capital and of its reserve, if any, created under the proviso (b) to Clause (vib) of Sub-section (2) of Section 10 of the Indian Income-tax Act, 1922, or under Sub-section (3) of Section 34 of the Income-tax Act, 1961, and of its other reserves in so far as the amounts credited to such other reserves have not been allowed in computing its profits for the purposes of the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, diminished by the amount by which the cost to it of the assets the income from which in accordance with Clause (iii) or Clause (vi) or Clause (vii) of Rule 1 of the First Schedule is not includible in its chargeable profits, exceeds the aggregate of- (i) any money borrowed by it which remains outstanding; and (ii) the amount of any fund, any surplus and any such reserve as is not to be taken into account in computing the capital under this rule." Broadly speaking, the factors which go into the computation of the capital of a company for the purposes of super profits tax include its paid up share capital, its development rebate reserve, and its other reserves in so far as the amount credited thereto have not been allowed in computing the profits for the purposes of the Income-tax Act. These components must be determined with reference to the first day of the previous year relevant to the assessment year. In the present case, therefore, they must be considered with reference to January 1, 1962.
(3.) IN the assessment proceeding under the Act, the assessee claimed the inclusion of the following four items in the computation of its capital: JUDGEMENT_487_ITR90_1973Html1.htm The Income-tax Officer held that those items did not constitute "reserves" and, therefore, rejected the assessee's claim. The assesses appealed to the Appellate Assistant Commissioner and pressed for the inclusion of those four items in the computation of the capital base of the company. The contention was not accepted. The assessee then proceeded in second appeal before the Income-tax Appellate Tribunal, and the appeal has been allowed by the Tribunal on the finding that all the four items should be considered as reserves.;