1991 (4) TMI 12 - HC - Income Tax

Summary

Issues:
1. Whether the amount of Rs. 2,128 from the gratuity reserve should be reduced in the computation of capital base under the Companies (Profits) Surtax Act, 1964 for the assessment year 1971-72.
2. Whether rule 4 can be invoked for reducing the capital base when relief under section 80J of the Income-tax Act, 1961 is allowed for the assessment year 1971-72.
3. Whether the dividend declared out of the general reserve should be reduced in computing the capital base for surtax purposes under the Companies (Profits) Surtax Act, 1964 for the assessment year 1972-73.

Analysis:

Issue 1:
The judgment addressed the question of whether the amount of Rs. 2,128 from the gratuity reserve should be reduced in the computation of the capital base under the Companies (Profits) Surtax Act, 1964 for the assessment year 1971-72. The court examined the facts related to the gratuity reserve and concluded that the amount in question did not represent gratuity liability for the assessment year 1970-71 or any earlier year but pertained to the financial year 1970 and was deducted in the assessment for the year 1971-72. The court disagreed with the contention that the amount should be reduced and ruled in favor of the assessee, stating that it did not form part of the gratuity reserve for the relevant period.

Issue 2:
Regarding the invocation of rule 4 for reducing the capital base when relief under section 80J of the Income-tax Act, 1961 is allowed for the assessment year 1971-72, the court referred to relevant Supreme Court judgments. It was agreed by both counsels that the question should be answered in the affirmative and in favor of the assessee based on the Supreme Court's decision in a specific case. The court provided a clear directive on this issue in alignment with the Supreme Court's ruling.

Issue 3:
The judgment also considered whether the dividend declared out of the general reserve should be reduced in computing the capital base for surtax purposes under the Companies (Profits) Surtax Act, 1964 for the assessment year 1972-73. Citing a Supreme Court decision, the court concluded that the question should be answered in the negative and in favor of the Revenue. The decision was based on the interpretation of the relevant provisions and legal precedents, leading to a ruling against reducing the dividend declared out of the general reserve in the computation of the capital base for surtax purposes.

Overall, the judgment provided detailed analysis and reasoning for each issue raised in the departmental reference, incorporating relevant legal principles and precedents to arrive at the final decisions in favor of the assessee for some issues and in favor of the Revenue for others.