1995 (1) TMI 40 - HC - Income Tax

Summary

Issues:
1. Whether the proposed dividend out of general reserve should be deducted for computing the capital under the Companies (Profits) Surtax Act, 1964?
2. Whether the provision for gratuity should be considered as a reserve for the purpose of the Companies (Profits) Surtax Act, 1964?
3. Whether deductions under section 80G of the Income-tax Act can be included as income not includible in the total income for the Companies (Profits) Surtax Act?

Analysis:

Issue 1:
The Tribunal referred questions regarding the deduction of proposed dividend from general reserve for computing capital under the Companies (Profits) Surtax Act. The Tribunal cited the decision of the Madras High Court in a previous case, which was challenged by the Revenue. The High Court held that the Tribunal erred in following the previous judgment and directed a reconsideration based on a Supreme Court judgment. The Tribunal was required to reevaluate the matter in light of the Supreme Court ruling.

Issue 2:
Regarding the provision for gratuity as a reserve for the Companies (Profits) Surtax Act, the Tribunal's decision was based on the judgment of the Delhi High Court. However, the Revenue highlighted a Supreme Court judgment on the matter, prompting the High Court to instruct the Tribunal to reconsider the issue in accordance with the Supreme Court's decision. The High Court emphasized the need for a fresh examination of the provision for gratuity as a reserve.

Issue 3:
The Tribunal also considered whether deductions under section 80G of the Income-tax Act could be included as income not part of the total income for the Companies (Profits) Surtax Act. The Tribunal's decision aligned with a previous Madras High Court ruling. However, as the Revenue did not press this question, the High Court did not provide a definitive answer on this issue, returning it unanswered.

In summary, the High Court directed the Tribunal to reassess the treatment of proposed dividends from general reserves and the provision for gratuity as reserves for the Companies (Profits) Surtax Act in accordance with relevant Supreme Court judgments. The matter was remitted to the Tribunal for further consideration, emphasizing the importance of following higher court decisions.