TMI Blog1976 (11) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,000 being provision for payment of bonus to employees as on 1st April, 1962, being the first day of the previous year relevant to the assessment year 1963-64, were not to be included in computing the assessee's capital for the purpose of the Super Profits Tax Act, 1963 ? " The matter lies within a very narrow compass and it concerns the question as to what constitutes " reserve " as contemplated by Paragraph 1 of Schedule II of the Super Profits Tax Act, 1963 (hereinafter called " the Act "). The assessee is a public limited company registered under the Companies Act and is running a composite spinning and weaving mills at Mettur Dam, Salem District. Before the Income-tax Officer, certain amounts under various heads had been claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 5,69,000 separately As far as the first amount being the provision for payment of tax liability is concerned, this court has already held that the said provision will constitute only " provision " and will not constitute " reserve ". The Supreme Court in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 has held that an amount set aside out of the profit and other surplus not designed to meet a liability, contingency, commitment or diminution in value of assets known to exist at the date of the balance-sheet is a reserve but an amount set aside out of the profits and other surpluses to provide for any known liability so that the amount can not be determined with substantial accuracy is a provision. The Supreme Court in Kes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was Rs. 1,36,060.41. There is absolutely no material before the Tribunal to show that the lump sum provision made year after year was on the basis of any ascertainable amount due to the employees in a particular year. Therefore, it will merely mean a provision made to meet a contingent liability. If it is a provision made to meet a contingent liability, then the result will be that the amount cannot be said to be a " provision " but it could only be a reserve. The Supreme Court in Standard Mills Co. Ltd. v. Commissioner of Wealth-tax [1967] 63 ITR 470 had actually to deal with the provision made for gratuity payable to its employees. In that case, on the basis of an award, gratuity was payable to the employees when the employment was determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its nature was apparent from the following extract from the report of the directors to the shareholders : " Regarding bonus provision for the year 1961-62, the shareholders will observe that a sum of Rs. 5,69,000 has been provided in the accounts. This amount has been computed by the bonus formula agreed to between the union representative and the management in an agreement which was effective until the end of March, 1962. " Thus, it is clear that the said amount did not represent any amount to meet an unforeseen, contingent or unexpected liability but was set apart for the purpose of meeting the known present liability of payments of bonus to the employees according to the bonus formula in terms of the agreement in force between the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
