JUDGMENT
S.K. Desai, J.
1. This is a reference at the instance of the Revenue and the following two questions stand referred to us by the Income-tax Appellate Tribunal, Bombay Bench ‘E’, under section 256(1) of the Income-tax Act, 1961 :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that proportionate reduction in the capital on account of relief under sections 80-I and 80M did not come within the scope of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment years 1971-72 and 1972-73 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that bonus reserve does not come within the provisions of rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and that it should have been considered as a reserve in the computation of capital of the assessee-company ?”
2. As far as question No. (1) is concerned, Shri Jetley for the Revenue has very fairly stated that the answer to be given to the said question is concluded in favour of the assessee by the decision of a Division Bench of this court in CST v. Ballarpur Industries Ltd. [1979] 116 ITR 528. We shall, therefore, proceed to answer the said question in accordance with the said decision in the affirmative and in favour of the assessee.
3. That brings us to a consideration of question No. (2). As far as this question is concerned, the relevant discussion is to be found in paragraphs 5, 6, and 7 of the appellate order of the Income-tax Appellate Tribunal. We are concerned with two assessment years 1971-72 and 1972-73. For these years, the assessee-company had created what it designated as “bonus reserve” and in the computation of the capital of the assessee, the Income-tax Officer excluded the said amounts. In appeal before the Appellate Assistant Commissioner, the assessee succeeded and the Appellate Assistant Commissioner reversed the decision of the Income-tax Officer. On further appeal to the Tribunal, the Tribunal has set out in paragraph 6 of its judgment the details of the said reserves. These were as under :
"Account year Assessment Amount
ending year
30-9-1966 1967-68 1,71,307
30-9-1967 1968-69 1,85,986
30-9-1969 1970-71 1,28,243
__________
Total : Rs. 4,85,536 (1971-72 Assessment year)
----------
30-9-1967 1968-69 1,85,986
30-9-1969 1970-71 1,28,243
30-9-1970 1971-72 2,00,795
__________
Total : Rs. 5,15,024 (1972-73 Assessment year)"
__________
4. It was stated before the Tribunal, and which position was accepted by the Department, that the bonus paid by the assessee had been, for these two years, separately and independently debited to the profit and loss account and the bonus reserve had not been drawn upon for making such payment. Indeed, the Tribunal found, from a study of the balance-sheet, that the bonus payments debited to the profit and loss account for the relevant previous years ended September 30, 1970, and September 30, 1971, were Rs. 3,26,521 and Rs. 3,70,373, respectively. It also found that for the previous year ended September 30, 1969, the bonus payment came to Rs. 2,90,407. The assessee’s arguments before the Tribunal was thus borne out by a perusal of the balance-sheet. It is quite clear that the so-called amounts taken to the bonus reserve were not for any commitment which had arisen for payment. The Tribunal referred to the observations of the Kerala High Court in CIT v. Periakaramalai Tea and Produce Co. Ltd. [1973] 92 ITR 65, but those observations are not essential for our purposes. Since the Tribunal had found on a perusal of the balance-sheet that the bonus reserve had no co-relation to the actual payment of bonus nor had it been utilised for payment of bonus, it was right in holding that the bonus reserve could not be excluded from the computation of capital and it was, therefore, correct in upholding the Appellate Assistant Commissioner’s decision in favour of the assessee.
5. The question does not admit of any elaborate discussion and the answer to the question appears to us to be quite evident from the facts set out.
6. Accordingly, question No. (2) also is answered in the affirmative and in favour of the assessee.
7. The parties, however, will bear their own costs of the reference.
