Law:

Section:

Section 104 of the Income-tax Act, 1961 [Corresponding to section 23A of the Indian Income-Tax Act, 1922 - Additional income-tax on undistributed profits of certain companies - Assessment year 1952-53 - Whether amount carried forward in profit and loss account and not earmarked for any purpose, not treated directly or indirectly as general reserves or special reserves and left as a mass of undistributed profits, could not be called 'reserve' of assessee-company - Held, yes - Whether, therefore, said amount could not be included in determining 'reserves' representing accumulations of past profits for purpose of first proviso to section 23A(1) of 1922 Act - Held, yes FACTS For the assessment year 1952-53, the assessee-company declared about 66 per cent of the assessable income reduced by the tax payable thereon and satisfied the requirement of sub-section (1) of section 23A of 1922 Act. The ITO, however, took the view that the reserves representing accumulation of past profits of the company exceeded the paid up capital of the company. He took the said view on the ground that certain amount which had been carried forward in the profit and loss account of the company from the previous year to the following year 1951 must be treated as reserves for the purpose of application of the first proviso to section 23A(1) of 1922 Act. On second appeal, the Tribunal upheld the view taken by the ITO. On reference : HELD The amount in question carried forward in the profit and loss account and not earmarked for any purpose, not treated directly or indirectly as general reserves or special reserves and left as a mass of undistributed profits, could not be called 'reserves' of the company. Practically the whole of the available profit was either taken to the reserves or distributed as dividend and only a small amount was carried forward in the profit and loss account. Therefore, the said amount could not be included in determining the reserves representing accumulations of past profits for the purpose of first proviso to section 23A(1) of 1922 Act. Note : The case has been decided in favour of the assessee. CASE REVIEW CIT v. Century Spinning and Manufacturing Co. Ltd. [1953] 24…

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