JUDGMENT
G.T. Nanavati, J.
1. The Income-tax Appellate Tribunal has referred the following four questions to this court under section 256(1) of the Income-tax Act, 1961 :
“(1) Whether the Income-tax Appellate Tribunal erred in law in holding that the capital of the concern in section 13(4) of the Income-tax in Act would include even borrowed money employed as capital in the concer ?
(2) Whether the Income-tax Appellate Tribunal erred in law in holding that aggregate funds of the trust invested in the concern did not exceed five per cent. of the capital of that concer ?
(3) If reply to either question No. 1 or question No. 2 is against the assessee, whether the assessee was entitled to urge before the Appellate Tribunal that the Appellate Assistant Commissioner erred in holding that deficit of Rs. 2,739 in the assessment year 1971-72 and of Rs. 5,881 in the assessment year 1972-73 incurred by the assessee in school section should not be available as set off against the other income while computing the total income though such point was not urged before the Appellate Assistant Commissione ?
(4) If reply to question No. 3 is in the affirmative, whether the Appellate Tribunal erred in law in coming to the conclusion that as the income from the school section would not be taxable in view of section 10(22) of the Income-tax Act, 1961, the deficit of Rs. 2,739 incurred by the assessee in that section in the assessment year 1971-72 and of Rs. 5,881 incurred in the assessment year 1972-73 should not be available as set off against the other income while computing the total incom ?”
2. At the outset, it may be stated that question No. 1 is required to be reframed as under :
“Whether the Income-tax Appellate Tribunal erred in law in holding that the capital of the concern under section 13(4) of the Income-tax Act would include even ‘reserve ?
3. The question is required to be reframed as above because this is not a case where borrowed money was employed as capital in the concern. The judgment was whether the Capital of the company would include reserves. Before the Appellate Assistant Commissioner also, the contention was that the capital of the company would include reserves. It appears that the Tribunal, under some misconception of facts, held that the capital of the concern under section 13(4) would include even borrowed money employed as capital in the concern and, on that basis, framed the abovestated question No. 1. Both the learned advocates agree that this is a mistake committed by the Tribunal and the question should be reframed as stated above.
4. It is not disputed that, if it is held that the capital of the concern under section 13(4) would not include reserves, then the aggregate funds of the trust invested in the trust did exceed five per cent. of the capital of that concern. Therefore, what we have to consider first is as to whether the word “capital” as employed in section 13(4) would include reserves. The assessee had invested its funds with Messrs. C. Doctor and Company Private Limited and Mehta Corporation Private Limited. Now, in a case of a company, capital would ordinarily mean share capital. Sections 85 and 86 of the Companies Act make that position clear. If shares are issued at a premium, then the amount of premium received by the company may be regarded as its capital. But we are not concerned in this case with such a situation. In view of this clear position under the Companies Act, it is difficult to accept the contention raised on behalf of the assessee that the word “capital” in section 13(4) in the case of a company would also include its reserves. No other provision of law or any other authority was pointed out to show that the reserve of the company is regarded as its capital. Therefore, it will have to be held that the Tribunal erred in holding that capital of the concern under section 13(4) would include its reserves. In view of our answer to question No. 1, it will have to be held that the Tribunal erred in holding that the aggregate funds of the trust invested in the concern did not exceed five per cent. of the capital of that concern. In view of the Full Bench decision of this court in CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499, it was not seriously disputed before us that it was open to the assessee to urge before the Tribunal that the Appellate Assistant Commissioner had erred in holding that the deficit of Rs. 2,739 in the assessment year 1971-72 and of Rs. 5,881 in the assessment year 1972-73 incurred by the assessee cannot be available for set off against the other income while computing the total income, when such point was not urged before the Appellate Assistant Commissioner.
5. So far as question No. 4 is concerned, as stated above, the assessee is a charitable trust. It was running a school and the income received from the school admittedly was not required to be included in the total income of the assessee as it did not form part of the total income of the assessee. The deficit incurred by the assessee was obviously not available as set off against the other income which could be taken into consideration while computing the total income.
6. In the result, questions Nos. 1 and 2 are answered in the negative, that is, in favour of the Revenue and against the assessee. Question No. 3 is answered in the affirmative, that is, against the Revenue and in favour of the assessee. Question No. 4 is answered in the negative, that is, in favour of the Revenue and against the assessee. Reference is disposed of accordingly. No order as to costs.