The excess amount of depreciation of the sum of Rs. 58,85,850 should be treated as a reserve within the meaning of Rule 1 of the Second Schedule to the S. P. T. Act, 1963.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following question has been referred to this court:"whether, on the facts and in the circumstances of the case, the order of the Tribunal holding that the sum of Rs. 58,85,850, being the excess of the amount of depreciation reserve over the amount of depreciation allowed under the Income-tax Act, was a reserve within the meaning of Rule 1 of the Second Schedule to the Super Profits Tax Act, 1963, is justified in law ?"

( 2 ) THE point was disposed of by the Tribunal for the reasons which are best set out in the words of the Tribunal as follows :"it was found that over the years, the assessee had debited in its books depreciation which was in excess of the depreciation allowed under the Income-tax Act by a sum of Rs. 58,85,850. The assessee claimed that this sum should be treated as reserve and included in the computation of capital. But this contention was rejected by the revenue authorities. (ii) It has been held by their Lordships of the Gujarat High Court in the case of CIT v. Viramgam Mills Co. Ltd. [1961] 43 ITR 270 at p. 279, that if any part of the amounts deducted for depreciation did not represent the true amount of depreciation suffered by the buildings and machinery of the asseseee-company, then to the extent of such excess it could be said that the reserve had been built up out of the profits of the company. The present appeal comes squarely within the ratio of the above judgment. We, therefore, accept the assessee's contention that the depreciation provided in the books in excess of the depreciation allowed for income-tax assessment should be treated as reserves for computation of capital. "

( 3 ) AS we have noticed before, the short question is whether the excess amount of the depreciation of the sum of Rs. 58,85,850 should be allowed to be considered as a reserve within the meaning of Rule 1 of the Second Schedule to the S. P. T. Act, 1963.

( 4 ) THE expression "reserve" under Rule 1 of the S. P. T. Act, 1963, has been considered in several decisions.

( 5 ) IN our decision, in the case of CIT v. Burn and Co. Ltd. [1978] 114 ITR 565, we had considered this question. There at p. 574 of the report, after reviewing several decisions, we had held that to determine whether the particular amount was reserve or not, we must find out, firstly, the substance of the matter. Secondly, we must find out whether the amount in question represented any profit earned by the assessee-company and other amounts available to the assessee-company and not distributed as dividends, and thirdly, whether there has been any decision by authorities competent to take the decision to keep the amount in question back for any purpose to which it might be put in future (underlined by us for the present purpose ). We further held that the meaning put on the expression "reserve according to the dictionary and the meaning of ordinary common parlance had been noted by the Supreme Court in the case of CIT v. Century Spg. and Mfg. Co. Ltd. and we had referred to that view of the Supreme Court in the said judgment.

( 6 ) RECENTLY, in the decision delivered by us on 15th May, 1980, in Income-tax Reference No. 431 of 1976 (CIT v. Karam Chand Thapar and Brothers [1981] 131 ITR 175) we had to consider this question afresh in the light of several other decisions and we had reiterated our views expressed in the decision in the case of CIT v. Burn and Co. Ltd. and also referred to the observation of the Bombay High Court in the case of Shree Ram Mills Ltd. v. CIT [1977] 108 ITR 27, where the following tests had been formulated : Firstly, a mass of undistributed profits could not automatically become a reserve for the purpose of Rule 1 of Schedule II to the S. P. T. Act, 1963, and somebody possessing the requisite authority must clearly indicate that the amount had been separated from the general mass of profit with a view to constitute it as a reserve. Second