1974 (6) TMI 2 - HC - Income Tax

Assessee which is a public limited company claimed deduction of the following reserves as on March 31 1972 for determining the capital base for the purpose of the Super Profits Tax Act 1963 - Whether provision for taxation proposed dividends and depreciation reserves can be treated as reserves

Summary

Issues:
1. Whether certain reserves claimed by the assessee for determining the capital base under the Super Profits Tax Act, 1963, are allowable.
2. Whether provisions for taxation, proposed dividends, and excess depreciation constitute reserves under the Second Schedule to the Super Profits Tax Act.

Analysis:
The case involved the assessment year 1962-63, where the assessee, a public limited company, claimed deductions of reserves for taxation, proposed dividends, and excess depreciation for determining the capital base under the Super Profits Tax Act, 1963. The Super Profits Tax Officer initially rejected the claim, stating that the provisions for taxation and dividends did not qualify as reserves. On appeal, the Appellate Assistant Commissioner allowed the amounts, citing compliance with the Act's conditions. However, the Tribunal, relying on Supreme Court decisions, held that provisions for taxation and dividends could not be considered reserves for computing the capital base. Regarding excess depreciation, the Tribunal ruled that it did not meet the Act's requirements.

The key question referred for opinion was whether the provisions for taxation, proposed dividends, and excess depreciation constituted reserves under the Super Profits Tax Act. The High Court referred to a previous judgment where it was held that provisions for taxation and proposed dividends were not reserves as they were specific liabilities. The court determined that only the excess provision for taxation, available for the company's use, could be treated as a reserve. The actual liability for income tax needed to be ascertained to identify the excess provision. The court also held that the provision for proposed dividends was not a reserve for future use. However, the amount in credit of the depreciation reserve account, exceeding the amount allowed for tax purposes, was considered a reserve as it was utilized for the company's business purpose. Following the precedent, the court concluded that the excess depreciation amount should be treated as a reserve under the Super Profits Tax Act, 1963. The judgment favored the assessee, allowing the excess depreciation amount as a reserve while disallowing the provisions for taxation and proposed dividends as reserves.