HERDILLIA CHEMICALS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Mumbai Bench 'C', Mumbai, at the instance of the assessee, has forwarded following questions for the opinion of this Court :

(2.) Mr.Seth appearing on behalf of the assessee contended that the matter must really go back to the Tribunal. He would submit that the Tribunal has not decided the matter in accordance with the provisions of law and which were pressed into service in the backdrop of the facts. He would submit that the decision of this Court in the case of Commissioner of Income Tax, Bombay City III Vs. Zenith Steel Pipes Limited, 1978 112 ITR 215 (Bombay) was not concerned with that aspect of the matter, which was highlighted by the assessee. The Division Bench while deciding the Zenith Steel matter rested its conclusion on one aspect of the matter and that is with regard to the deduction for the purposes of charge of Surtax. Mr.Seth inviting our attention to the charging provision, would submit that Surtax Act states that subject to the provisions contained therein, there shall be charged on every company for every assessment year commencing on and from 1st April 1964 but before first day of April 1988, a tax referred to as Surtax, in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate specified in the third schedule. After inviting our attention to the definitions of the term 'Chargeable Profits' appearing in Section 2(5) and the definition of the term 'Statutory Deduction' as defined in Section 2(8) of the Surtax Act, it is submitted that the second schedule is referable to Section 2(8) of the Surtax Act. The second schedule of Surtax Act prescribes rules for computing the capital of a company for the purposes of Surtax.

(3.) Mr.Seth would submit that capital of the company shall be the aggregate of the amounts mentioned in Rule 1(i), (ii) and (iii) of the Second Schedule of Surtax Act. As far as we are concerned, Rule 1(iii) would be applicable. Thus, other reserves as reduced by the amounts credited to such reserves as have been allowed as deduction in computing the income of the company for the purposes of Indian Income Tax Act, 1922 or the Income Tax Act, 1961, would be the capital of the company. That is how the definition of the term 'Statutory Deduction' would have to be understood.