TMI Blog1992 (10) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to the assessment year 1966-67. The following two questions have been referred to us under section 256(1) of the Income-tax Act, 1961 : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 5,50,000 standing to the credit of gratuity reserve account should be included in the capital computation under the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee for gratuity crystallised at a particular time on account of death, retirement, resignation, etc., the payment in respect of such claim was debited to the gratuity payment account and transferred to the profit and loss account and not to the gratuity reserve account. No payments at any point of time were made out of the gratuity reserve account. The reserve was seen to have been always kept in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a free reserve and, hence, it has held that this amount was included in the capital computation of the company for the purposes of surtax. The ratio of the decisions of our High Court in the case of CIT v. National Rayon Corporation Ltd. [1986] 160 ITR 716 and CIT v. Hindustan Lever Ltd. [1986] 160 ITR 700 will not be attracted to the facts of the present case. The Division Bench in the former ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art for payment of gratuity and that it was in the nature of a free reserve. Therefore, this is a case where the ratio of the decision of this court in the case of CIT v. Ruston and Hornsby India (P.) Ltd. [1986] 160 ITR 712, will apply. The Division Bench in that case has said that an amount set aside out of profits and other surpluses not designed to meet a liability, contingency, commitment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then such excess can be treated as a reserve in the light of the above judgment. Question No. 2 is, therefore, answered as follows : The amount in the dividend reserve account to the extent that it has been utilised for payment of dividend is a provision and cannot be included in the capital computation of the assessee-company for the purpose of the Companies (Profits) Surtax Act, 1964. Any exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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