Sabyasachi Mukharji, J. - (1.) The assessment year involved is 1963-64. The assessee in its accounts disclosed the reserves in the beginning of the year at Rs. 46,11,711 and a loss of Rs. 21,89,282. In the accounts, the assessee had not adjusted the loss against the reserves. In the balance-sheet for the preceding year, however, the loss had been adjusted and the reserves had been shown at Rs. 24,22,429. The plea of the assessee before the ITO was that the reserves should betaken at Rs. 46,11,711 as shown in the accounts of the assessee and not at Rs. 24,22,429 as shown in the balance-sheet as on 31st March, 1962. The assessee's contention was that the loss had been adjusted in the balance-sheet as it was required under the provisions of the Companies Act, but the assessee's accounts disclosed the reserves at Rs. 46,11,711 and that, according to the provisions of the S.P.T. Act of 1963, the reserves were to be taken as shown in the accounts and not as shown in the. balance-sheet. The ITO did not accept the assessee's contention. He was of the opinion that the reserves and losses could not co-exist and the real state of affairs of the assessee-company was disclosed by the balance-sheet. The ITO, therefore, considered the amount at Rs. 24,22,429 as includible in the computation of the capital base of the assessee-company. He accordingly rejected the assessee's claim for the inclusion of Rs. 46,11,711 and included only Rs. 24,22,429 in the computation of the capital base of the assessee-company. The asses-see-company being aggrieved by the order of the ITO went up in appeal before the AAC. It was submitted before him on behalf of the assessee that the adjustment of loss that had been made in view of the requirements under the Indian Companies Act did not bind the assessee and that the assessee was entitled to treat the loss as separate. It was also submitted that in its accounts no such adjustment had been made and that the reserves had been carried forward as such while the losses had been accumulated and continued separately. The AAC, relying upon the decision of the Tribunal in the case of Dalhousie Jute Company Ltd., accepted the. assessee's plea and directed the ITO to include the amount of Rs. 46,11,711 in the computation of the capital base of the assessee.
(2.) The revenue being aggrieved by the aforesaid decision of the AAC came up on appeal before the Tribunal. It was emphasized on behalf of the revenue that the loss and reserve could not co-exist. On the other hand, reliance was placed on behalf of the assessee on the decision of the Tribunal in the case of Dalhousie Jute Company. The Tribunal followed the order of the Tribunal in the case of Dalhousie Jute Company and, therefore, rejected the revenue's contention. In the circumstances aforesaid, the Tribunal has referred to this court under Section 256(1) of the I.T. Act, 1961, the following question : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that in computing the capital base of the assessee-company the reserves should be taken at Rs. 46,11,711 as shown in the accounts and not at Rs. 24,22,429 as shown in the balance-sheet as on 31st March, 1962, after adjusting the loss of Rs. 21,89,282 ?"
(3.) Now, as the Tribunal had referred to the decision in the case of Dalhousie Jute Company for the assessment year 1963-64, it may not be inappropriate to refer to the reasonings of the Tribunal in the said decision. After setting out the facts in that case, the Tribunal went on to observe as follows: "In the present appeal by the department, the submission is that this sum of Rs. 62,456 was rightly adjusted by the Income-tax Officer. We are unable to agree with the departmental representative. The amount had not been adjusted in the books. For the purpose of giving the comparable figures, this amount had been deducted. The real entries in the books do not show any adjustment for the said sum of Rs. 62,456. The provisions of the Act do not require adjustment being made by the Income-tax Officer except to exclude those amounts which do not qualify as eligible reserves. Having regard to the Second Schedule to the Super Profits Tax Act, we are unable to agree with the Income-tax Officer that the sum of Rs. 62,456 can be adjusted by him. The assessee's claim was rightly accepted by the Appellate Assistant Commissioner.";