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Issues Involved:
1. Whether the amount of Rs. 10,50,385 pertaining to additional customs duty was a 'reserve' under rule I of the Second Schedule to the Super Profits Tax Act, 1963. 2. Whether the amount of Rs. 1,01,69,824 pertaining to taxation was a 'reserve' under rule I of the Second Schedule to the Super Profits Tax Act, 1963. 3. Whether the amount of Rs. 1,07,50,000 pertaining to trade marks was a 'reserve' under rule I of the Second Schedule to the Super Profits Tax Act, 1963. Issue-wise Detailed Analysis: 1. Additional Customs Duty Provision: The assessee claimed that Rs. 10,50,385 set aside for additional customs duty should be included in the capital for the purposes of rule I of the Second Schedule to the Super Profits Tax Act, 1963. The Tribunal held this amount as a provision for a known liability rather than a reserve. The court referred to the Supreme Court decision in Metal Box Company of India Ltd. v. Their Workmen which distinguished between 'provision' and 'reserve'. It concluded that provisions are charges against profits for anticipated losses and contingencies, whereas reserves are appropriations of profits retained as part of the capital. The court found that the amount set aside for additional customs duty was to meet an existing liability, albeit not determined with substantial accuracy at the time, thus qualifying it as a provision and not a reserve. The court also noted that the liability was reflected in the balance-sheet, reinforcing its classification as a provision. 2. Taxation Provision: The amount of Rs. 1,01,69,824 set aside for taxation was claimed by the assessee to be included in the capital computation. However, the court noted that this issue was already settled against the assessee in Shree Ram Mills Ltd. v. CIT. The court reiterated that amounts set aside for known liabilities, such as taxation, are provisions, not reserves. The liability for taxation, though not quantified precisely at the time, was an existing liability, making the amount set aside a provision. 3. Trade Marks Depreciation: The assessee set aside Rs. 1,07,50,000 as provision for depreciation of trade marks. The Tribunal held this amount as a provision for diminution in the value of trade marks, similar to depreciation of other assets, and thus not a reserve. The court examined the balance-sheet where trade marks were shown as fixed assets with an associated depreciation provision. The court noted that the trade marks were not owned by the assessee but were user rights for a limited period, making them depreciating assets. The provision set aside annually was to meet this depreciation, calculated using the straight-line method. The court concluded that the amount set aside was indeed a provision for a depreciating asset, not a reserve. Conclusion: The court answered all three questions in the negative, affirming that the amounts set aside for additional customs duty, taxation, and trade marks depreciation were provisions and not reserves under rule I of the Second Schedule to the Super Profits Tax Act, 1963. The assessee was ordered to pay the costs of the reference to the Commissioner.
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