COMMISSIONER OF INCOME TAX Vs. OTIS ELEVATOR CO INDIA LIMITED

JUDGEMENT

(1.) IN this reference which has been made under S. 256(1) of the IT Act, 1961, at the instance of the CIT, Bombay City II, Bombay, the following three questions have been referred to us for our opinion:

(2.) THE facts pertaining to each one of these questions are different, but all these questions relate to the asst. year 1964 65, the relevant previous year being year ended 30th Sept., 1963. The assessee in this case is a public limited company and in connection with its assessment under the Companies (Profits) Surtax Act, 1964, for the said assessment year certain items were claimed by the assessee as forming part of the reserve being includible in the capital computation of the company for the purpose of that Act and we shall deal with each of these items forming the subject matter of the above three questions separately.

(3.) MR . Joshi appearing for the Revenue has invited our attention to the form of balance sheet in Schedule VI of the Companies Act, 1956, and has particulary relied upon item No. (6) which appears under the heading reserves and surplus in the column of liabilities in that form, which item runs thus: "Proposed additions to reserve". What was urged by Mr Joshi was that as on 30th Sept., 1962, this amount of Rs. 2,10,000 had been proposed as additons to the reserve and as such that would not come within the concept of "reserve" within the meaning of r. 1 of the Second Schedule. What we are really concerned with is not the last date of the accounting period, i.e., 30th Sept., 1962, but the first date of the previous year, viz., 1st Oct., 1962, and it is quite clear that as on that date the amount will have to be regarded as actual reserve and not as "proposed addition". As on 1st Oct., 1962, in our view, the amount formed part of the actual reserve and is outside the mischief of the Explanation to r. 1 and it is not possible to accept Mr. Joshi's contention in that behalf. Besides, we would like to refer to a decision of the Supreme Court in the case of CIT vs. Mysore Electrical Industries Ltd (1971) 80 ITR 556 (SC) the ratio of which case clearly applies to the facts of the present case. In that case the facts as indicated in the head note were these: Out of the profits of the respondent company for the accounting period ending 31st March, 1963, the directors of the company appropriated the following amounts towards reserves on 8th Aug., 1963: