P.Chakravartti, C.J. - (1.) This case is a remnant of a Reference under Section 66(1) of the Income-tax Act by which three questions were referred to this Court. Two of them were disposed of by an order of Lahiri, J. and myself, passed on 19-8-1954 but by the same order we called for a further Statement of Case with respect to the third question. That statement has since been received.
(2.) Broadly stated, the third question asks whether the payments made by a company under Section 18A of the Income-tax Act can be treated as a part of its reserve till actually credit in respect of them is given in the regular assessment. It has arisen in the following way :
(3.) For the purposes of the Business Profits Tax Act, "taxable profits' means the amount by which the profits, during a chargeable accounting period, exceed the abatement allowable in respect of that period. That is laid down in Section 2(17) of the Act. Under Section 2(1) 'abatement' means a sum computed by a rather complicated process by reference to the capital of the company on the first day of the chargeable accounting period in accordance with Schedule II of the Act, but, as the Act originally stood, the provision was only for chargeable accounting periods ending on or before 31-3-1947. The Finance Aet of 1948 amended Section 2 (1) of the Business Profits Tax Act so as to provide that in respect of any chargeable accounting period beginning after 31-3-1947, the amount of the abatement shall be such sum as may be fixed by the Annual Finance Act. The same Act provided by Section 11(2) that in respect of any chargeable accounting period beginning after 31-3-1947, the amount of the abatement shall be a sum computed by reference to the capital in accordance with Schedule II of the Act. The provision for computation in accordance with Schedule II of the Act was thus maintained even with respect to chargeable accounting periods' beginning after 31-3-1947. Under Rule 2(1) of the Schedule, the capital of a company is the sum made up of the amounts of its paid up share capital and of its reserves, less certain amounts which I need not particularise. It is only necessary to observe that one of the constituent parts of the capital, as contemplated by Section 2(1)(a) of the Act and Rule 2(1) of Schedule II, is the amount of the reserves of a company.;