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Issues:
Whether the four funds set out in the case were liable to be included in the computation of the capital of the company under the Second Schedule to the Act for determining the standard deduction under section 2(9) of the Super Profits Tax Act, 1963? Analysis: The judgment delivered by the High Court of BOMBAY addressed the question of whether the four funds in question were reserves and should be included in the computation of the company's capital. The first fund under consideration was a provision for staff gratuity. The court referred to a previous case and held that in the absence of actuarial valuation and without a gratuity scheme, the amounts set aside should be considered as reserves. Therefore, the provision for staff gratuity was deemed to be a reserve and included in the computation of the capital of the company, favoring the assessee. Moving on to the second fund, which was a proposed dividend, the court considered whether it should be treated as a reserve or a liability. The Tribunal held in favor of the assessee, but a previous case held that a provision for dividend should be considered a liability even before the resolution to pay it was passed. Following this precedent, the court concluded that the proposed dividend fund was not liable to be included in the computation of the company's capital, favoring the revenue. Regarding the third and fourth funds, provisions for contingencies and freight, rebate, etc., the court relied on the findings of the Income Tax Appellate Tribunal. The Tribunal found that these funds were not set apart due to existing liabilities or foreseeable future liabilities. Citing previous judgments, the court held that these funds should be included in the computation of the company's capital as reserves. Therefore, the provisions for contingencies and freight, rebate, etc., were deemed to be reserves, favoring the assessee. In conclusion, the court answered in the affirmative and in favor of the assessee for items (a), (b), and (c) as reserves to be included in the computation of the company's capital. However, for item (d) related to the proposed dividend, the answer was in the negative and in favor of the revenue. As both parties partly succeeded and partly failed in the reference, they were directed to bear their own costs.
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