TMI Blog1978 (11) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional ground to be raised for the first time before it ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amounts of Rs. 71,808 and Rs. 1,24,974, respectively, for 'provision for taxation and 'provision for dividends' could be treated as 'reserve' to be included in the computation of the assessee's capital under rule I of the Second Schedule to the Super Profits Tax Act, 1963 ? " The facts giving rise to these references are that the assessee is a company and for the assessment year 1963-64, the previous year is 1962-63, commencing from 1st April, 1962, and ending on 31st March, 1963. The dispute relates to the computation of capital under r. 1 of the Second Schedule to the S.P.T. Act, 1963 (hereinafter called " the Act "). The computation of capital is provided in this Act and an assessee gets a standard deduction at the rate of 6% of the capital computed or Rs. 50,000 whichever is greater from the " chargeable profits ". This Act was in force only for the assessment year 1963-64 and was later on substituted by the C. (P.) S.T. Act, 1964. Under r. 1 of the Second Schedule of the Act, capital was to be computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod ended on March 31, 1962, for such reserves, the shareholders were competent to make such reserves in their meeting held on 29th September, 1962, as they are the final authority in such matters under the Companies Act. For his contention he relied on CIT v. Mysore Electrical Industries Ltd. [1971] 80 ITR 566, wherein their Lordships of the Supreme Court have observed as under : " ...rejecting the contention of the department, that the determination of the directors to appropriate the amounts to the three items of reserve on August 8, 1963, had to be related to April 1, 1963, viz., the beginning of the accounts for the new year, and had to be treated as effective from that day. The three items had to be added to other items for the computation of the capital of the respondent as on April 1, 1963, under rule I of Schedule II to the Companies (Profits) Surtax Act, 1964. " By this judgment, their Lordships of the Supreme Court affirmed the judgment of the Mysore High Court in Mysore Electrical Industries Ltd. v. Commissioner of Surtax [1971] 80 ITR 571. In this case, the directors of the assessee-company on the 8th August, 1963, in their report to the general body of shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ended 31st December, 1948, the amounts mentioned were shown respectively in the reserve fund and the dividend reserve fund and the shareholders by passing a resolution on 27th June, 1949, did not decide that these amounts should constitute reserves as from that date but they accepted the recommendation of the directors that these amounts should constitute reserves as on 31st December, 1948. This decision was approved by their Lordships of the Supreme Court. The Madras High Court dissented from the view expressed by the Bombay High Court on the ground that there could be no reserve until there was allocation in fact by a person having the requisite authority to order that allocation. The facts of the Madras High Court case were that in the balance-sheet of the assessee company for the calendar year 1945, a sum of Rs. 2 lakhs was shown as appropriated to the reserve account and a sum of Rs. 9 lakhs was shown as reserve for the payment of income-tax and excess profits tax. This allocation was made by a resolution of the board of directors at a meeting held on March 14, 1946, and the shareholders' meeting to consider the directors' report was held on April 15, 1946. The articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee during the period, 1st January, 1946, to 1st April, 1946, could not be included in the reserves. On appeal by the revenue, their Lordships of the Supreme Court held that the sum of Rs. 5,08,637 and the profit earned by the assessee during the period aforementioned did not constitute reserves within the meaning of r. 2(1) of Sch.II. In the case in hand, the previous year of the company ended on 31st March, 1963, and under r. I of the Second Schedule to the Act, the capital is to be computed as on the first day of the previous year, viz., 1st April, 1962. For the year which ended on 31st March, 1962, there is an item of Rs. 8,19,455 being credit balance of P L account and this amount is shown under the head "Reserve Surplus ". Admittedly, no part of this amount was transferred to any reserve account in the books of the company during the accounting year ending March 31, 1962. However, the claim of the assessee is that the shareholders in their annual general meeting held on 29th September, 1962, approved the transfer of Rs. 8,00,000 to the general reserve and that this amount should be related back to 1st April, 1962. The entry regarding the transfer of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the revenue that the Tribunal was in error in law in allowing the additional ground to be raised by the assessee for the first time before it, i.e., at the time of hearing the appeal. I do not find merit in this contention. An additional ground can be raised at the Tribunal stage in view of r. 11 of the Income-tax (Appellate Tribunal) Rules, 1963 (hereafter called " the Rules "). Rule II of these Rules is in the following terms: "11. Grounds which may be taken in appeal. The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule : Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground. " From the reading of this rule it is plain that the Tribunal has the discretion to allow the new ground to be raised before it. The same view was taken in an earlier decision of our own High Court in CIT v. Ram San ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve " for the purposes of r. I of the Second Schedule to the Act. Similarly, the provision for dividends is also intended for a known liability which is not uncertain or contingent. Therefore, the provision for tax at Rs. 71,808 and the provision for dividends at Rs. 1,24,974 in the instant case cannot be treated as " reserves " within the meaning of r. 1 of the Second Schedule to the Act. In Nagammal Mills Ltd. v. CIT [1974] 94 ITR 387 (Mad), it was held that the provision for dividends and the provision for taxes were not " reserves In Madras Auto Service v. CIT [1978] 112 ITR 540 (Mad), also it was held that the provision for dividends was not a " reserve ". Again, in Orient Paper Mills Ltd. v. CIT [1978] 113 ITR 550 (Cal), it was held that the provision for taxation and the provision for dividends could not be treated as " reserves " as the entry in the balance-sheet was for meeting the current liability. Similar was the view expressed in CIT v. Mafatlal Chandulal Co. Ltd. [1977] 107 ITR 489 (Guj) and Hotz Hotels Pvt. Ltd. v. CIT [1975] 101 ITR 596 (HP). Mr. Gupta, learned counsel for the assessee, has relied upon an authority of the Calcutta High Court in Commr. of I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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