[Cites 10, Cited by 0]
Madras High Court
Shriram Transport Finance Company ... vs Assistant Commissioner Of Income Tax on 20 February, 2026
Author: Anita Sumanth
Bench: Anita Sumanth
2026:MHC:740
T.C.A.No.653 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 20.02.2026
CORAM :
THE HONOURABLE DR.JUSTICE ANITA SUMANTH
and
THE HONOURABLE MR.JUSTICE MUMMINENI SUDHEER
KUMAR
T.C.A.No. 653 of 2014
Shriram Transport Finance Company Limited,
Mookambika Complex,
No.4, Lady Desika Road,
Mylapore, Chennai-600004 .. Appellant
vs
Assistant Commissioner of Income Tax,
Company Circle VI(2),
121, M.G.Road,
Chennai - 600 034
.. Respondent
Prayer : Appeal filed under Section 260A of the Income-Tax Act, 1961
against the order of the Income Tax Appellate Tribunal, Madras ‘B’
Bench dated 11.04.2013 in ITA No. 1745/Mds/2012.
For Appellant : Mr.Logesh
For Respondent : Mr.T.Ravikumar
Senior Standing Counsel
1/7
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T.C.A.No.653 of 2014
JUDGMENT
(Delivered by Dr. ANITA SUMANTH, J.)
The appeal is filed by assessee for assessment year 2009 – 10. The
questions of law admitted on 2.9.20144 are as follows:-
“1.Whether on the facts and circumstances of the
case, the Appellate Tribunal was right in holding
that there has been no diversion of income by
overriding charge in respect of amount
transferred to Statutory Reserve Fund in
compliance with the mandatory provisions of
Section 45IC read with Section 45Q of the RBI
Act?
2. Whether on the facts and circumstances of the
case, the Appellate Tribunal was right in holding
that the amount transferred to Reserve Fund in
compliance with the provisions of Reserve Bank of
India Act, 1934, by the appellant from its income,
is not an allowable deduction in computing the
assessable income under the provisions of Indian
Income Tax Act, 1961 both in Regular
Computation and under Section 115JB?”
2. Both Mr.Logesh, learned counsel, appearing for assessee /
appellant and Mr.T.Ravikumar, learned Senior Standing Counsel,
appearing for respondent agree that the issue in questions stand covered
against the assessee based upon a decision of this Court in TCA No. 598
of 2014 dated 23.01.2026. The operation portion reads as follows:-
“3. The same questions have been raised for
earlier assessment years as well and held adverse
to the assesseee following the decision of the
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Delhi High Court in the case of SREI
Infrastructure Finance Ltd v Additional
Commissioner of Income Tax1. The discussion is
as follows:-
“5.15.Section 115JB states that for computing the
book profit, the amount meeting out the liabilities
other than ascertained liabilities, has to be added.
The statutory reserve fund based on the RBI
guidelines, is not based on any ascertained
liabilities and hence, it has to be added for
arriving at the book profit under section 115 JB.
At this juncture, it would be relevant to refer to the
decision of the Delhi High Court in SREI
Infrastructure Finance Ltd v. Additional
Commissioner of Income Tax, wherein, an
identical question of law as raised herein i.e.,
whether the reserve created under section 45 IC
of the RBI Act will have to be included while
computing book profits u/s 115 JB of the Act, was
considered and it was observed as follows:
14.In the present case, we are concerned with
clause (b) to Explanation 1 which states that book
profit prepared in accordance with Part II and III
of Schedule VI of the Companies Act, 1956 will be
increased by the amount carried to any reserve by
whatever name called, other than a reserve
specified under section 33AC of the Act. The
legislature in express, lucid and categorical terms
has stipulated that the book profit shall be
increased by the amounts carried to any reserve.
The word any, it is obvious, refers to all kinds of
reserves and encompasses all types and
categories without exception. The legislature did
not stop and has thereafter used the expression
reserve by whatever name called. There could not
have been more clarity and articulateness in the
language of clause (b) to Explanation (1). The
intention is unambiguous, i.e, book profit would
54 Taxman 254
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include all amounts carried to any reserve by
whatever name called, except the reserve
specified under section 33AC of the Act. The
nature and type of reserve or its character would
not affect operation of clause (b) to Explanation
(1). Only reserves specified in Section 33AC of the
Act have to be excluded. Guidance Note on
revised Schedule VI to the Companies Act, 1956
by the Institute of Chartered Accountants of India
would indicate that reserves and surplus are
generally classified as; (a)capital reserve;
(b)capital redemption reserve; (c)securities
premium reserve; (d)debenture redemption
reserve; and (e)revaluation reserve or other
reserves. In addition, there can be share options
outstanding account and surplus, i.e, the balance
in the statement of profit and loss disclosing
allocations and appropriations such as dividend,
bonus shares and transferred to /from reserves,
etc.
Further, the Delhi High Court did not agree with
the applicability of cases concerning Molasses
Storage Fund and observed that reserve under
section 45 IC is created out of profits earned and
it cannot be said to be the diversion of income at
source. Ultimately, it was held as follows:
“32.As noticed above, -provision- and
-reserves- are different accounting terms. A
provision created to meet a known liability is a
charge against the profit. Hence, it is debited
to the profit and loss account and reduces the
profit. Provisions should be created, even if
there is insufficient profit. Provision is not,
therefore, invested. On the other hand,
-reserve- is only appropriation of profit and
therefore, it is not debited to the profit and loss
account. The purpose of reserve is to
strengthen the financial position and to meet
unforeseen liabilities which may arise in
future. The reserves are created out of
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adequate profits. However, once reserve is
created, it reduces divisible profit. This is the
amount of profit which is retained for use in
business when difficulty arises. Reserves can
be invested. The said investments can be even
outside the business and in such cases the
reserve is called the reserve fund. Reserves are
shown on the liability side of the balance sheet
and are generally treated as belonging to the
proprietor just as capital. It is a sum owned by
the business to the proprietor. Reserves
themselves are not assets but represent a
portion of the assets which the proprietor is
free to utilise for business as one likes, i.e, the
assets equalling the reserves that are not
required to pay liabilities. Generally reserves
are created at the discretion of the
management as a matter of prudence, but in
certain cases a statute can direct creation of
special reserves. For the purpose of section
115JB of the Act, statutory reserves are treated
alike and in a similar manner as other
reserves.”
5.16. In the light of the aforesaid decision
of the Delhi High Court, wherein, it was clearly
stated that the reserve is the amount of profit
which is retained for use in business, when
difficulty arises and on the basis of our earlier
findings and from the very language of section 45
IC, this court comes to a conclusion that the
amount transferred by the assessees herein, to the
statutory reserve as mandated under the
provisions of the RBI Act, is not an allowable
deduction in computing the assessable income
under the provisions of the Act under the regular
computation and computation of book profits
under section 115JB, as the case may be and
therefore, the orders of the authorities below, do
not call for any interference. Accordingly, the
consequential issue is also decided against the
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assessees.”
3. In light of the aforesaid, the questions are answered in favour of
the Revenue and this tax case (appeal) is dismissed. No costs.
[A.S.M, J.] [M.S.K, J.]
20.02.2026
Index:Yes/No
Neutral Citation:Yes
ssm
To
1.The Assistant Commissioner of Income Tax,
Company Circle VI(2), 121, M.G.Road,
Chennai - 600 034.
2.The Income Tax Appellate Tribunal, Madras ‘B’ Bench,
Chennai.
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DR. ANITA SUMANTH,J.
and
MUMMINENI SUDHEER KUMAR,J.
ssm
20.02.2026
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