9911796707
|
Home
Issues Involved:
1. Whether the provision for taxation can be included in the capital of the assessee-company for the purpose of ascertaining the standard deduction under section 2(9) of the Super Profits Tax Act, 1963. 2. Whether the proposed dividend can be included in the capital of the assessee-company for the purpose of ascertaining the standard deduction under section 2(9) of the Super Profits Tax Act, 1963. 3. Whether the provision for contingencies can be included in the capital of the assessee-company for the purpose of ascertaining the standard deduction under section 2(9) of the Super Profits Tax Act, 1963. Detailed Analysis: 1. Provision for Taxation: The court examined whether the amount of Rs. 38,86,145, being the provision for taxation, should be included in the capital of the assessee-company for the purpose of ascertaining the standard deduction. The assessee argued that this amount constituted a reserve and should be included in the capital computation. However, the Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) rejected this claim, stating that the provision for taxation is a provision for a known liability and not a reserve. The Tribunal initially ruled in favor of the assessee, but the court concluded that the provision for taxation is not includible in the capital of the assessee-company. This conclusion was based on the precedent set by the decision in Shree Ram Mills Ltd. v. CIT [1977] 108 ITR 27, which established that provisions for known liabilities cannot be considered reserves. 2. Proposed Dividend: The court also addressed whether the amount of Rs. 15,49,700, being the proposed dividend, should be included in the capital computation. Similar to the provision for taxation, the assessee contended that this amount should be considered a reserve. However, the ITO and AAC disagreed, treating it as a provision for a known liability. The Tribunal initially sided with the assessee, but the court ultimately ruled that the proposed dividend is not includible in the capital of the assessee-company. This decision was guided by the ruling in CIT v. Otis Elevator Co. (India) Ltd. [1977] 107 ITR 241, which clarified that proposed dividends represent a known liability and cannot be classified as reserves. 3. Provision for Contingencies: The primary dispute centered on whether the amount of Rs. 2,35,000, being the provision for contingencies, should be included in the capital computation. The revenue argued that this amount was a provision for a known and specific liability, referencing the decision in CIT v. Century Spg. & Mfg. Co. Ltd. [1977] 108 ITR 431. However, the court found that the facts of the present case were different. In the balance-sheet for the year ending July 31, 1961, the amount was shown under "Provision for contingencies" without specifying any particular liability. The court noted that the revenue failed to provide details indicating that the amount was earmarked for specific known contingent liabilities. Consequently, the court concluded that the provision for contingencies met the test of a reserve as laid down by the Supreme Court in Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53. Therefore, the amount of Rs. 2,35,000 was includible in the capital of the assessee-company. Conclusion: The court's final decision was as follows: - The amount of Rs. 38,86,145, being the provision for taxation, is not includible in the capital of the assessee-company. - The amount of Rs. 15,49,700, being the proposed dividend, is not includible in the capital of the assessee-company. - The amount of Rs. 2,35,000, being the provision for contingencies, is includible in the capital of the assessee-company. No order as to costs was made.
|
