1991 (4) TMI 87 - HC - Income Tax

Summary

Issues:
1. Treatment of declared dividend in computing capital under the Companies (Profits) Surtax Act, 1964.
2. Inclusion of debenture redemption reserve in the computation of capital.
3. Classification of gratuity reserve as a reserve for the computation of capital.

Analysis:
1. The court addressed whether the declared dividend should reduce the general reserve for computing capital under the Companies (Profits) Surtax Act, 1964. Referring to the Vazir Sultan Tobacco Co. Ltd. case, the court ruled in favor of the Revenue, stating that the dividend is to be considered in reducing the general reserve.

2. The court deliberated on whether the debenture redemption reserve should be included in the computation of capital. The Revenue argued that previous judgments favored their stance, while the assessee contended that the reserves should not be treated as provisions but as reserves. The court examined various decisions and concluded that the debenture redemption reserve is not a reserve, answering the second question in the negative and in favor of the Revenue.

3. Regarding the gratuity reserve, the court considered if it should be classified as a reserve for capital computation. While acknowledging the assessee's proprietary interest in reserves, the court decided to answer the third question in the negative and in favor of the Revenue. However, it directed the Tribunal to assess if the gratuity reserve exceeds the actual liability, with any excess to be treated as a reserve.

In conclusion, the court's judgment upheld the treatment of declared dividend in reducing the general reserve, excluded the debenture redemption reserve from being classified as a reserve for capital computation, and categorized the gratuity reserve as a reserve subject to further assessment by the Tribunal.