Deb, J. - (1.) The following questions are involved in this reference under section 256(2) of the Income-tax Act, 1961 : "(1) On the facts and circumstances of the case, whether the Tribunal is justified in law in holding that the reserve for taxation for Rs. 8,46,948 (rupees eight lakhs forty-six thousand nine hundred and forty-eight only) and dividend reserve for Rs. 17,47,647 (rupees seventeen lakhs forty-seven thousand six hundred and forty-seven only) do not qualify as reserve for computation of capital base under the Explanation to the Second Schedule of the Companies (Profits) Surtax Act, 1964 ? (2) On the facts and circumstances of the case, whether the Tribunal is justified in law in holding that the reserve for taxation for Rs. 8,46,948 (rupees eight lakhs forty-six thousand nine hundred and forty eight only) and dividend reserve for Rs. 17,47,647 (rupees seventeen lakhs forty-seven thousand six Hundred and forty-seven only) do not rank in for consideration as reserve on proper interpretation of Part I of Schedule VI to the Companies Act, 1956 ? (3) On the facts and circumstances of the case, whether the Tribunal is justified in law in holding that the reserve for taxation for Rs. 8,46,948 (rupees eight lakhs forty-six thousand nine hundred and forty-eight only) and dividend reserve for Rs. 17,47,647 (rupees seventeen lakhs forty-seven thousand six hundred and forty-seven only) was set apart for any specific liability and as such not eligible for consideration as reserve for the purposes of computation of capital base under the Companies (Profits) Surtax Act, 1964?"
(2.) The assesses is a company. The assessment year is 1965-66. The relevent previous year ended on March 31, 1965. For the purposes of the Companies (Profits) Surtax Act, 1964 (hereinafter stated as "the Act"), the relevant date is April 1, 1964.
(3.) After providing for depreciation and development rebate, the assessee suffered losses in the earlier year and this year as well and transferred certain amounts from its reserves for the purposes of appropriations and proposed dividends.;