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(a)..Reserve for dividends payable in Common stock.

(b) Reserves for other undeclared dividends.

(c) Retirement account for,preferred stock.

(d) Reserves for contingencies, etc. Item 29 was as follows " Total capital accounts ". This item is the sum of items 25 to 28, inclusive.

Along with this the appellant has placed a copy of the letter from the Deputy Controller of Currency, Washington, the relevant portion of which is as follows :-

" In connection with this matter we wish to assure you that your position as stated is in complete accord with that of the Office of the Comptroller of the Currency. In the United States, the 'Undivided Profits' as reflected in the accounting of a bank actually represents a part of its capital funds. All of the other bank supervisory agencies in the United States consider the 'Undivided Profits' of a bank as a part of its capital funds. In any calculation for the purpose of determining the adequacy of capital in a: commercial bank in the United States, the supervisory authorities include 'Undivided Profits' as an integral part of the capital structure as it would not be possible otherwise to make an accurate computation. When losses occur in banks, it is the usual practice in many banks to charge them against the 'Undivided Profits' account which by any reasoning would be inappropriate if the account were regarded as ' Undistributed Profits'. In commercial banks in the United States, it is not customary to maintain any account that could be regarded specifically as 'Undistributed Profits' in the same. sense as applied to similar accounts in the other corporations in India. The term 'Undivided Profits' simply follows a bank accounting nomenclature used ill the 'United States to designate profits set aside, after provisions for expenses and taxes, dividends and reserves, for continuous future use in the business of the bank' and it bears a close, if not identical, relationship to the Earned Surplus Account of an industrial corporation. Balance sheets of three other banks of the United States relied on by the appellant show that Capital Fund comprises three kinds of funds, i.e., Capital, Surplus and Undivided Profits. The documents placed on the record show that these three different kinds of funds put together make up what is called " Capital Fund'. The creation and maintenance of the item known as Undivided Profits is a requirement of the Treasury Rules which are made under the Statute and therefore it cannot be said that the amount of Undivided Profits in the Balance Sheet was not allocated as a result of either a resolution of the Directors, accepted by the shareholders or on account of the requirements of the law. The " Undivided Profits " have to be employed in the manner indicated by the letter of the Deputy Controller of Currency. They are set up for expenses, taxes, dividends and reserves for continuous use in the business of the Bank and are a part of the capital funds and an integral part of the capital structure and without it, it would not be possible to make an accurate computation. The reason for the existence of this fund, as shown by that letter is that when there are losses, they can be charged against "Undivid- ed Profits " which expression means profits set apart after provision for expenses and taxes etc. for continuous use in the business of the Bank.

Applying this test to the disputed sum, it cannot be said that the amount is not "Reserve" within the meaning of the Rules. As is shown by the instruction under s. 5211 of the Revised Statute of the United States and the letter of the Deputy Controller referred to above, the appellant bank was required to keep a, certain sum of money under the head "

Undivided ,Profits " and that is an integral part of the capital (1) [1954] S.C.R. 203.

structure. Under these circumstances it would be erroneous not to treat the amount of " Undivided Profits " as a part of the capital fund.