Ajit K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1972-73, the following question of law has been referred to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding the the debenture redemption reserve of Rs. 11,00,000 should be taken into account for the purpose of computation of capital according to the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment year 1972-73 ?"
(2.) The facts found by the Tribunal are that the assessee-company issued 1,500 debentures of Rs. 1,000 each in the previous year ending December 31, 1961 (the company was then observing the calendar year as its accounting year). For the security of these debentures, a trust deed dated July 26, 1951, was executed in favour of the trustees by the assessee-company. Clause 13 of the conditions of the said trust deed mentions as under : "13. The company shall open a debenture redemption account in accordance with the following provisions, namely : (a) During the year ending December 31, 1953, and, during every succeeding year ending December 31, whilst any debenture remains outstanding, the company shall credit to the debenture redemption account the sum of Rs. 60,000. (b) The company may, in any year, credit to the debenture redemption account a sum in excess of the requirements specified in the last paragraph hereof and such excess may be treated as satisfaction pro tanto of the obligations for any later year or years. (c) The company shall, not later than December 15, 1953, and not later than December 15, in each succeeding year cause a drawing to be made in the manner hereinafter provided for redemption of not more than sixty debentures at par and any balance standing to the debenture redemption account then remaining shall be carried forward and added to and dealt with as forming part of the debenture redemption account for the next succeeding year. Any interest accrued on debentures so drawn shall be payable by the company otherwise than out of the debenture redemption account."
(3.) As on March 31, 1972, there was a balance of Rs. 11 lakhs lying in the "debenture redemption reserve account". The Assessing Officer for the purposes of computing capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964, took the above amount as "provision" and not as reserve.;