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1998 (2) TMI 53 - HC - Income Tax

Issues:
1. Whether the capital should be proportionately reduced under the Companies (Profits) Surtax Act, 1964, after deductions allowed under Chapter VI-A of the Income-tax Act, 1961.
2. Whether the reserve for bad and doubtful debts should be considered as capital for surtax levy.
3. Whether dividends declared after the accounting period should be deducted from the general reserve for surtax computation.

Analysis:

1. The High Court considered the issue of proportionate reduction of capital under the Companies (Profits) Surtax Act, 1964. Referring to the decision of the Supreme Court in Second ITO v. Stumpp Schuele and Somappa P. Ltd., the court held that the capital should not be reduced proportionately following deductions allowed under Chapter VI-A of the Income-tax Act, 1961. The court upheld the Appellate Tribunal's decision in this regard.

2. Regarding the treatment of the reserve for bad and doubtful debts as capital for surtax levy, the court found discrepancies in the orders of the Surtax Officer and the Commissioner of Income-tax (Appeals) as they did not provide reasoning for their conclusions. The court referred to the Supreme Court decisions in CIT v. Jyoti Ltd. and State Bank of Patiala v. CIT, which established criteria for including such reserves as part of capital. The court directed the Appellate Tribunal to reconsider this issue in light of the Supreme Court's tests.

3. The court addressed the question of deducting dividends declared after the accounting period from the general reserve for surtax computation. Citing the Supreme Court decision in Indian Tube Co. Pvt. Ltd. v. CIT, the court ruled that such dividends should be deducted from the general reserve. The court held in favor of the Revenue on this issue.

In conclusion, the High Court answered the questions of law as follows: the first question in the affirmative against the Department, the second question in the negative in favor of the Department subject to further consideration, and the third question in the negative in favor of the Department. No costs were awarded in this judgment.

 

 

 

 

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