Law:

Section:

Schedule II to Companies (Profits) Surtax Act, 1961 - Capital - Computation of - Assessment years 1968-69 and 1969-70 - Part of capital of assessee was subscribed by foreign company in dollars and was kept deposited in foreign bank - There was devaluation of Indian rupee consequent upon which rupee equivalent of that amount in dollars increased and said increase was credited in dollars revaluation reserve - Whether dollar revaluation reserve was includible in capital base under second Schedule - Held, yes FACTS The assessee's share capital included the amount in dollars paid as subscription for its shares by a foreign company which, with the Reserve Bank's permission, was kept deposited in an American Bank account. Subsequently, there was devaluation of the Indian rupee consequent upon which the rupee equivalent of that amount in dollars increased, the amount in dollars remaining the same. That increase in the rupee value of the same amount of American dollars was credited by the assessee to an account called "dollar revaluation reserve". The assessee claimed that the said sum was includible in the capital base of the company for the purposes of computing the surtax payable. The ITO rejected the contention. The assessee appealed to the AAC and succeeded. The revenue then carried the matter to the Tribunal which upheld the assessee's contention. On reference : HELD This was, not a case where the assessee had revalued a book asset within the meaning of Explanation 1 to rule 2. This increase in the rupee value was an increase in its paid-up share capital in rupees and remained includible in the computation of its capital base. Therefore, the dollar revaluation reserves appearing in the balance-sheet of the assessee-company as on the first day of the respective assessment years constituted reserves which were includible in the capital base under the Second Schedule. Note : The case was decided in favour of the assessee. CASES REFERRED TO CIT v. Warner Hindustan Ltd. [1986] 158 ITR 51 (AP) and Vazir Sultan Tabacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC). G.S. Jetley, Mrs. Manjula Singh and K.C. Sidhwa for the Applicant. N.A. Dalvi for the Respondent. JUDGMENT S.P.…

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