9911796707
|
Home
Issues:
Computation of surtax based on depreciation adjustments in the balance sheet. Analysis: The appeal before the Appellate Tribunal ITAT Ahmedabad-C involved the computation of surtax for the assessment year 1983-84 under the Companies (Profits) Surtax Act, 1964. The dispute arose from the treatment of depreciation in the balance sheet of the assessee company. The company had debited Rs. 23,28,708 as depreciation using the straight-line method, while the Income-tax Act allowed depreciation of Rs. 42,56,761. The Income-tax Officer reduced the general reserve by the difference between the two depreciation figures, affecting the computation of surtax. The Commissioner of Surtax (Appeals) upheld this decision, citing the Calcutta High Court's judgment in Upper Ganges Sugar Mills Ltd. v. CIT [1981] 129 ITR 438. The crux of the issue was whether the general reserve in the balance sheet could be reduced based on the difference in depreciation allowed under the Income-tax Act and the depreciation recorded in the books. The Tribunal analyzed the provisions of the Companies (Profits) Surtax Act, 1964, specifically focusing on the computation of chargeable profits and capital. Chargeable profits are determined based on adjustments specified in the First Schedule, while capital computation follows rules outlined in the Second Schedule. The Tribunal emphasized that reductions in chargeable profits and capital must align with the provisions of the respective schedules. In this case, the Tribunal highlighted Rule 1 of the Second Schedule, which defines the components of a company's capital. The rule specifies that reserves should only be reduced by amounts credited to reserves and allowed as deductions in computing the company's income for tax purposes. Since there was no provision in the Second Schedule to deduct the difference in depreciation figures, the Tribunal concluded that the reduction made by the Income-tax Officer was not justified. The Tribunal emphasized that the Second Schedule serves as a comprehensive guide for capital computation, and any deductions must have an express basis in the rules. The Tribunal distinguished the facts of the present case from the Calcutta High Court's decision in Upper Ganges Sugar Mills Ltd.'s case, where a specific provision in the Second Schedule applied to the depreciation adjustment. Additionally, the Tribunal referenced the Andhra Pradesh High Court's decision in CIT v. Vazir Sultan Tobacco Co. Ltd. [1988] 169 ITR 555, which highlighted that reserves created from profits after tax deduction should not be reduced based on differences in depreciation figures. Ultimately, the Tribunal set aside the Income-tax Officer's order to deduct the difference in depreciation from the reserves in the capital computation for surtax purposes. The appeal by the assessee was allowed, emphasizing the importance of adhering to the provisions of the Companies (Profits) Surtax Act, 1964, in determining chargeable profits and capital for surtax assessment.
|
