9911796707
|
Home
Issues:
1. Whether the sum designated as "Provision for gratuity" should be included as a 'reserve' in the computation of capital base for surtax assessment. 2. Whether a sum representing the difference in value of depreciable assets can be considered a reserve for capital computation. 3. Whether the amount designated as "reserve for bad debts" can be taken into account as a reserve for computing the capital base. Analysis: Issue 1: The first issue pertains to the classification of a sum as a 'reserve' for surtax assessment. The Tribunal held that the sum designated as "Provision for gratuity" should be included as a reserve. However, the High Court disagreed, stating that the amount did not qualify as a provision due to lack of actuarial valuation and absence of successive provisions. Referring to the Supreme Court's decision in Vazir Sultan Tobacco Co. Ltd. v. CIT, the Court emphasized that a mere ad hoc provision for gratuity cannot be considered a reserve. The Court directed the Tribunal to examine the matter further to determine if any part of the sum could be regarded as a reserve based on the Supreme Court's guidelines. Issue 2: The second issue involves whether a sum representing the difference in value of depreciable assets can be considered a reserve for capital computation. The Tribunal rejected this claim, stating that the amount did not appear in the accounts as a provision or a reserve. The High Court concurred, dismissing the concept of "secret reserves" and emphasizing that such reserves do not align with modern corporate jurisprudence or statutory provisions. Citing the decision in English Electric Company of India Ltd. v. CIT, the Court ruled against the assessee, highlighting that the difference in depreciation cannot be considered a reserve for Surtax Act purposes. Issue 3: The final issue concerns the treatment of a sum designated as a "reserve for bad debts" in computing the capital base. The Tribunal observed that the provision for bad debts was not a reserve based on the assessee's treatment of the account over the years. The High Court agreed with the Tribunal, noting that the account did not qualify as a reserve due to its temporary nature and transfer of excess amounts to the profit and loss account. The Court held that the sum could not be considered part of the company's reserve for Surtax Act computation, ruling against the assessee. In conclusion, the High Court directed the Tribunal to reevaluate the first issue, while ruling against the assessee on the second and third issues. The Court emphasized adherence to the principles set forth by the Supreme Court and previous decisions, denying the inclusion of certain sums as reserves for capital computation under the Surtax Act.
|
