1990 (2) TMI 5 - HC - Income Tax

Summary

Issues Involved:

1. Justification of Tribunal in rejecting assessee's claim regarding additional income as reserve for Surtax computation.
2. Tribunal's action on the finding of undisclosed income as unappropriated profits.
3. Tribunal's rejection of recast balance-sheets.
4. Tribunal's decision on excess tax provision as reserve.
5. Tribunal's finding on excess tax provision as a provision and not a reserve.

Issue-Wise Detailed Analysis:

1. Justification of Tribunal in rejecting assessee's claim regarding additional income as reserve for Surtax computation:

The Tribunal rejected the assessee's claim that additional income offered for taxation before the Settlement Commission should be treated as a reserve for Surtax computation. The Tribunal held that the Settlement Commission's order under section 245D of the Income-tax Act is conclusive only for matters covered by the application and related to income-tax proceedings. The Tribunal emphasized that the Settlement Commission cannot mandate or bind the Income-tax Officer in matters outside the Income-tax Act, such as Surtax proceedings. The Tribunal's decision was based on the interpretation that the Settlement Commission's remarks in paragraph 18 of their order were not binding and were merely obiter dicta.

2. Tribunal's action on the finding of undisclosed income as unappropriated profits:

The Tribunal sustained the finding of the lower authorities that the undisclosed income on the dates of the relevant balance-sheets was a mass of unappropriated profits. The Tribunal noted that the directors had no occasion to apply their minds to these profits, and thus, the amount could not be considered a reserve for Surtax purposes. This conclusion was drawn by referencing the Supreme Court decision in CIT v. Century Spg. and Mfg. Co. Ltd., which established that unappropriated profits do not qualify as reserves.

3. Tribunal's rejection of recast balance-sheets:

The Tribunal upheld the Income-tax Officer's decision to disregard the recast balance-sheets filed by the assessee. The Tribunal reasoned that balance-sheets under the Companies Act must be audited, reported by directors, and passed in the annual general meeting. The recast balance-sheets did not meet these criteria and were prepared several years after the relevant periods. Therefore, they could not replace the original balance-sheets prepared in accordance with the Companies Act.

4. Tribunal's decision on excess tax provision as reserve:

The Tribunal rejected the assessee's claim that the excess provision for taxation should be treated as a reserve. The Tribunal held that the excess tax provision was left unappropriated and thus constituted a provision, not a reserve. This distinction is significant as reserves are for uncertain liabilities, while provisions are for known liabilities.

5. Tribunal's finding on excess tax provision as a provision and not a reserve:

The Tribunal's finding that the excess tax provision was a provision and not a reserve was upheld. The Tribunal reasoned that the excess tax provision was not appropriated for any specific future purpose and remained unallocated, fitting the definition of a provision rather than a reserve.

Conclusion:

The High Court affirmed the Tribunal's decisions on all issues. The Tribunal's actions were found to be justified and not perverse, as they were based on proper materials and correct principles of law. The first, third, and fourth questions were answered in the affirmative, and the second and fifth questions were answered in the negative, all in favor of the Revenue. There was no order as to costs.