1985 (10) TMI 77 - HC - Income Tax

Summary

Issues:
1. Inclusion of excess profit in the capital base under the Super Profits Tax Act.
2. Inclusion of provision for taxation in the capital computation base under the Super Profits Tax Act.

Analysis:

Issue 1:
The case involved questions regarding the inclusion of certain amounts in the capital base under the Super Profits Tax Act. The Super Profits Tax Officer did not include the surplus in the profit and loss account and the provision for taxation while computing the capital base of the assessee. The Appellate Assistant Commissioner allowed the appeal, but the Revenue appealed to the Income-tax Appellate Tribunal. The Tribunal held that the surplus in the profit and loss account could not be included as it was not earmarked as a reserve and was available for distribution. Similarly, the provision for taxation was not considered a reserve and was excluded from the capital computation. The court referred to relevant provisions and precedents to support the Tribunal's decision, emphasizing that undistributed profits cannot automatically become a reserve without proper indication and earmarking for specific purposes. Therefore, the court upheld the Tribunal's decision that the surplus amount should not be included in the capital computation.

Issue 2:
Regarding the provision for taxation, the assessee argued that the excess provision should be considered a reserve and included in the capital computation. The Tribunal noted the argument but did not incorporate it in the judgment as the excess provision amount was not clearly established. The court referred to a Supreme Court decision emphasizing that an ad hoc provision should be determined on a scientific basis, and only the excess should be regarded as a reserve. It was highlighted that the Tribunal did not determine if the provision was in excess of the crystallized liability or based on estimated liability. The court also mentioned that the provision for taxation should be regarded as a provision for a known liability until quantified later. Additionally, the court dismissed the relevance of another Supreme Court decision cited by the assessee, emphasizing that the provision for taxation could not be included in the capital computation. Therefore, the court answered both questions in the negative and in favor of the Revenue, directing the assessee to pay the costs of the reference.