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Assessment of super profits tax for Orient Paper Mills Ltd. for the assessment year 1963-64. Determining whether forfeited dividend, provision for taxation, and proposed dividend should be treated as reserves for computation of capital under the Second Schedule to the Super Profits Tax Act, 1963. Analysis: The Tribunal found that forfeited dividend, provision for taxation, and proposed dividend should be treated as provisions, not reserves. The Super Profits Tax Officer and the Appellate Assistant Commissioner rejected the claim of the assessee regarding these amounts. The Tribunal held that forfeited dividend, although declared, was not distributed to shareholders and was forfeited due to non-payment. Referring to a Supreme Court decision, the Tribunal concluded that forfeited dividend did not qualify as a reserve. The Tribunal also classified provision for taxation and proposed dividend as provisions rather than reserves. The counsel for the assessee referred to a decision of the Calcutta High Court and a conflicting decision of the Gujarat High Court regarding proposed dividend treatment. However, the court held that the earlier judgment of the Calcutta High Court was binding. The court only deliberated on whether forfeited dividend should be treated as a reserve or a provision. The court discussed the distinction between provisions and reserves based on commercial accountancy principles. The counsel for the assessee argued that the act of forfeiture did not create a liability but rather disclaimed it, making any subsequent payments ex gratia. The revenue's counsel contended that the fund for forfeited dividend was payable to shareholders upon claims, making it a provision. Citing various authorities, the revenue's counsel argued that forfeited dividend should be considered a provision. The court compared the facts of the present case with a previous judgment involving forfeited dividends. The court found that the fund in question consisted of forfeited dividend, not set apart for specific future use. This distinction led the court to conclude that the fund did not have the characteristics of a provision but rather a reserve. The court differentiated this case from the previous judgment where unclaimed dividends were transferred to a "forfeited money reserve" without forfeiture. In the final decision, the court ruled in favor of the assessee regarding forfeited dividend, considering it a reserve. However, provision for taxation and proposed dividend were classified as provisions, favoring the revenue. The court emphasized the factual distinctions and the lack of specific future use for the forfeited dividend fund. The judgment was delivered jointly by two judges, Dipak Kumar Sen and S. C. Deb, with both concurring on the decision.
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