1976 (8) TMI 44 - HC - Income Tax

Computation Of Capital, Contingent Liabilities, Provision For Contingencies, Super Profits Tax

Summary

Issues Involved:
1. Inclusion of proposed dividend, excess provision for taxation, provision for contingencies, and provision for gratuity in the capital computation for super profits tax assessment.
2. Applicability of rule 3 of the Second Schedule to the Super Profits Tax Act, 1963, concerning deductions under section 84 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Inclusion of Various Provisions in Capital Computation
- Proposed Dividend of Rs. 56,59,612: The court referenced its decision in the case of Shree Ram Mills, concluding that the proposed dividend is not includible in the capital computation. The question is answered accordingly.

- Excess Provision for Taxation: This issue is covered by the decision in Commissioner of Income-tax v. Indian Steel Rolling Mills Ltd., where it was held that the excess provision for taxation should be included in the capital computation. Thus, the question is answered in favor of the assessee.

- Provision for Gratuity: The court referred to its decision in Commissioner of Income-tax v. Forbes Forbes Campbell and Co., determining that the provision for gratuity should be included in the capital computation. This question is also answered in favor of the assessee.

- Provision for Contingencies of Rs. 40,00,000: The court examined the material facts and legal principles, noting that the provision was made in the balance-sheet as of December 31, 1961, and was intended to cover potential liabilities arising from pending disputes over bonus payments. The Tribunal had initially considered this provision as a reserve, includible in the capital computation. However, the court, relying on the Supreme Court's decision in Metal Box Co.'s case and definitions from the Companies Act, 1956, concluded that the provision for contingencies was for a known contingent liability. Therefore, it should be regarded as a provision, not includible in the capital computation. This question is answered against the assessee and in favor of the department.

Issue 2: Applicability of Rule 3 of the Second Schedule to the Super Profits Tax Act, 1963
- The court noted that no benefit by way of any deduction under section 84 of the Income-tax Act, 1961, had been claimed by or allowed to the assessee-company. Consequently, the question was deemed academic and was not answered.

Conclusion:
The court provided a detailed analysis for each item under question 1, referencing relevant case law and statutory definitions. The proposed dividend and provision for contingencies were ruled not includible in the capital computation, while the excess provision for taxation and provision for gratuity were includible. Question 2 was not addressed due to its academic nature. The assessee-company was ordered to pay the costs of the reference to the revenue.