TMI Blog1985 (10) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard deduction ? (2) Whether, on the facts and in the circumstances of the case, the provision for taxation of Rs. 52,68,486 or any part thereof was includible in the capital computation base under the Super Profits Tax Act, 1963, for granting the standard deduction ? " The assessment year involved is 1963-64 for which the previous year ended on June 30, 1962. The Super Profits Tax Officer computed the capital base of the assessee for the purposes of computing the tax payable by the assessee under the Super Profits Tax Act, 1963 (hereinafter called " the said Act "), on July 1, 1961, being the first day of the previous year relevant to the assessment year 1963-64 in the sum of Rs. 1,26,44,495. In computing this figure, he did not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company as computed in accordance with the provisions of the Second Schedule, or an amount of fifty thousand rupees, whichever is greater." Under rule I of the Second Schedule, reserves were includible in the computation of the company's capital. Mr. Sathe, learned counsel for the assessee, pointed out to us that at the relevant time a petition under sections 397 and 398 of the Companies Act, 1956, had been filed against the assessee in the Calcutta High Court and that the Calcutta High Court had appointed a special officer to administer the company. It is he who has signed the report annexed to the balance-sheet, for there was no board of directors. He had brought the sum of Rs. 25,81,671 standing to the credit of the profit and loss acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve, a dividend equalisation reserve, a development rebate reserve and an insurance reserve. As far as the amount of Rs.25,81,671 standing to the credit of the profit and loss account was concerned, while it was shown under the head of " Reserves and surpluses ", it was not made a part of the general reserves, which were shown separately, nor was it indicated in any manner that it had been set apart for use in future for any specific purpose or on any specific occasion. The leading decision of the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 also makes it clear that a mass of undistributed profits cannot automatically become a reserve and that somebody possessing the requisite authority must clearly indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee to the Tribunal, which sets out thus: The excess provision is Rs. 24,17,116 as explained below: --------------------------------------------------------------------------------------------------------------------------------------------------- Accounting Assessment Original Provision Final tax Excess year year provision in as on liability provision accounts 30-6-61 determined --------------------------------------------------------------------------------------------------------------------------------------------------- (1) (2) (3) (4) (1-3) Rs. Rs. Rs. Rs. 30-6-50 53,223 30-6-51 52-53 6,50,000 (2,76,171) 9,61,013 (3,11,013) 30-6-52 53-54 6,50,000 (1,93,333) 6,00,780 49,220 30-6-53 54-5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriation made by adopting such a scientific method would constitute a provision representing fairly accurately a known and existing liability for the year in question. If, however, an ad hoc sum had been appropriated without resorting to any scientific basis, that appropriation would be a provision intended to meet a known liability, though a contingent one. If the sum so appropriated was shown to be in excess of the sum required to meet the estimated liability calculated on a scientific basis, it was only the excess that would have to be regarded as a reserve. Since sufficient material was not on record as to whether the appropriation made by the company before the Supreme Court towards gratuity reserve was based on any actuarial valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. It has also not been determined that all the liabilities over the several assessment years provided for by the amount of Rs. 52,68,486 had been crystallised by final assessments. Mr. Sathe drew our attention to the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. We find it hard to appreciate its relevance to Mr. Sathe's argument, for it was there held that the liability to pay tax was a present liability though it became payable after it was quantified in accordance with ascertainable data. The rate was always ascertainable. All the ingredients of a " debt being present, it was a present liability of an ascertainable amount. We must hold, as the Tribunal did, that no part of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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