THE FIRST NATIONAL CITY BANK versus THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY.

Citation: [1961] 3 S.C.R. 371 · Decided: 06-01-1961 · Supreme Court of India · Bench: J.L. KAPUR · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

I 
3 S.C.R. 
SUPREME COURT REPORTS 
371 
answered in the affirmative in favour of the appellant. 
1961 
The appeals are, therefore, allowed and the judgments Dharamvir DAir 
and . orders of the High Court are set aside. The Th c v. . . 
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Appeals allowed. 
THE FIRST NATIONAL CITY BANK 
v. 
THE COMMISSIONER OF INCOME-TAX, 
BOMBAY CITY. 
(J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.) 
Business Profits Tax-" Undivided profits ", if fell within the 
word" reserves "-Business Profits Tax Act, I947 (XX! of r947), 
Sch.[[, Rule 2(I). 
The appellant, a non-resident Banker incorporated under 
the National Bank Act of the United States of America with its 
Head Office in America, was assessed under Business Profits 
Tax Act, 1947· Under the Treasury Rnles of the United States 
of America and Instructions for preparation of reports of condi-
tions by the National Banking Association certain sums had to 
be specifically allocated under s. 52n of the Revised Statute 
of the United States, and the appellant bank was required to 
keep a certain sum of money under the head " undivided pro-
fits" and that was an integral part of the capital structu.c.e. 
The reason for the existence of this fund was that when losses 
occurred according to the practice they could be charged against 
"undivided profits", i.e., profits set apart after provision for 
expenses and taxes etc. for continuous use in the business of the 
Bank. The appellant contended that in computing the amount 
for the purpose of "abatement" it was entitled to include the 
"undivided profits" which fell within the word " reserves". 
The question was whether the large sum of money shown 
as "undivided profits" was a part of the reserves. 
Held, that the amount designated as "nndivided profits" 
was a part of the reserves and had to be taken into account 
when computing the capital and reserves within Rule 2(1) of 
Sch. II of the Business Profits Tax Act, 1947. 
CIVIL APPELLATE JURISDICTION: 
Civil Appeal 
No. 315/1958. 
Appeal by special leave from the judgment and 
order dated February 5, 1957, of the Bombay High 
Court in I.T.R. No. 34/1956. 
Kapur]. 
I96I 
January 6. 
372 
SUPREME COUR'I' REPOR!rs 
[i961] 
'96' 
R. J. Kolah and I. N. Shmff, for the appellant. 
The First National 
A. N. Kripal and D. G;upta, for the respondent, 
City Bank 
1961. January 6. The Judgment of the Court was 
v. 
delivered by 
The Commissioner 
of Income-tax, 
KAPUR, J.-This is av appeal against the judgment 
Bombay City 
and order of the High Court of Judicature at Bombay 
Kapur]. 
in Income-tax Reference No. 34 of 1956. The appel-
lant is a non-resident Bank incorporated under the 
National Bank Act of the United States of America 
with its head office in that country and with branches 
all over the world including some branches in India. 
It was assessed under the Business Profits Tax Act 
(Act XXI of 1947), hereinafter termed the "Act", in 
respect of the chargeable accounting periods:-
1-4-1946 to 24-12-1946, 
25-12-1946 to 24-12-1947, 
25-12-1947 to 23-12-1948, and 
24-12-1948 to 31-3-1949 
and the sole question for decision in this appeal is the 
meaning of the word "reserves" in R. 2(1) of 
Schedule 2 of the Act and how the capital of the 
appellant during the above-mentioned chargeable 
accounting periods has to be corn pu ted for the pur-
pose of allowing the " abatement" under the Act. 
The appellant contended that in computing the 
amount for the purpose of abatement, it was entitled 
to include what is termed in the United States "Un-
divided Profits ", the contention being that this item 
falls within the word " reserves" in R. 2( l) of Sche-
dule II of the Act which provides: 
"Where the company is one to which rule 3 of 
Schedule I applies, its capital shall be the sum of 
the amounts of its paid-Up share capital .and of its 
reserves in so far as. they have not been allowed in 
computing the profits of the company for the pur-
pose of the Indian Income-tax Act, 1922 (XI of 
1922), diminiB'hed by the cost to it. of its invest-
ments or other property the income from which is 
not includible in the profits, so far as that cost 
exceeds any debt for money borrowed by it." 
I
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a s.c.:a,; 
SUPREME COURT REPORTS 
373 
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. It is not necessary to give t e 
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years; but it will be sufficie

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