Judgment :- K.A. THANIKKACHALAM, J. At the instance of the Department, the Tribunal referred the following question for the opinion of this court under section 256(1) of the Income-tax Act, 1961, read with section 18 of the Companies (Profits) Surtax Act, 1964. "Whether, on the facts and in the circumstances of the case, the amount representing 'preference share redemption reserve' at the beginning of the accounting period should be included as part of the capital base under the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?" The assessee is a public limited company and the assessment year involved is 1979-80 for which the accounting year ended on December 31, 1978. The Surtax Officer, while computing the statutory allowance, reduced the capital employed to the extent of Rs. 10 lakhs which represented "preference share redemption reserve" on the view that such reserve was earmarked for a known liability, namely, redemption of preference shares of the company, and as such the reserve was in the nature of a provision which has to be excluded from the capital computation. On appeal by the assessee, the Commissioner of Income-tax (Appeals) overruled the view of the Surtax Officer and, relying on the decision of the Karnataka High Court in the case of Addl. CIT v. Bharat Fritz Werner (P.) Ltd. upheld the objection of the assessee to the exclusion of the amount standing to the credit of "preference share redemption reserve" for the purpose of computation of the capital base. Aggrieved, the Revenue filed an appeal before the Appellate Tribunal. The Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) and dismissed the appeal. As against the dismissal order, the Department made a request before the Appellate Tribunal to refer the matter with the abovesaid question for the opinion of this courtBefore us, learned counsel for the Department submitted that the reserve was earmarked for a known liability, namely, redemption of preference shares of the company, and, therefore, the reserve was in the nature of a provision which has to be excluded from the capital computation. A similar question came up for consideration before the Karnataka High Court in the case of Addl. CIT v. Bharat Fritz Werner (P.) Ltd. wherein the Karnataka High Court held as under: "Preference share capital redemption reserve was created by the assessee as provided by section 80 of the Companies Act, 1956. A similar question came up for consideration before the Karnataka High Court in the case of Addl. CIT v. Bharat Fritz Werner (P.) Ltd. wherein the Karnataka High Court held as under: "Preference share capital redemption reserve was created by the assessee as provided by section 80 of the Companies Act, 1956. The Andhra Pradesh High Court also had an occasion to consider the question of similar nature in the case of CIT v. Vazir Sultan Tobacco Co. Ltd., wherein, it was held as under: "Part I, Schedule VI to the Companies Act, 1956, prescribes the form in which the balance-sheet shall be prepared by a company. The proforma contains separate columns for liabilities and assets. Under the heading 'Reserves and surplus' in the column 'Liabilities', seven types of reserves/funds are mentioned. Among them 'capital redemption reserve' is No. 2. This clearly shows that capital redemption reserve is a 'reserve'. Now, the Explanation to rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. In view of the above cited decisions, we hold that there is no infirmity in the order passed by the Tribunal in holding that the amount representing preference share redemption reserve at the beginning of the accounting period should be included as part of the capital base under the Second Schedule to the Companies (Profits) Surtax Act, 1964. Accordingly, we answer the question in the affirmative and against the Department. No costs.