Law:

Section:

JUDGMENT Balasubrahmanyan J.-This reference under the Companies (Profits) Surtax Act, 1964, raises a point about the computation of capital under the Second Schedule to that Act. Under the scheme of this Act, a company is liable to surtax on the excess of its chargeable profits over the statutory deductions. The statutory deduction itself is 10 percent, of the capital of the company. The capital of a company, for the purpose of calculating the statutory deduction must be computed in accordance with the rules set out in the Second Schedule. Rule 1 of the Second Schedule lays down that the capital of a company shall be the aggregate of the amounts mentioned in cls. (i) to (v ) mentioned therein. Clause (i) refers to the paid up share capital. Clause (ii) refers to the general reserves. Clause (iii) refers (iv) the other reserves. Clause (iv) refers to the debentures, and, cl. (v) refers to moneys borrowed from Government concerns. It is the sum total of the paid up share capital, the reserves, debentures and the moneys borrowed, which makes up the capita for the purposes of the statutory deduction. Rule 3 to the second schedule is by way of an addition to the figure of capital computed in accordance with r. 1. It may be observed that under the scheme of the Second Schedule, the capital will have to be computed as on the first day of the previous year relevant to the assessment year in question. Rule 3, in that context, provides that where after the first day of the previous year, the capital of a company as computed in accordance with r. 1 (and other relevant rules) of the Second Schedule is "increased" by any amount during that previous year on account of increase in paid-up share capital or the issue of debentures, etc., then the capital as computed under r. 1 shall be increased by a sum worked out both on the time basis and the quantum basis. The reference in the present case has arisen because of a controversy between the assessee on the one hand, and the Department on the other, as to whether r. 3 of the Second Schedule can be invoked by the assessee in the events that happened which are as follows. The assessment year in question is 1971-72. The relevant…

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