( 1 ) THIS reference under Section 18 of the Companies (Profits) sur-tax Act, 1964 (hereinafter referred to as the said Act ) read with Section 256 (1) of the Income Tax Act, 1961 (hereinafter referred to as i. T. Act ) has been made by the income Tax Appellate Tribunal, Delhi Bench b , New Delhi (hereinafter referred to as the Tribunal ) to this Court for its opinion on the following questions :-

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Rs. 4,55,000/- being the cost of shares from which the assessee did not derive any income during the relevant accounting period was to be excluded for determining the assessee s capital for purposes of sur-tax under Rule 2 of the second Schedule of the Companies (Profits) sur-tax Act, 1964?"

( 2 ). The factual matrix leading to the aforementioned dispute is as follows :- the assessee held shares in certain companies worth rs. 4,55,000/ -. During the assessment year 1982-83, the assessee did not derive any dividend income therefrom. The cost of the said shares was excluded by the assessing officer as also the appellate authority from the capital of the assessee company for calculating statutory deduction. Thereafter, the assessee company preferred an appeal before the Tribunal wherein it was found that the assessee had not led any evidence, which might have been relevant for determining the question. It further observed :-

"8. As is evident, the Hon ble Karnataka and the Madras High Courts have taken contrary views relating to the interpretation of rule 2 contained in the Second Schedule to the Companies (Profits) Sur-tax Act, 1964. The hon ble Supreme Court has held that if a provision of a taxing Statute can reasonably be interpreted in two ways that interpretation, which is favourable to the assessee, has got to be accepted. What should be the reasonable interpretation has to be determined with reference to the object of the legislation. We have to keep in mind that the old concept of there being a King and the subject has vanished in most parts of the World, particularly in India, where we have a welfare state and a democratic government, elected by the people. Our laws are, therefore, laws made by the people from themselves through then- elected representatives and the object of all fiscal laws is to advance the objects of social and economic justice as enshrined in the constitution. The Companies (Profits) Sur-tax act, 1964 was enacted with the object to impose special tax on companies on their excess profits. Assessment the amount, by which the profits exceeded 10% of the capital of a company. Schedule I and II to the Act contain Rules for determining the chargeable profits and capital respectively of a company. Under Rule 1 of Schedule I certain incomes are required to be excluded from the total income of the company. The total income is the basis on which the chargeable profits of a company are determined. Rule 2 of the Second schedule correspondingly makes provision that where certain incomes are required to be excluded from its total income in computing the chargeable profits, the amount of the company s capital shall also be diminished by the cost of such assets. Clauses (iii),. (vi) and (viii) of Rule 1 of first Schedule refer to the following incomes : (i ). . . . . . . . . . . . . . . . . . (ii ). . . . . . . . . . . . . . . . . . (iii) Profits and gains of any business of life insurance. . . . . . (iv ). . . . . . . . . . . . . . . . . . (v ). . . . . . . . . . . . . . . . . . (vi) Income chargeable under the Income- tax Act under the head "interest on securities" derived from any security of the Central Government issued or declared to be income-tax free, or from any security of a State Government issued income-tax free, the income-tax whereon is payable by the State government. (vii ). . . . . . . . . . . . . . . . . . . . (viii) Income by way of dividends from an indian company or a company which has ma