Judgment :- R. JAYASIMHA BABU, J. The Revenue relied on the law laid down by the Bombay High Court in the case of CIT v. Zenith Steel Pipes Ltd. We are in entire agreement with the law laid down therein that if the assessee obtains deduction for a higher sum towards depreciation, but shows a lesser sum as the amount of depreciation in the profit and loss account and thereafter credits the difference between the two figures of depreciation to a general reserve, such a general reserve will have to be reduced by the amounts so credited while computing the capital base of the company for the purpose of determining the chargeable profits. Rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, reads thus : "Rule 1. Subject to the other provisions contained in this Schedule, the capital of a company shall be the aggregate of the amounts, as on the first day of the previous year relevant to the assessment year, of - ... (iii) its other reserves as reduced by the amounts credited to such reserves as have been allowed as a deduction in computing the income of the company for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act, 1961 (43 of 1961);" The facts of this case, however, are not such as to permit the application of that law, as it is the finding of the Tribunal that there was no separate depreciation reserve to which the differential was credited nor is there any finding that the difference was credited to a general reserve. On the other hand, the finding is that though there is a general reserve, this amount of the differential was not credited to that or any other reserve. The mere existence of the differential by itself does not warrant the deduction of the amount of the difference while computing the capital base, unless there is material to show that the differential amount was credited to a reserve which has to be taken note of for the purpose of computing the capital base. Absent such a reserve and/or absent such a credit the question of deduction does not arise.The assessing authority merely assumed the existence of a notional reserve for which there was no foundation in the books of account or in the profit and loss account of the assessee. Absent such a reserve and/or absent such a credit the question of deduction does not arise.The assessing authority merely assumed the existence of a notional reserve for which there was no foundation in the books of account or in the profit and loss account of the assessee. The Tribunal has rightly held that on the facts of this case no deduction from the general reserve was warranted on the ground that the amount of depreciation allowed under the Income-tax Act was higher than the amount of depreciation set out in the profit and loss account. Moreover, before rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act can be said to have been attracted, there must be an existence of a "reserve". Such a reserve could either be a general reserve or special reserve, but a reserve there must be to which a credit has been made. The Tribunal has found that there was no depreciation reserve. A notional reserve cannot be created by the Assessing Officer and a notional reserve assumed to exist for the purpose of effecting deduction while computing the capital base. The questions referred to us at the instance of the Revenue, viz., "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the excess of the amount allowed as and by way of depreciation allowance in the income-tax assessment over the amount of depreciation charged in the books of account of the assessee should not be reduced from the capital base of the company under rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that under the above rule 1(iii) the capital base for the purpose of the Surtax Act must not be reduced by the aggregate excess of depreciation allowed in the books of account for the earlier assessment years ?" are, therefore, answered in favour of the assessee and against the Revenue.