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Issues: Classification of a sum as reserve or provision for taxation in the computation of capital base for surtax assessment.
Analysis: In this case, the High Court of Calcutta dealt with the issue of whether a sum of Rs. 23,27,500, shown as "reserve for taxation" in the balance sheet of the company, should be treated as a reserve or a provision for surtax assessment for the year 1967-68. The Surtax Officer initially considered the amount as a provision rather than a reserve. However, on appeal, the Appellate Assistant Commissioner (AAC) and the Tribunal treated the amount as a reserve eligible for inclusion in the capital base for surtax purposes. The Tribunal referred a question of law to the High Court regarding the classification of this amount as a reserve. The Court noted a similar case from a previous year under the Super Profits Tax Act, where it was held that a reserve for taxation was indeed a reserve. Both parties relied on previous decisions under different tax laws. The Revenue argued that the present case was governed by the Companies (Profits) Surtax Act, 1964, and the Explanation to the relevant rule required exclusion of the amount as a surplus. However, the Court found that the amount was clearly designated as "Reserve for taxation" in the balance sheet, and thus, not covered by the Explanation. Additionally, the company's practice of keeping accounts on a completed contract basis supported the treatment of the amount as a reserve. The Court, following its previous judgment, concluded that the amount should be considered a reserve for the purpose of surtax assessment. In conclusion, the High Court upheld the decision to treat the sum of Rs. 23,27,500 as a reserve for taxation in the computation of the capital base for surtax assessment. The Court relied on its previous judgment and the specific designation of the amount in the balance sheet to support its decision. The Court rejected the Revenue's argument based on the Explanation to the relevant rule, emphasizing the nature of the reserve and the company's accounting practices. The judgment was delivered unanimously by the Judges, with no order as to costs.
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