1974 (6) TMI 15 - HC - Income Tax

Chargeable Profits Companies Profits Surtax Management Expenses Question Of Law Reserve For Bad Debt Super Profits Tax

Summary

Issues:
1. Inclusion of a sum in capital computation under the Super Profits Tax Act, 1963.
2. Determination of chargeable profits for super profits tax assessment.

Analysis:
1. The first issue revolves around the inclusion of a sum of Rs. 35,029 appearing as reserve for doubtful debts in the capital computation under the Super Profits Tax Act, 1963. Initially, the Income-tax Officer excluded this amount from the capital base, arguing it was earmarked for a specific liability. However, the Appellate Assistant Commissioner reversed this decision, emphasizing that the reserve account was not maintained for any specific liability. The Tribunal upheld the Appellate Assistant Commissioner's order, stating that the amount should be included in the capital base. The Tribunal found that the reserve account was not intended for bad or doubtful debts and had been maintained for several years without utilization for specific purposes. The Tribunal concluded that the account was not a specific reserve, following the principles laid down by the Supreme Court in Metal Box Co. The Tribunal's decision was based on factual analysis, and it was held that no question of law arose from the Tribunal's order.

2. The second issue pertains to the computation of chargeable profits for super profits tax assessment. The dispute arose from the treatment of gross dividend of Rs. 1,83,304 earned by the assessee. The Income-tax Officer deducted only the net dividend of Rs. 94,412 (after excluding management expenses) for computing chargeable profits. The interpretation of rule 1(viii) under the Companies (Profits) Surtax Act, 1964, was crucial in determining whether gross dividend or net dividend should be considered for computation. The Tribunal analyzed the clause "income by way of dividends" in rule 1(viii) and concluded that it referred to gross dividend received by the assessee, not the net dividend. The Tribunal relied on interpretations from the Income-tax Act, 1961, to support its decision, emphasizing that the expression was not qualified by any limitation. Previous decisions by the Bombay High Court and the court itself supported this interpretation. Consequently, the Tribunal held that gross dividend should be excluded for computing chargeable profits. The judgment favored the assessee, and the rule was discharged with costs.