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Issues Involved:
1. Inclusion of written-off goodwill in capital computation. 2. Inclusion of written-off investment reserve and investments in capital computation. Detailed Analysis: 1. Inclusion of Written-off Goodwill in Capital Computation: The primary issue was whether the goodwill amounting to Rs. 39,63,686, written off in 1956, should be included in the capital computation for the purpose of working out the liability under the Super Profits Tax Act, 1963, and the Companies (Profits) Surtax Act, 1964. The assessee, a limited company, claimed that the written-off goodwill should be included in the capital computation for the assessment years 1963-64, 1964-65, and 1965-66. The Income Tax Officer (ITO) rejected this claim, stating that the balance-sheet of the company did not show the existence of such reserves and that there was no provision in the Act for considering such items as reserves for the purpose of capital computation. The Appellate Assistant Commissioner (AAC) agreed with the ITO, noting that the computation of capital had to be done based on the figures given in the balance-sheet, and since the goodwill was written off in 1956, it could not be taken into account. The Tribunal upheld the decision of the Revenue authorities, stating that the balance-sheet must give a true and fair view of the state of affairs of the company. The Tribunal emphasized that the onus was on the assessee to prove that the value of the assets as shown in the balance-sheet was not the true value, which the assessee failed to do. The Tribunal also noted that the value of the assets shown in the balance-sheet was almost the same as the market value, indicating no undervaluation. The assessee argued that the goodwill, although written off, remained in the company's accounts and should be considered a secret reserve available for future use. However, the court noted that the term "reserve" had to be understood in its popular sense, as attributed by men of business, trade, and commerce. The court referred to the principles laid down by the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, which differentiated between "reserve" and "provision." The court found that the expression "written off" was not clear on the true intention of the company regarding the purpose of writing off the goodwill. There was no evidence that the amount was available for future use or kept for any specific purpose. The Tribunal's observation that the amount was not disclosed in the wealth-tax return further supported the conclusion that the amount was not available for future use. The court concluded that the Tribunal was correct in holding that the written-off goodwill could not be included in the capital computation, as there was no evidence to show that it was available for future use or constituted a reserve. 2. Inclusion of Written-off Investment Reserve and Investments in Capital Computation: Regarding the investment reserve amounting to Rs. 16 lakhs written off in 1961 and investments totaling Rs. 20 lakhs written off between 1957 and 1961, the court noted that no arguments were presented before it on these aspects. Consequently, the court declined to deal with these aspects and did not answer the question relating to these two items. Conclusion: The court answered the main question in the affirmative, holding that the Appellate Tribunal was right in excluding the written-off goodwill from the capital computation for the purpose of working out the liability under the Super Profits Tax Act, 1963, and the Companies (Profits) Surtax Act, 1964. The court declined to answer the question regarding the written-off investment reserve and investments due to the lack of arguments presented on these aspects. Each party was ordered to bear its own costs.
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