Ajit K.Sengupta, J. - (1.) At the instance of the Commissioner of Income-tax, West Bengal, the following questions of law have been referred to this court under Section 256(1) of the Income-tax Act, 1961, for the assessment years 1973-74 and 1974-75. "(1) Whether, on the facts and in the circumstances of the case and on a correct interpretation of Rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, the Tribunal was correct in holding that a diminution of the capital, in proportion to the deduction allowed under Sections 80M, 80J and 80-0 of the Act of 1961, in computing the total income of the assessee under the latter Act, was not permissible ? (2) Whether, on the facts arid in the circumstances of the case, the Tribunal was correct in holding that the amount set apart as 'Reserve for doubtful debts and advances' and 'Tax equalisation reserve' were 'reserves' within the meaning of Rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and should be included in computing the capital of the assessee under the said Schedule ?"
(2.) In view of the judgment delivered today in Income-tax Reference No. 131 of 1978 in CIT v. Britannia Biscuit Co. Ltd. (since renamed as Britannia Industries Ltd.), [1990] 182 ITR 113 the first question is answered in the affirmative and in favour of the assessee.
(3.) The second question came up for consideration in the assessee's own case in CIT v. Gramophone Co. of India Ltd. Following the said decision, we answer the second question in the manner indicated hereafter,;