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Issues:
1. Interpretation of 'debenture redemption reserve' and 'gratuity reserves' as 'other reserves' under the Companies (Profits) Surtax Act. 2. Inclusion of increased liability due to devaluation in computing the capital for determining statutory deduction under the Surtax Act. Analysis: 1. The judgment addresses two references under the Income-tax Act and the Companies (Profits) Surtax Act for the assessment years 1968-69 and 1969-70. The first issue pertains to whether 'debenture redemption reserve' and 'gratuity reserves' should be considered as 'other reserves' under the Surtax Act. Referring to a previous decision, the court directed that any excess amount in the gratuity reserve beyond the liability determined by actuarial calculation should be deemed a reserve. However, the sum representing debenture redemption reserve was not to be included in computing the capital of the assessee company. 2. The second issue revolves around the increase in the assessee's liability due to devaluation of the Indian rupee. The assessee claimed that the increased liability of Rs. 11,71,504.90 should be included in computing the capital for determining the statutory deduction under the Surtax Act. The Revenue contended that the increase was notional and no capital asset was created, thus not satisfying the conditions for inclusion. The court disagreed, stating that the devaluation-induced liability increase was real, and the loan was originally borrowed for creating a capital asset. The court rejected the Revenue's argument that a capital asset must be created from the increased liability and distinguished a previous case cited by the Revenue, emphasizing the different factual context. In conclusion, the court answered question No. (2) affirmatively in favor of the assessee, allowing the inclusion of the increased liability due to devaluation in computing the capital under the Surtax Act. The Commissioner was directed to pay the costs of the references in one set.
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