Chagla C.J.

1. This reference raises a question under the Business Profits Tax Act. The assessee company is the Century Spinning Manufacturing Co., Ltd., and its balance sheet for the year 1945 shows that it made a profit of Rs. 90,44,677. This profit was appropriated by a certain amount being paid for dividend and certain amounts being set aside for depreciation and other funds. Under this heading amounts were set aside for machinery, for buildings, for provision for taxation and for compulsory Excess Profits Tax deposit; and a sum of Rs. 6,08,637 was carried over as balance to the balance sheet. Now the question that falls to be determined is whether this sum of Rs. 5,08,637 can be called a reserve for the purposes of Rule 2 (1) in Schedule II of the Business Profits Tax Act,

That rule provides that

"Where the company is one to which Clause (a) of Rule 3 of Schedule I applies, its capital shall be the sum of the amounts of its paid up share capital and of its reserves in so far as they have not been allowed in computing the profits of the company for the purposes of the Indian Income-tax Act, 1922."

Therefore, in order to determine the capital of the company, for the pu