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For the purpose of computation of limits under rules 3(2)(ii) free reserve as per latest audited balance sheet is to be taken. Free reserve definition has been defined vide Rule 2(d) to include balance in premium account and other items. There is an explanation under Rule (3) which prescribes mode of computation of free reserve to be aggregate of share capital and free reserves but accumulated balance of loss, balance of deferred revenue expenditure and other intangible assets have to be excluded.
Now there appears to be anomaly between Rules 2(d) and explanation below Rules 3. A view is taken by the company that for the purpose of computing the limit under Rule 3(2) (i) & 3(2) (ii) definitions as given in Rule 2(d) would be applicable. The effect of this is that accumulated balances of loss, Intangible assets & deferred revenue expenditure have not to be reduced for computing the limit up to which deposit can be taken. Company’s view is that the explanation under Rule 3 is only applicable for the purpose of limits existing prior to 1975.
Although by strict of liberal interpretation company`s view may be correct. But if we accept this, it results in absurdity i.e. definition of free reserves is different for limit of deposit prior to 1975 & existing on date and for deposits accepted/invited post 1975.
The pragmatic and measurable interpretation would be and in accordance with the accepted norms for free reserve to include/reduce the accumulated balance of loss/other intangible and deferred revenue expenditure.
My please clarify and preferably with same institute`s opinion/authority,
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