Venkataswami, J.
1. In these two tax references, a common question of law arises, which relates to the same assessee, but for different assessment years, namely, 1969-70 and 1972-73. The amounts involved also differ.
2. In Tax Case No. 1178 of 1980, the question of law referred to this court reads as follows :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 2,69,534 being the cost of shares should not be excluded from the computation of capital for levy of surtax by applying rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment year 1969-70 ?'
3. In Tax Case No. 1392 of 1980, the question of law referred to this court reads as follows :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 8,81,684 being the cost of shares should not be excluded from the computation of capital for levy of surtax by applying rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment year 1972-73 ?'
4. The relevant facts of the case may now be noted.
5. The respondent-assessee in the surtax assessment for the assessment year 1969-70, wanted that the cost of shares amounting to Rs. 2,81,684 should be included in the capital computation. But the Surtax Officer held that the company had not borrowed any money and, therefore, the cost of shares had to be reduced only by the 'reserve for doubtful debts' to the extent of Rs. 12,150 which should not be taken for capital computation. On that ground, he accepted the claim of the assessee to the extent of Rs. 12,150, and the balance sum of Rs. 2,69,534 was excluded from the capital computation. Likewise, for the assessment year 1972-73 in the surtax assessment, the assessee wanted a sum of Rs. 8,81,684 to be included in the capital computation. But it was not accepted by the Surtax Officer.
6. The assessee, aggrieved by the stand taken by the Surtax Officer, preferred appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the claim of the assessee and consequently directed the Surtax Officer to include the cost of shares while computing the capital. This time, the Revenue, aggrieved by the order of the Appellate Assistant Commissioner, preferred appeals to the Appellate Tribunal. The Appellate Tribunal by a common order, placing reliance on the judgments of the court and also the Calcutta High Court, namely, Nagammal Mills Ltd. v. CIT : [1974]94ITR387(Mad) and Duncan Brothers and Co. Ltd. v. CIT : [1978]111ITR885(Cal) , respectively, confirmed the orders of the Appellate Assistant Commissioner.
7. At the instance of the Revenue, the Tribunal has referred the above questions, which in substances are common, for the decision of this court.
8. It is not dispute that in Addl. CIT v. Madras Motor and General Insurance Co. Ltd. : [1979]117ITR354(Mad) , a Division Bench of this court, while construing the scope of rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, after an elaborate consideration, held as follows (at page 361) :
'When we look at the provisions in the Act, we find that the Legislature has been guided by a sense of reasonableness and that there has been no attempt made to clutch at all the profits made by a company and subject the same to a surtax under the Act. It is only the chargeable profits that are brought under the statute as is evident from section 4 of the Act. Chargeable profits are only the profits adjusted in accordance its rule 1 of the First Schedule. From the chargeable profits, the statutory deductions have to be made and it is only the excess of the chargeable profits over the statutory deductions that is brought to tax. Even when rule 2 of the Second Schedule comes into operation, the reduction of the statutory deduction is augmented by the borrowings and by the funds and surplus profits and reserves other than those under rule 1 of the Second Schedules. It is thus clear that reasonableness, fairness and justice are writ large in the provisions of the statute. In such circumstances, if we try to understand the meaning of the provisions in rule 2 of the Second Schedule in a grammatical and literal way, the result would be an unjust provision for which there is no rhyme or reason. We call it can unjust provision because the object of rule 2 in the Second Schedule appears to be evident that an assessee should not get a double benefit of the income from certain assets being altogether excluded and the other balance of income getting further reduced by a full allowance for statutory deduction excluded from the purview of tax. This is understandable. That is why the provision has been made in rule 2 of the Second Schedule that the value of the assets, the income from which had been excluded from the preview of the Act, should go in reduction of the statutory deduction which would otherwise be available to the assessee.
In the light of the above, we consider that the proper interpretation to be placed on the First and the Second Schedules including rule 2 of the Second Schedule, is to understand rule 2 of the Second Schedule as attracting only cases where rule 1 of the First Schedule is attracted. In other words, if there is no income of the kind mentioned in clauses (iii), (vi) and (viii) of rule 1 of the First Schedule at all in a particular assessment year, rule 2 of the Second Schedule will not be attracted at all. This view is in consonance with column 8(2) (a) in Form No. 1, which has already been referred to. This would be the reasonable view that we can give to the Schedules which would be in consonance with the general object and purpose of the Act. We, therefore, hold that the assessee having had no income whatsoever which would fall under clause (vii) of rule 1 of the First Schedule, the value of the assets which would have given rise to such income cannot be deducted from the statutory deduction.'
9. The above decision, as on date, holds the field so far as this court is concerned. However, Mr. J. Jayaraman, learned senior counsel appearing for the Revenue (applicant herein), cited two decisions of the Supreme Court. They are Karamchand Premchand P. Ltd. v. CIT : [1993]200ITR268(SC) and Zenith Ltd. v. CIT : [1993]200ITR572(SC) . We do not think that in the light of the findings rendered by the authorities below, the decision of the Supreme Court (referred to above) can depressed into service. The Appellate Assistant Commissioner, while considering the issue as regards the assessment year 1969-70, found on the facts that surplus and reserve amounting to Rs. 12,64,536 have not been taken into account for computation of capita in terms of clause (ii) of rule 2 of the Second Schedule. The Appellate Assistant Commissioner found that the cot of the shares, the income from which is excluded in terms of rule 1 of the First Schedule, is far less than the cost of the shares. Consequently, the Appellate Assistant Commissioner held that the cost of shares cannot be excluded while computing the capital base. Consequently, the Appellate Assistant Commissioner found that the cost of the shares including the shares on which the appellant did not get any dividend income comes to Rs. 2,81,684 and this amount being far less than the amount of Rs. 12,64,536 available in various funds and reserves, has to be included while computing the capital. Accordingly, he gave directions to the Surtax Officer. For the assessment year 1972-73, the Appellate Assistant Commissioner found that the observation made by him for the assessment year 1969-70 held good for the year in question, namely, 1972-73, and on that ground, directed the Surtax Officer to consider Rs. 8,81,684 while computing the capital. The contention of Mr. J. Jayaraman, is that the Tribunal has not applied its mind on this issue even though its attention was invited by contending that the Appellate Assistant Commissioner failed to note that the items termed as 'reserve' or 'surplus' by him ar not either reserve or surplus as such, but appropriated for specific purposes. Therefore, according to Mr. J. Jayaraman, even accepting the ratio laid down by the Division Bench of this court in Addl. CIT v. Madras Motor and General Insurance Co. Ltd. : [1979]117ITR354(Mad) , the matter has to be remanded to the Tribunal to apply its mind and decide the case in the light of the ratio laid down by this court. We do not think we can accept this argument of learned senior counsel for the Revenue in view of the finding of the Appellate Assistant Commissioner holding that the various sums representing surplus and reserve amounting to Rs. 12,64,536 were not taken into account for the purpose of computation of capital in terms of clause (ii) of rule 2 of the Second Schedule. Therefore, applying the ratio laid down by this court in Add. CIT v. Madras Motor and General Insurance Co. Ltd. : [1979]117ITR354(Mad) , we are of the view that the Tribunal was right in deciding the issue in question in favour of the assessee.
10. Mr. P. P. S. Janarthana Raja, learned counsel appearing for the assessee, brought to our notice a recent judgment of the Bombay High Court, in CIT v. Geoffrey Manners and Co. Ltd. : [1993]204ITR483(Bom) , wherein a Division Bench of the Bombay High Court, has held as follows (headnote) :
'That the amounts in question in the present case were by way of investment in shares in certain Indian companies. By virtue of rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, 1964, income by way of dividends from such shares is to be excluded while computing chargeable profits. Hence, under rule 2 of the Second Schedule, such investment is to be excluded from the capital base of the company. However, as per rule 2, such exclusion of diminution is confine to the extent to which the cost of such assets as on the first day of the previous year exceeds the aggregate of borrowed moneys as set out therein and any fund, any surplus and any reserve as is not to be taken into account in computing the capital under use 1. Since in the instant case, the general reserves which have not been taken into account in computing the assessee's capital under rule 1 far exceeded the cost of investment, there was no question of the capital of the company (for the purposes of the Companies (Profits) Surtax Act) being reduced by the cost of investment ......'
11. This ruling supports the view taken by the Tribunal.
12. In the result, we answer the question in the affirmative and in favour of the assessee with costs. Counsel's fee Rs. 1,000 one set.