Madras High Court
Shriram City Union Finance Limited vs Assistant Commissioner Of Income Tax on 4 November, 2024
Author: Anita Sumanth
Bench: Anita Sumanth
2024:MHC:3800
T.C.A.No.191 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 04.11.2024
CORAM :
THE HONOURABLE DR.JUSTICE ANITA SUMANTH
and
THE HONOURABLE MR.JUSTICE G. ARUL MURUGAN
T.C.A.No.191 of 2011
Shriram City Union Finance Limited,
No.123, Angappa Naicken Street,
Chennai – 600 004. .. Appellant
vs
Assistant Commissioner of Income Tax,
Company Circle VI(2)
Chennai – 600 034. .. Respondent
Prayer : Appeal filed under Section 260A of the Income Tax Act against
the order of the Income Tax Appellate Tribunal, Madras, 'A' Bench dated
08.12.2010 in ITA No.502/Mds/2010.
For Appellant : Mr.R.Sivaraman
For Respondent : Mr.J.Narayanaswamy
Senior Standing Counsel
JUDGMENT
(Delivered by Dr. ANITA SUMANTH.,J)
This tax case appeal has been filed by the assessee relating to
assessment year (AY) 2006 – 2007. The substantial question of law that
have been admitted are as follows:-
“1.Whether on the facts and circumstances of the
case, the Tribunal was right in holding that there
has been no diversion of income by overriding
charge in respect of amount transferred to
Statutory Reserve Fund in compliance with the
mandatory provisions of Sec.45IC read withhttps://www.mhc.tn.gov.in/judis
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T.C.A.No.191 of 2011Sec.45Q of RBI Act?
2. Whether on the facts and circumstances of the
case, the Tribunal was right in noticing that the
amount transferred to Reserve Fund in compliance
with the provisions of Reserve Bank of India Act,
1934, by the appellant from its income, is not an
allowable deduction in computing the assessable
income under the provisions of Indian Income Tax
Act, 1961.?
2. The above substantial questions have been answered in the
case of this very assessee for other assessment years by this Court in
T.C.A.No.755 of 2009 and batch dated 30.06.2022. Their discussion and
conclusion are as follows:-
“Statutory Reserve Fund
5.1. The assessees are Non-Banking
Financial Companies. They had transferred certain
amount to a statutory reserve under section 45 IC
of the Reserve Bank of India Act, 1934 (hereinafter
shortly referred to as the “RBI Act“) and claimed
deduction in computing the income under the
provisions of the Income Tax Act, 1961 (hereinafter
shortly referred to as “the Act“) under the regular
computation and under section 115 JB, as the case
may be. During the course of assessment
proceedings, the assessing officer disallowed the
said claim on the premise that the assessees
received income which was kept in the reserve fund
as mandated under the provisions of the RBI Act
and hence, it is only an application of income. The
said finding of the assessing officer was also
affirmed by both the appellate authorities.
Therefore, the assessees are before this court by
raising the issue, as to whether the Tribunal was
right in holding that there has been no diversion of
income by overriding charge in respect of the
amount transferred to statutory reserve fund in
compliance with the provisions of the RBI Act; and
raised a consequential issue, as to whether the
Tribunal was right in holding that the amount
transferred to reserve fund in compliance with the
RBI Act by the assessees, is not an allowable
deduction in computing the assessable income
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T.C.A.No.191 of 2011
under the provisions of the Income Tax Act, 1961.
5.2. The learned senior counsel appearing
for the appellants / assessees would contend that
the Tribunal has erred in confirming the
disallowance with respect to transfer of reserve
fund under Section 45-IC of the RBI Act. As per
Section 45-IC of the RBI Act, 20% of the net profits
of the company cannot form part of the real income
of the company. The company loses control over
this part of the income from the commencement of
the business and that, a part of the corpus of the
right of the company to have the entire income is
sliced away at the threshold itself. The Tribunal also
did not consider that there is no divergence of funds
since the transfer is not through any other
obligation created by the company out of its own
volition or gratuitously. Thus, according to the
learned senior counsel, it is an expenditure laid out
wholly and exclusively for the purpose of
commencement or carrying out the business and
the business of the assessees cannot survive
without complying with the mandatory provisions of
the RBI Act and hence, it is an admissible deduction
under section 37 of the Income Tax Act.
5.3. Adding further, the learned senior
counsel appearing for the appellants / assessees
submitted that the assessees are Non-Banking
Financial Companies (NBFC) which fall under
Chapter III-B of the RBI Act. As per Section 45-IC
of the RBI Act, the assessee companies are
mandated to create a reserve fund and transfer
certain amount to such reserve. Further, Section
45Q of the RBI Act gives an overriding effect to
Chapter III-B in respect of all other laws and
therefore, Section 45-IC of the RBI Act creates an
overriding charge and it cannot be disallowed under
the Income Tax Act. Alternatively, the learned
Senior counsel submitted that the NBFCs have no
control over the reserve fund created under section
45-IC of the RBI Act and they have to wait for the
directives to be issued by the Reserve Bank of India
from time to time. Therefore, the learned Senior
counsel submitted that the amount so transferred
to the statutory reserve is only an application of
income and the deduction claimed by the assessees
for the same, cannot be disallowed by the
authorities below. To strengthen his submissions,
the learned senior counsel placed reliance on the
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T.C.A.No.191 of 2011
following decisions:
(i)Commissioner of Income Tax v. Travancore
Sugar & Chemicals Ltd [(1973) 3 SCC 274];
(ii)Commissioner of Income Tax v.
M/s.Vasisth Chay Vyapar Ltd [(2019) 13 SCC 747];
(iii)Commissioner of Income Tax v. Salem
Cooperative Sugar Mills Limited [(1998) 229 ITR
285 (Madras)]; and
(iv)Keshkal Co-operative Marketing v.
Commissioner of Income Tax [(1987) 165 ITR 437
(MP)].
5.4. Per contra, the learned Senior Standing
Counsel for the respondent / Revenue submitted
that the assessees being Non-Banking Financial
Companies had transferred certain amount to the
statutory reserve fund as mandated by the Reserve
Bank of India Regulations as well as Section 45-IC
of the RBI Act, however, the said transfer to
statutory reserve cannot be termed as an
expenditure at all, as the same is under the control
of the assessees and the amount continues to be in
the reserve. Further, the assessees had merely
transferred the monies to the statutory reserve fund
from the gross income shown. Therefore, the
income was not diverted at source by overriding
title to qualify for deduction and the said reserve
fund can be allowed to be used by the assessees as
per the Government Orders/RBI Regulations. It is
further stated by the learned senior standing
counsel that the Assessing Officer, after scrutinizing
the nature of transaction and by applying the
decisions of the Apex Court in Dalmia Cements
Limited [237 ITR 517] and in Sitaldas Tirathdas [41
ITR 367] on explaining the meaning of -Diversion of
income by overriding title-, held that the assessees
are not entitled for deduction. The Tribunal also, as
a fact finding authority, found that the assessees
had not transferred the income at source by
overriding title and consequently, held that the
deduction is not allowable.
5.5. Elaborating further, the learned Senior
Standing Counsel appearing for the respondent /
Revenue submitted that if the funds are diverted at
source, they shall not be included in the taxable
income. Whereas, if they are diverted later, it must
be included as a taxable income. In any event, such
a diversion of funds is a question of fact and not of
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T.C.A.No.191 of 2011
law. The Commissioner of Income Tax (Appeals) as
well as the Income Tax Appellate Tribunal have
dealt with the factual dispute at length, while
rejecting the claim of the assessees and hence, the
same need not be interfered with by this Court.
The learned Senior Standing Counsel also placed
reliance on Section 45Q of the RBI Act and
submitted that money in reserve fund only goes to
the depositors and hence, it will not be allowed to
be deducted for the purpose of arriving at taxable
income. Adding further, it is submitted that when
the income is diverted at source, it does not accrue
to the assessees and in that case, it is not really the
income of the assessees and it shall be deductible.
On the other hand, when the income is required to
be applied to discharge an obligation after the
income reaches the assessees, it is merely an
application of income and thus, liable to be taxed.
To substantiate his contentions, the learned senior
standing counsel referred to the decisions in
(i)Associated Power Co Ltd. V. CIT, [218 ITR 195
(SC)]; (ii)SREI Infra Structure Finance Limited v.
CIT [54 Tax Man 254 (Del)] and (iii) Seshasayee
Paper Boards Limited v. CIT [237 ITR 488 (Mad)].
Thus, the learned senior standing counsel prayed
for dismissal of the appeals filed by the assessees.
5.6. This court considered the rival
submissions and case laws relied upon by both
sides. It could be seen that for the assessment
years under consideration, the assessees claimed
deduction for the amount transferred to statutory
reserve fund created under section 45 IC of the RBI
Act, which reads as follows:
(1) Every non-banking financial company shall
create a reserve fund and transfer therein a sum
not less than twenty per cent of its net profit every
year as disclosed in the profit and loss account and
before any dividend is declared.
(2) No appropriation of any sum from the reserve
fund shall be made by the non-banking financial
company except for the purpose as may be
specified by the Bank from time to time and every
such appropriation shall be reported to the Bank
within twenty-one days from the date of such
withdrawal:
Provided that the Bank may, in any particular case
and for sufficient cause being shown, extend the
period of twenty-one days by such further period ashttps://www.mhc.tn.gov.in/judis
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T.C.A.No.191 of 2011it thinks fit or condone any delay in making such
report.
(3) Notwithstanding anything contained in sub-
section(1), the Central Government may, on the
recommendation of the Bank and having regard to
the adequacy of the paid-up capital and reserves of
a non-banking financial company in relation to its
deposit liabilities, declare by order in writing that
the provisions of sub-section (1) shall not be
applicable to the non-banking financial company for
such period as may be specified in the order:
Provided that no such order shall be made unless
the amount in the reserve fund under sub~section
(1) together with the amount in the share premium
account is not less than the paid-up capital of the
non-banking financial company.?
5.7. The Assessing Officer disallowed the
deduction so claimed by the assessees, on the
premise that it is only an application of income. It
was further pointed out by the assessing officer that
the said deduction is not an expenditure incurred by
the assessee companies and is an income accrued
to the assessees during the financial year under
consideration and hence, it cannot be allowed as
deduction under section 37 of the Act. It was also
observed that the creation of reserve under the RBI
Act is only a prudential effort to safeguard the
interest of the shareholders of a NBFC company and
it cannot be interpreted as an authorization to
create a notional income and hence, the same
cannot be claimed as a deduction from the total
income computed for the purpose of computing the
income tax. After having found that the assessee
companies have created statutory reserve for 20%
of the profits, by way of appropriation, the
assessing officer held that the creation of statutory
reserve is nothing but an application of income
after the profit has been earned by the assessee
companies and not a diversion of income as claimed
and hence, such profit needs to be taxed. Referring
to the decisions of this court in Tamil Nadu Power
Finance and Infrastructure Development
Corporation Ltd v. JCIT [280 ITR 491] and the
Hon’ble Supreme Court in Southern Technologies
Ltd v. JCIT [320 ITR 577], the assessing officer was
of the view that the directive of the RBI cannot
override the statutory provisions of the Act.
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T.C.A.No.191 of 2011
Accordingly, the assessing officer held that the
amount transferred to the statutory reserve is not
an allowable deduction and the same has to be
added back to the total income of the assessees in
both the regular computation and the computation
of book profits under section 115 JB of the Act, as
the case may be.
5.8. When the aforesaid orders of the
assessing officer were put to challenge by the
assessees before the appellate authorities viz.,
CIT(A) and ITAT, the same ended in failure. For
better appreciation, the findings of the Tribunal in
ITA Nos.570, 571, 806 & 807 /Mds/2008 dated 6th
February, 2009, relating to the AY 2003-04 in
respect of two assessees viz., Shriram Transport
Finance Co. Ltd and Shriram Investments Ltd, are
quoted below:
“2.5 We have heard both the counsels
and perused the relevant records. We find
that the transfer to reserve in this case is only
an appropriation of the profits. It is settled
law that appropriations are not a change to
the profits and cannot be deducted in
computation of business income. Moreover,
the amount transferred to a reserve is as per
Reserve Bank of India Act but the purpose for
which the reserve has to be utilized has not
been specified. Hence, the purposes for
which reserve has been made can only be
considered contingent as of present.
Moreover, the funds representing the reserve
are very much under the control of the
assessee. There is no directive that amount
equivalent to this reserve should be
earmarked to a specific mode of investment.
…..
2.11. Now, we examine the present
case on the anvil of above. By no stretch of
imagination, it can be said that the amount
sought to be deducted has in fact reached the
assessee. The amount involved is only an
appropriation out of company’s own profits
before declaration of dividend. The amount
has very much reached and is in the business
of the assessee. RBI has not attached any
obligation that the fund be kept in any
earmarked security nor the purpose of
utilization of the fund has been specified.
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T.C.A.No.191 of 2011
Even if some obligation is subsequently
attached for specific appropriation of the
fund, it will only be an application of income,
which will need to be dealt with as per
relevant tax law. The transfer of reserve fund
in this can certainly not be called a diversion
of income by overriding charge.
2.12. From the above, it is clear that
the decisions referred to by the assessee’s
counsel are in a different context and are not
applicable. On the other hand, the ratio from
the Hon’ble Apex Court in the case of CIT vs.
Sitaldas Tirathdas and Hon’ble Jurisdictional
High Court in the case of Seshasayee Paper &
Boards Limited is clearly applicable in this
case. The Companies Act, 1956 also
mandates transfer to reserve fund a certain
percentage of the profits before declaration of
dividend. The Hon-ble High Court in the case
of Seshasayee Paper & Boards Ltd. had held
that in such a case, there is no diversion of
income by overriding title nor can the amount
set apart be claimed as expenditure and it
cannot also be stated that it was loss. The
ratio from this decision is very much
applicable in this case, because as per the
Reserve Bank of India Act, the Assessee has
to create a Transfer Fund and to transfer
therein certain percentage of its profits before
any dividend is declared. This transfer to
Reserve Fund was to be utilised for such
purposes as specified by the Reserve Bank of
India from time to time. No such specification
of utilisation of that fund had been issued by
the Reserve Bank of India. Hence, it cannot
be said that there was any diversion of
income by overriding title nor can the amount
set apart be claimed as expenditure and it
also cannot be stated that it was a loss.
…..
2.17….Upon careful consideration, we
do not see any reason to hold that this
decision is helpful to the case of the assessee.
The ratio from the Hon’ble Madras High Court
decision in the case of T.N.Power Finance and
Infrastructure Development Corporation Ltd.
vs. JCIT clearly applies to the facts of the
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T.C.A.No.191 of 2011
case. Moreover, as discussed earlier, this is
only an appropriation of profits for purposes
which have not yet been specified. Moreover,
amount involved is very much under the
control of the assessee and is lying in its
business. Hence, in the background of
aforesaid discussion and precedents, we
uphold the well reasoned order of the learned
Commissioner of Income Tax (Appeals) in this
regard and decide the issue against the
assessees.“
The aforesaid order was followed by the
Tribunal, while deciding the cases relating to the
subsequent assessment years as well.
5.9. In Salem Co-operative Sugar Mills Ltd
case, referred to on the side of the appellants, it
was concluded by this court that the Tribunal was
correct in holding that a portion of sale proceeds of
molasses, which was accounted for and kept
separately for the construction of storage tanks,
cannot be included in the assessee’s income for
taxation, on the premise that there was diversion of
income by overriding title at source. However, as
rightly pointed out by the learned senior standing
counsel appearing for the Revenue, such reserve
was created as per the provisions of the Molasses
Control (Amendment) Order and hence, the same
would not be applicable to the facts of the present
case.
5.10. Similarly, in Keshkal Co-operative
Marketing case, relating to transfer of amount to
reserve fund under section 43(2) of the Madhya
Pradesh Co-operative Societies Act, the question
raised was, whether it is allowable as deduction as
business expenditure or as having been diverted by
an overriding title. The Madhya Pradesh High Court
held that the amount diverted for statutory reserve
funds is deductible under section 37(1) of the Act.
The said judgment will also not be applicable to the
appellants- case, as the amount was transferred
according to the provisions of the Madhya Pradesh
Co-operative Societies Act.
5.11. The Delhi High Court in Vasisth Chay
Vyapar Ltd case, while considering the issue
relating to addition of unrealized interest income on
Inter Corporate Deposits (ICD) by the assessing
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T.C.A.No.191 of 2011
officer, when the same had to be declared by the
assessee (NBFC) as an NPA as per the directions of
the RBI, dealt with section 45Q of the RBI Act and
held that the provisions of the RBI Act override the
provisions of the Income Tax Act and decided the
issue in favour of the assessee. The judgment of the
Delhi High Court was affirmed by the Apex Court.
However, the said decision is not applicable to the
facts of the present case as the interest as held by
the High Court and confirmed by the Apex Court
was never received by the Assessee therein and
held that interest income had not accrued. The
present case concerns the amount sought to be
deducted by the assessees while computing the
taxable income, which is already a part of the total
income and transferred to reserve fund and
therefore, the said decision may not be helpful to
the case of the appellants.
5.12. In Travancore Sugar and Chemicals Ltd
case, the issue that arose for consideration was,
whether payment of fixed percentage of profits
apart from cash consideration, in lieu of takeover of
three undertakings of the government is deductible
under section 10(2)(xv) of the Act. It was
ultimately concluded by the Hon’ble Supreme Court
that the assessee did not have any choice since its
inception and therefore, the amount paid according
to the terms of agreement with the Government,
had to be deducted. That decision will also render
no support to the appellants’ case, as the amount
was paid by the assessee, as per the terms of the
agreement with the Government and in the present
case, it is only kept as reserve.
5.13. On the other hand, in the decisions
relied on the side of the respondent / Revenue in
Associated Power Co. Ltd case, the Hon’ble
Supreme Court was of the categorical view that the
amount kept under contingency reserve as per the
provisions of Electricity (Supply) Act and Sixth
Schedule under it, must not be allowed as
deduction and must be taxed. In Seshasayee Paper
Boards Ltd case, this court, while considering the
issue, whether the amount transferred to general
reserve as required under section 205(2A) of the
Companies Act, can be claimed as deduction, at the
time of computing the total income, ultimately held
that the amount transferred was out of its own
profits and there was no diversion at source by
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T.C.A.No.191 of 2011
overriding title even if the statute mandates the
same; section 205(2A) merely restricts the
declaration of entire profits as dividends and there
are no other restrictions; and therefore, the amount
transferred out of the income of the assessee, is not
entitled to deduction of the money transferred to
the reserve. Applying the ratio laid down in those
decisions to the present case, wherein, the amount
transferred by the assessees herein, to the reserve
fund as mandated under the provisions of the RBI
Act, is out of profits earned by them and hence, the
same has to be treated as appropriation of profits.
Furthermore, the amount so transferred is not a
diversion of income at source by overriding effect,
nor can the amount set apart be claimed as
expenditure and it cannot be stated that it was a
loss. It is relevant to refer to para no.22 of the
judgment in Travancore Case (Supra) relied upon
by the Appellants/Assessees, wherein the Apex
Court has clearly held that only when the income is
diverted at source, it can be deducted and the same
reads as follows:
?Where income which accrues to the assessee is
not his income the question of admissible
deductions would not arise. Therefore, where
income is diverted at source so that when it
accrues it is really not his income but is
somebody else’s income the question as to
whether that income falls under sub-section (2)
of Section 10 does not arise. Again, income can
be said to be diverted only when it is diverted at
source so that when it accrues it is really not the
income of the assessee but is somebody else-s
income. It is thus clear that where by the
obligation income is diverted before it reaches
the assessee, it is deductible. But where the
income is required to be applied to discharge an
obligation after such income reaches the
assessee it is merely a case of application of
income to satisfy an obligation of payment and
is therefore not deductible.?
In view of the above, we are of the firm view that
when the income by way of profit, as in the present
case, is received and then reflected as part of the
total income, deduction is not permissible.
Therefore, the authorities below were justified in
disallowing the deduction claimed by the assessees
for the amount transferred to reserve fund inhttps://www.mhc.tn.gov.in/judis
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T.C.A.No.191 of 2011compliance with the mandatory provisions of the
RBI Act, which do not call for any interference by
this court. Accordingly, the main issue stands
answered against the assessees.
5.14. As regards the consequential issue
raised by the assessees, it is to be noted that the
assessing officer added the fund transferred to the
statutory reserve to the total income of the
assessees, while computing the taxable income
under section 115JB, which was also affirmed by
the appellate authorities. For better appreciation,
the finding recorded by the Tribunal in the case of
Shriram Transport Finance Company Limited
relating to the AY 2012-13, is reproduced below:
“For the purpose of section 115 JB of the Act,
the book profit has to be computed as per the
provisions of the companies Act and further
addition or deduction has to be made as
provided under Explanation to section 115JB of
the Act. It is not the case of the assessee that
the amount transferred to statutory reserve is
an item to be reduced from the book profit
computed as per the provisions of companies
Act. In the absence of any provision in
Explanation to section 115JB of the Act to
reduce the amount transferred to statutory
reserve as per the guidelines of Reserve Bank of
India, this Tribunal is of the considered opinion
that the CIT(Appeals) has rightly confirmed the
order of the Assessing Officer by placing his
reliance on the order of this Tribunal in the
assessee’s own case for the assessment year
2009-10. Therefore, this Tribunal do not find
any reason to interfere with the order of the
lower authority and accordingly the same is
confirmed.“5.15. Section 115JB states that for
computing the book profit, the amount meeting out
the liabilities other than ascertained liabilities, has
to be added. The statutory reserve fund based on
the RBI guidelines, is not based on any ascertained
liabilities and hence, it has to be added for arriving
at the book profit under section 115 JB. At this
juncture, it would be relevant to refer to the
decision of the Delhi High Court in SREI
Infrastructure Finance Ltd v. Additional
Commissioner of Income Tax, wherein, an identicalhttps://www.mhc.tn.gov.in/judis
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T.C.A.No.191 of 2011question of law as raised herein i.e., whether the
reserve created under section 45 IC of the RBI Act
will have to be included while computing book
profits u/s 115 JB of the Act, was considered and it
was observed as follows:
“?14.In the present case, we are concerned
with clause (b) to Explanation 1 which states
that book profit prepared in accordance with
Part II and III of Schedule VI of the Companies
Act, 1956 will be increased by the amount
carried to any reserve by whatever name
called, other than a reserve specified under
section 33AC of the Act. The legislature in
express, lucid and categorical terms has
stipulated that the book profit shall be
increased by the amounts carried to any
reserve. The word ?any?, it is obvious, refers
to all kinds of reserves and encompasses all
types and categories without exception. The
legislature did not stop and has thereafter used
the expression ?reserve by whatever name
called?. There could not have been more clarity
and articulateness in the language of clause
(b) to Explanation (1). The intention is
unambiguous, i.e, book profit would include all
amounts carried to any reserve by whatever
name called, except the reserve specified
under section 33AC of the Act. The nature and
type of reserve or its character would not
affect operation of clause (b) to Explanation
(1). Only reserves specified in Section 33AC of
the Act have to be excluded. Guidance Note on
revised Schedule VI to the Companies Act,
1956 by the Institute of Chartered Accountants
of India would indicate that reserves and
surplus are generally classified as; (a)capital
reserve; (b)capital redemption reserve;
(c)securities premium reserve; (d)debenture
redemption reserve; and (e)revaluation
reserve or other reserves. In addition, there
can be share options outstanding account and
surplus, i.e, the balance in the statement of
profit and loss disclosing allocations and
appropriations such as dividend, bonus shares
and transferred to from reserves, etc.?
Further, the Delhi High Court did not agree with the
applicability of cases concerning Molasses Storage
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Fund and observed that reserve under section 45 IC
is created out of profits earned and it cannot be
said to be the diversion of income at source.
Ultimately, it was held as follows:
“?32.As noticed above, ‘provision’ and
‘reserves’ are different accounting terms. A
provision created to meet a known liability is a
charge against the profit. Hence, it is debited to
the profit and loss account and reduces the
profit. Provisions should be created, even if
there is insufficient profit. Provision is not,
therefore, invested. On the other hand,
‘reserve’ is only appropriation of profit and
therefore, it is not debited to the profit and loss
account. The purpose of reserve is to
strengthen the financial position and to meet
unforeseen liabilities which may arise in future.
The reserves are created out of adequate
profits. However, once reserve is created, it
reduces divisible profit. This is the amount of
profit which is retained for use in business
when difficulty arises. Reserves can be
invested. The said investments can be even
outside the business and in such cases the
reserve is called the reserve fund. Reserves are
shown on the liability side of the balance sheet
and are generally treated as belonging to the
proprietor just as capital. It is a sum owned by
the business to the proprietor. Reserves
themselves are not assets but represent a
portion of the assets which the proprietor is
free to utilise for business as one likes, i.e, the
assets equalling the reserves that are not
required to pay liabilities. Generally reserves
are created at the discretion of the
management as a matter of prudence, but in
certain cases a statute can direct creation of
special reserves. For the purpose of section
115JB of the Act, statutory reserves are treated
alike and in a similar manner as other
reserves.?
5.16. In the light of the aforesaid decision of
the Delhi High Court, wherein, it was clearly stated
that the reserve is the amount of profit which is
retained for use in business, when difficulty arises
and on the basis of our earlier findings and from the
very language of section 45 IC, this court comes tohttps://www.mhc.tn.gov.in/judis
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T.C.A.No.191 of 2011a conclusion that the amount transferred by the
assessees herein, to the statutory reserve as
mandated under the provisions of the RBI Act, is
not an allowable deduction in computing the
assessable income under the provisions of the Act
under the regular computation and computation of
book profits under section 115JB, as the case may
be and therefore, the orders of the authorities
below, do not call for any interference. Accordingly,
the consequential issue is also decided against the
assessees.”
3. Hence the substantial question of law are answered against
the appellant and in favour of the Revenue.
4. This Tax Case Appeal is dismissed. No costs.
[A.S.M., J] [G.A.M., J]
04.11.2024
Index:Yes/No
Neutral Citation:Yes
ssmTo
Assistant Commissioner of Income Tax,
Company Circle VI(2)
Chennai – 600 034.
https://www.mhc.tn.gov.in/judis
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T.C.A.No.191 of 2011
DR. ANITA SUMANTH.,J.
and
G. ARUL MURUGAN.,J.
ssm
T.C.A.No.191 of 2011
04.11.2024
https://www.mhc.tn.gov.in/judis
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