COMMISSIONER OF INCOME-TAX, MYSORE, BANGLORE versus THE MYSORE ELECTRICAL INDUSTRIES LTD.

Citation: [1971] SUPP. 1 S.C.R. 521 · Decided: 27-04-1971 · Supreme Court of India · Bench: S.M. SIKRI · Disposal: Dismissed

Judgment (excerpt)

521 
.COMMISSIONER OF INCOME-TAX, MYSORE, 
A 
BANGAWRE 
v. 
THE MYSORE ELECTWCAL INDUSTIUES LTD. 
April 27, 1971 
[S. M. Snt:RI, C. J., G. K. MITTER, C. A. VAIDIALINGAM, 
P. JAGANMOHAN REDDY AND I. D. DUA, JJ.] 
Companies (Profits) Surtax Act, 1964-Second Schedule, 
r. 1-Sums 
.appropriatrd by towards reserves not on the first day of 'the year but later 
-Should be treated a.r effective from the earlier date since divirion of 
·undistributed profits became effectiw from that day. 
On the question whether three several sums appropriated by the Direc-
tors of the respondent-company towards reserves on the 8th August, 19o3 
out of the profits of the year ending 31st March, 1963, should be added to 
other items for computation of the capital of the respondent as on the 1st 
day of April, 1963 in terms of rule I of the Second Schedule to the Com-
panies (Profits) Surtax Act, 1964, 
HELD: The fact that the directors were unable to appropriate the 
-sums to reserves of different kinds cannot make any difference to the 
nature or quality of the appropriation of the profits to reserves as deter-
mined by the directors after 1st April, 1963. Their determination to ap-
propriate the sums mentioned to the three s-:p~rate classes of reserves on 
the. 8th of August, 1963 must be related to the 1st of April, 1963 i.e. the 
beginning of the accounts for the new year and must be treated as effective 
fr~m that day. [524D] 
Commissiona of lncom~-ta;c, Delhi v. A.ryodya Ginning & J"fanufac-
Juring Co. Ltd., 31 I.T.R. 145 and Commissioner of Income-tax v. Vasantfra 
Mills Ltd., 32 I.T.R. 237, referred to. 
B 
c 
D 
E 
CrvrL APPELLATE JuRISDICTION: Civil Appeal No. 1794 of 
1970. 
F 
Appeal from the judgment and order dated October 28, 1969 
of the Mysore High Court in Tax Referred Case No. 12 of 1967. 
Jagdish Swarup, Solicitor-General, A. N. Kirpal and B. D . 
.Sharma, for the appellant. 
M. K. Ramamurthi, J. Ramamurthy and Vineet Kumar, for 
G 
the respondent. 
S. Swamlnothan and R. Gopalakrishnan, for the intervener. 
The Judgment of the Court was delivered by 
Mitt«, J.-The question involved in this appeal is, whether 
;three several sums appropriated by the Directors of the respondent 
1owards reserves on the 8th August 1963 out of the profits of the 
H 
522 
B 
c 
D 
E 
F 
G 
H 
SUPRBME COURT REPORTS 
(1971] SUPP. S.C.R. 
year ending 31st March, 1963 should be added to other items for 
computation of the capital of the respondent as on the 1st day of 
April, 1963 in terms of rule 1 of the Second Schedule to the 
Companies (Profits) Surtax Act, 1964 hereinafter referred to as 
the 'Act'. 
The Act which received the assent of the President on 2nd 
May, 1964 is an Act to impose a special tax on the profits of cer-
tain companies. Under section 4 of the Act a tax known as sur-
tax become chargeable on every company for every assessment 
year commencing on and from the 1st day of April 1964 in res-
pect of so much of its chatrgeable profits of the previous year as 
exceeded the statutory deduction, at the rates specified in the Third 
Schedule. Under s. 2(3) "assessment year" means the period of 
twelve months commencing on the 1st day of April of every year. 
"Chargeable profits" is defined in s. 2(5) as the total income of 
an assessee computed under the Income-tax Act, 1961 for al]ly 
previous year or years, as the case may be, and adjusted in accor-
dance with the provisions of the First Schedule. "Statutory de-· 
ductions", ignoring the provisos, means in terms of s. 2(8) an 
!llmount equal to 10 per cent of the capital of the company as 
computed in accordance with the provisions 0£ the Second Schedule 
or an amount of Rs. 2,00,000/- whichever is greater. The Second' 
Schedule to the Act contains the- rules, for computing the capital 
of a company for the purposes of surtax. Rule 1 of the Second' 
Schedule with which alone we are concerned in this section reads : 
"Subject to the other provisions conta.ined in this 
Schedule, the capital of a company shall be the aggregate 
of the amounts, as on the first day of the previous year 
relevant to the assessment year, of-
(i) its paid-up sha.re capital;. 
(ii) its reserves, if any created under the 
proviso 
(b) to clause (vi-b) of sub-section (2) of section 10 of the 
Indian Income-tax Act, 1922 (XI of 1922), or under sub-
section (3) of ·section 34 of the Income-tax Act, 1961 
(LXIII of 1961)~ 
(iii) its othr.r reserves as reduced by the amounts 
credited to such reserves as have be

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