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TMI Blog1973 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment of the surplus provision of the preceding year.) 5,00,000 2. Proposed dividends : Preference shares 31,465 Ordinary shares 3,12,020 --------------- 3,43,485 3. Provisions for bonus to staff and workers 60,000 4. Transfer to general revenue 2,00,000 This left a balance of Rs. 99,759 which was carried forward to the next year. In computing the capital base as on May 1, 1961, under rule 1 to the 2nd Schedule to the Super Profits Tax Act, the assessee claimed that the following sums should be treated as reserves : Rs. 1. Provision for bonus 28,439 2. Provision for dividend 3,43,485 3. Provision for taxation 7,50,000 4. Development rebate reserve 4,598 Item No. 1 represents the balance out of Rs. 60,000 after the bonus pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal. It was contended by the assessee that out of Rs. 7,50,000, Rs. 3,87,040 was the actual tax payable and, therefore, the excess of Rs. 3,62,960 should be considered as a reserve, that the sum of Rs. 4,598 representing the excess reserve in respect of development rebate and the sum of Rs. 28,439 which is an excess reserve for bonus should all be treated as reserves. It was also submitted that the amount standing to the credit of the proposed dividend should also be treated as part of the company's reserve. The Revenue resisted the assessee's contention stating that since the assessee was allowed in full the amount of development rebate in the computation of profits under the Income-tax Act, the excess of Rs. 4,598 cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserves under rule No. 1 of the Second Schedule to the Super Profits Tax Act, 1963 ? " At the instance of the revenue the following question has been referred to this court in T.C. No. 261 of 1967. "Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,50,000 was a reserve under rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?" The questions thus involve the interpretation of the word "reserve" in rule 1 of Schedule 2 of the Super Profits Tax Act, 1963. We have held in T.C. No. 257 of 1967 that the word "reserve" used in the said rule means specific amounts set apart for specified purposes out of the profits earned in the relevant year by the appropriate authority which is put to future use by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriation came to be actually made by the company on November 12, 1961, it should be deemed to relate back to the first day of the previous year. Therefore, we proceed to consider the questions raised in this case on the basis that there has been appropriation by the company under the various is heads as on May 1, 1961. The items in dispute related to the exccess provision for bonus provision for dividend, provision for taxation and the excess development rebate reserve. So far as the excess provision made for bonus and development rebate reserve is concerned, we are of the view that the said two items should be treated as reserve within the meaning of rule 1 of Schedule 2 to the Act. Though the said two items represent excess provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een paid out of the company for discharging the actual tax liability, it cannot be taken to be an amount set apart or appropriated for a specific purpose, or for future use of the company and it is only a provision made for discharging a specific liability. Therefore, the said sum cannot be treated as a reserve. But the balance of Rs. 3,62,960 representing the excess provision for taxation was available to the company for its use and, therefore, it has to be treated as a reserve. The learned counsel for the assessee draws our attention to a decision of the Allahabad High Court in Commissioner of Income-tax v. Security Printers of India (P.) Ltd., holding that a provision for bonus, taxation and proposed dividend made by a company is entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax becomes payable after it was quantified in accordance with the ascertainable data, that it becomes a perfected debt at any rate on the last day of the accounting year and that it is not a contingent or future liability. The tax liability is, therefore, a present liability of an ascertainable amount which, of course, is ascertained on a later date after the close of the accounting year. Therefore, the amounts set apart towards income-tax liability so far as it is referable to the actual tax liability ultimately ascertained and recovered cannot be said to be a reserve under rule 1 of Schedule 2. But the excess provision for taxation, however, satisfies the test of a "reserve". It has been appropriated towards a specific purpose and the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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