DIPAK KUMAR SEN, J. - (1.) M /S. Peico Electronics and Electricals Ltd., the assessee, an existing company within the meaning of the Companies Act, 1956, was assessed to surtax under the Companies (Profits) Surtax Act, 1964, in the asst. yr. 1974-75. The relevant accounting year ended on 31st Dec., 1973. Under the Surtax Act, the ITO was required to compute the capital of the assessee as on 1st Jan., 1973. In computing the capital of the assessee, the ITO excluded a sum of Rs. 19,36,835 on account of deduction allowed to the assessee under s. 80J of the IT Act. The ITO also excluded a sum of Rs. 50 lakhs which appeared in the balance-sheet of the assessee as a debenture redemption reserve.
(2.) BEING aggrieved, the assessee preferred an appeal to the AAC. The AAC considered and construed the Explanation to r. 1 of Sch. II to the Surtax Act and held that a sinking fund should be excluded from the computation of capital for the purpose of surtax. He found that the debenture redemption reserve in the case of the assessee had not been invested as was required to create a sinking fund and, therefore, the same did not constitute a sinking fund. He held that the same should not be excluded in computing the capital base of the assessee for the purposes of surtax. Following the decision of the Karnataka High Court in the case of Stumpp, Schuele and Somappa Pvt. Ltd. (1976) 102 ITR 320 (Kar), the AAC held that the ITO was also not justified in reducing the capital base of the assessee by Rs. 19,36,835 on the ground of deduction allowed to the assessee under s. 80J of the IT Act, 1961, under r. 4 of the Second Schedule to the Surtax Act. The appeal of the assessee was allowed accordingly.
(3.) BEING aggrieved, the Revenue preferred an appeal from the decision of the AAC to the Tribunal. The Tribunal noted that the facts as found and considered by the AAC remained undisputed. The Tribunal noted that the debenture redemption reserve was not invested in any shares or securities but was utilised for the purpose of the assessee's business. The Tribunal held that the said reserve could not be considered as a sinking fund to be excluded from the capital base of the assessee by reason of the Explanation to r. 1 of the Second Schedule to the Surtax Act. 5. The Tribunal in arriving at the said decision considered and applied the principles of accountancy from the standard text book on Accountancy by William Pickles, 3rd edition.;