P. CHAKRAVARTTI, C. J.

( 1 ) THIS case is a remnant of a Reference under Section 66 (1) of the Income-tax Act by which three questions were referred to this Court. Two of them were disposed of by an order of Lahiri, J. and myself, passed on 19-8-1954 but by the same order we called for a further Statement of Case with respect to the third question. That statement has since been received.

( 2 ) BROADLY stated, the third question asks whether the payments made by a company under Section 18a of the Income-tax Act can be treated as a part of its reserve till actually credit in respect of them is given in the regular assessment. It has arisen in the following way :

( 3 ) FOR the purposes of the Business Profits Tax Act, "taxable profits' means the amount by which the profits, during a chargeable accounting period, exceed the abatement allowable in respect of that period. That is laid down in Section 2 (17) of the Act. Under Section 2 (1) 'abatement' means a sum computed by a rather complicated process by reference to the capital of the company on the first day of the chargeable accounting period in accordance with Schedule II of the Act, but, as the Act originally stood, the provision was only for chargeable accounting periods ending on or before 31-3-1947. The Finance Aet of 1948 amended Section 2 (1) of the Business Profits Tax Act so as to provide that in respect of any chargeable accounting period beginning after 31-3-1947, the amount of the abatement shall be such sum as may be fixed by the Annual Finance Act. The same Act provided by Section 11 (2) that in respect of any chargeable accounting period beginning after 31-3-1947, the amount of the abatement shall be a sum computed by reference to the capital in accordance with Schedule II of the Act. The provision for computation in accordance with Schedule II of the Act was thus maintained even with respect to chargeable accounting periods' beginning after 31-3-1947. Under Rule 2 (1) of the Schedule, the capital of a company is the sum made up of the amounts of its paid up share capital and of its reserves, less certain amounts which I need not particularise. It is only necessary to observe that one of the constituent parts of the capital, as contemplated by Section 2 (1) (a) of the Act and Rule 2 (1) of Schedule II, is the amount of the reserves of a company.

( 4 ) DURING the period ending on 31-3-1948, the assessce company made advance payments of income-tax under Section 18a of the Act amounting in all to Rs. 13,54,054/ -. In the course of its assessment to business profits tax for the chargeable accounting period beginning on 1-4-1948 and ending on 31-3-1949, the assessee claimed that in computing its capital for the purpose ot determining the abatement admissible to it, the amount of payments made by it under Section 18a of the Act during the previous year should be taken into account as its reserve and, therefore, as a part of its capital. The Income-tax Officer refused to allow the claim. On appeal, the Appellate Assistant Commissioner held that the question as to whether the assessee was entitled to the amount in question being treated as a part of its reserve did not arise, because it had in fact been allowed as a reserve, being included in a larger sum. According to him, what had been disallowed was only a double allowance. In that view, he rejected the assessee's claim that in addition to the larger amount in which, according to him, the amount of the actual payments under Section 18a was included, the latter amount was also to be separately taken into account as a reserve in computing the capital. On further appeal by the assessee, the Tribunal proceeded on what, according to them, was the true nature of payments made under Section 18a of the Act. The view taken by the Tribunal was that the payments under Section 18a had been made to meet a statutory liability and not put by as a reserve, to be applied to a further contingency, and consequently the claim made by t

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