COMMISSIONER OF INCOME-TAX, BOMBAY CITY versus THE CENTURY SPINNING AND MANUFACTURING CO. LTD.

Citation: [1954] 1 S.C.R. 203 · Decided: 08-10-1953 · Supreme Court of India · Bench: M. PATANJALI SASTRI · Disposal: Disposed off
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Judgment (excerpt)

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S.C.R. 
SUPREME COURT REPORTS 
203 
In view of the above we do not think it necessary to 
1953 
go into the interesting questions which were sought to All h bad 8 
k 
be raised by the appellant, viz., what was the scope of 
a ~td. an 
the reference, and by the respondent, viz., whether the 
v. 
expenditure was a capital expenditure or revenue Commissioner of 
expenditure and if the latter whether the deduction 
Income-tax, 
could still not be allowed in view of the provisions of West Bengal. 
section 10 (4) (c) of the Act. 
Bhagwati J. 
The result therefore is that the appeal fails and must 
be dismissed with costs. 
Appeal dismissed. 
Agent for the appellant: P. K. Mukherjee. 
Agent for the respondent: G. H. Rajadhyaksha. 
COMMISSIONER OF INCOME-TAX, 
BOMBAY CITY 
v. 
THE CENTURY SPINNING AND 
MANUFACTURING CO. LTD. 
THE CENTURY SPINNING AND 
MANUFACTURING CO. LTD. 
v. 
COMMISSIONER OF INCOME-TAX, 
BOMBAY CITY. 
[PATANJALI SASTRI c. J., s. R. DAS, VIVIAN BOSE, 
GHULAM HASAN and BHAGWATI JJ.] 
Business Profits Tax Act (XXI of 1947), Sch. II, rr. 2 and 3 
-Deterrnination of capital of company-Inclusion of 'reserves'-
Acci1m11lated profit carried over to next yenr without declaring it ns 
reserve-Whethei· 'reserve'-Indian Oomprmies Act (VII of 1913), 
ss. 131-A, 132, Sch. I, Table A, Reg. 99. 
The balance sheet of a company for the calendar year 1945 
showed a profit of Rs. 90,44,677, subject to the provision for 
depreciation and taxation, and, a!ter giving credit to these items 
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1953 
Oct. 8. 
204 
SUPREME COURT REPORTS 
[1954] 
1953 
the balance of Rs. 5,08,637 was carried to the balance sheet of the 
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next year on the 1st ,January, 1946, without making or declaring 
Commis4ioner 0.f it a reserve. 
On the 28th February, 1946, the directors marked it 
Income-tax, 
for distribution as dividend, on the 3rd. April, a resolution was 
Bombay City 
passed for distributing it as dividend, and a few days later it was 
v. 
actually distributed as dividend: 
The Oentur.11 
Spinning and 
Manufacf.uriny 
Go. Ltd. 
Held, that as the said sum of Rs. 5,08,637 was never earmarked 
or declared as a reserve, but was, on the other hand, earmarked 
for distribution as dividend on the 28th February and 3rd April 
and was actually so distributed, it cannot be deemed to be a reserve 
and added to the paid-up capital in determining the company's 
capital under rr. 2 and 3 of Sch. II to the Business Profits 'fax 
Act, 194 7, for the chargeable accounting period commencing on 
the 1st April, 1946. 
Held also, that the profits of the company from the 1st 
,January to 1st April, 1946, cannot also be treated as reserves. 
CIVIL 
APPELf,ATE 
JURISDICTION: Civil 
Appeals 
Nos. 157 and 158 of 1952. 
Appeals from the Judgment and Order dated the 
29th day of March, 1951, of the High Court of Judicature 
at Bombay (Chagla C.J. and Tendolkar J.) in its 
Original Civil Jurisdiction in Income-tax Reference 
No. 27 of 1950. 
G. N. Joshi for the Commissioner of Income-tax. 
R. J. Kolah for the Century Spinning and Manufac-
turing Co. Ltd. 
1953. October 8. The Judgment of the Court was 
delivered by 
GHULAM HASAN J.-These two connected appeals, 
one by the Commissioner of Income-tax, Bombay, and 
the other by the Century Spinning & Manufacturing 
Co. Ltd., ·arise out of the judgment and order of the 
Bombay High Court delivered on a reference made by 
the Income-tax Appellate Tribunal, Bombay. 
The two questions of law referred by the Tribunal 
were as follows :-
( 1) Whether the amount of Rs. 5,08,637 is a part 
of the 'reserves' of the assessee company as on 1st 
April, 1946, within the meaning of rule 2(1) of the 
rules in Schedule II to the Busi~ess Profits Tax Act, 
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s.c.R. 
SUPREME COURT REPORTS 
205 
(2) Whether the profits of the assessee company 
1968 
from 1st .January to 1st April, 19~6, should be included Commissioner of 
m the said reserves as on 1st April, 1946. 
Income-tax, 
The High Court answered the first question in the 
Bombay City 
affirmative and the second in the negative. 
v. 
The Century 
The accounting year followed by the assessee is the 
Spinning and 
calendar year and the chargeable accounting period is Manufacturing 
the 1st of April, 1946, to the 31st of December, 1946, 
Co. Ltd. 
in respect of the profits ending with 31st December, 
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1945. 
The profits according to the profit and loss Ghulam Hasan J. 
account were Rs. 90,44,677 subject to the provision
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