S.C.Deb, J. - (1.) The following question is involved in this reference under Section 256(1) of the I.T. Act, 1961, read with Section 18 of the Companies (Profits) Surtax Act, 1964: " Whether, on the facts and in the circumstances of the case and on a proper interpretation of Expl. 1 to Rule 2 of the Second Schedule to Companies (Profits) Surtax Act, 1964, the Tribunal was right in holding that the sum of Rs. 70,33,000 being the adjustment made in respect of the excess depreciation charged in the earlier years could not be treated as part of the capital for the purposes of determining the statutory deduction under Section 2(8) of the said Act ? "
(2.) The question related to the surtax assessment for the assessment year 1970-71. The assessee is a company to which the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as " the Act"), applies.
(3.) While computing the capital of the company for the assessment year 1970-71 under the Second Schedule to the aforesaid Act, the ITO included Rs. 94,33,000 in the capital shown as the " general reserve " in the balance-sheet of the company for the period ended 30th June, 1968. In the aforesaid general reserve of Rs. 94,33,000, a sum of Rs. 70,33,000 was included describing it as "add balance of excess depreciation provided in past transferred from profit & loss a/c." and in Schedule D (Part I) of the balance-sheet Rs. 70,33,000 was shown as adjustment of excess depreciation on buildings, machinery, etc., being the difference between the amount provided and the amount calculated under Section 205(2)(b) of the Companies Act, 1956, up to 30th June, 1967.;