TMI Blog1981 (2) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... apital base for determination of standard deduction under rule 2(1) of the Rules of the Second Schedule to the Super Profits Tax Act, 1963 ? " We are concerned in this reference with the assessment for the assessment year 1963-64. The assessee is a public limited company. It claimed that the following four items should be included in the computation of the capital base as reserves as these formed other reserves within the meaning of r. 1 of the Second Schedule to the S.P.T. Act, 1963: Amount in lakhs (a) Additional depreciation reserve 6.5 (b) Provision for tax 24.2 (c) Provision for gratuity 3.7 (d) Proposed dividend 22.7 The ITO, however, held that these four items were in the nature of provisions which were set apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to certain decisions of the Supreme Court. In that view of the matter, the Tribunal was of the view that the revenue was justified in treating the four items in question as not constituting " reserves " for the purpose of r. 1 of Sch. II to the S.P.T. Act, 1963. Now, as we have mentioned, we are concerned here with the four items, the first being " additional depreciation reserve of Rs. 6,58,100". Now, this amount of additional depreciation indicates that this was over and above the depreciation that was allowable or allowed under the I.T. Act. Indeed, the Tribunal has noted that, regarding the first item, the company used to provide for, the actual basic depreciation at the rate of 15% on the plant and machinery, 25% on motor vehicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case also should have been included in the capital base for the determination of the standard deduction. Then the next item in the question is provision for taxation. Now, this provision for taxation, in our view, from the substance of the matter should also be treated as a liability and not as a reserve. It has not been found by the Tribunal that this was an excess provision for -taxation. If this was such a case, then different considerations might have applied. Therefore, the Tribunal was right in holding the provision for taxation of Rs. 24,23,193, which is not an excess provision, should be excluded from computing the capital base for the determination of the standard deduction. The third item of the question, with which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though such a provision may not amount to an actual debt to the workers. Now, such an amount kept apart would be available for the business, but it could not be said to be available for future use in the business. It will be to meet a very immediate contingency which might have not matured into a liability as yet on the relevant date. Looked from that point of view, in our opinion, the provision for gratuity in this case cannot also be treated as reserve. The Supreme Court has also reiterated, quite apart from other considerations, in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 at p. 67 of the report as follows : " In our view, an estimated liability under gratuity schemes such as the ones before us, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to be available for use by the company in its business in future. It would be needed for immediate use in the business. Therefore, in that concept, it cannot be treated as a reserve. The last item with which the Tribunal was concerned was the proposed dividend. It is true that until the dividend was declared, no debt was created. Reliance was placed on the observations of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. It is true, as the learned advocate for the assessee stressed, that for use of the business is not synonymous with the expression " use or expansion of the business But at the same time " for use of the business " must be for future use in the business. It must not be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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