1982 (9) TMI 43 - HC - Income Tax

Summary

Issues:
Challenge to orders of Commissioner of Income-tax under revisional powers regarding deductions claimed by a State Government undertaking under the Companies (Profits) Surtax Act, 1964.

Analysis:
The petitioner, a State Government undertaking, filed returns under the Companies (Profits) Surtax Act, 1964, for the assessment years 1971-72 and 1972-73. The petitioner claimed deductions for reserves made for "Price Stabilisation Reserve," "bad and doubtful debts," and "excess provision for taxation." The Commissioner of Income-tax, in the impugned order, held that the claimed amounts were in the nature of "provisions" and not to be considered for working out chargeable profits, citing the distinction between "provision" and "reserve" as established by the Supreme Court in Metal Box Co. of India Ltd. case [1969] 73 ITR 53. The petitioner contended that the Commissioner failed to apply this distinction to the claimed reserves, leading to an unjust conclusion.

The Commissioner highlighted that the claimed deductions were not raised before the Income Tax Officer (ITO) initially. While the petitioner did not dispute this assertion, it was argued that the claims were considered in the interest of justice, despite not being presented before the ITO. The Commissioner justified the classification of the claimed amounts as "provisions" based on the tax law principles.

The Supreme Court's distinction between "provision" and "reserve" was reiterated in Vazir Sultan Tobacco Co. Ltd v. CIT [1981] 132 ITR 559, emphasizing that provisions are charges against profits, while reserves are appropriations of profits. The key question in the case was whether the claimed items were charges against profits. The Court noted that the facts supporting the claims were not presented before the I.T. authorities, and the Commissioner's revisional powers were limited to correcting errors in subordinate officers' proceedings. As the Commissioner's decision was based on assumed facts without a factual foundation, the Court concluded that the order should not be quashed under a writ of certiorari, especially considering the petitioner's failure to raise the items before the ITO.

The Court held that the Commissioner's decision did not warrant interference under arts. 226 and 227 of the Constitution, as the Commissioner acted within the scope of his revisional powers. The petition was dismissed without costs, emphasizing that the petitioner's conduct in failing to raise the claimed deductions before the ITO precluded any relief from the Court.