1992 (12) TMI 108 - AT - Income Tax

Summary

Issues:
1. Excess provision for taxation not considered as part of capital.
2. Interpretation of Supreme Court judgment regarding excess provision as reserve.
3. Misreading of Supreme Court judgment by CIT(A).
4. Reversal of CIT(A) order and inclusion of excess provision in general reserve.

Analysis:
The appeal concerns the treatment of excess provision for taxation by the assessee as part of its capital. The CIT(A) rejected the claim to include the excess provision in the computation of capital, stating that it did not increase the reserve forming the company's capital. The Assessing Officer reduced the general reserve by the amount of excess provision for tax made by the assessee, leading to the dispute.

Upon appeal, the CIT(A) relied on the judgment of the Supreme Court in Vazir Sultan Tobacco Co. Ltd v. CIT, where it was held that excess provision over the amount reasonably necessary should be treated as reserve. However, the ITAT Pune found that the CIT(A) misinterpreted the Supreme Court judgment, leading to an incorrect conclusion. The ITAT Pune emphasized the requirement to consider reserves and surpluses as part of the capital computation under the Companies (Profits) Surtax Act, 1964.

The ITAT Pune highlighted the Supreme Court's ruling that excess provision for a known liability should be included as a reserve, as supported by Rule 1A of the Second Schedule to the Surtax Act. The tribunal concluded that the excess provision for taxation should be considered as part of the general reserve forming the capital. The misappreciation of facts by the CIT(A) led to the rejection of the assessee's claim, prompting the ITAT Pune to reverse the CIT(A) order and direct the Assessing Officer to treat the excess provision as part of the capital for the relevant assessment year.

In summary, the ITAT Pune allowed the appeal, emphasizing the correct interpretation of the Supreme Court judgment regarding excess provision as reserve and the inclusion of the excess provision in the general reserve forming part of the capital under the relevant provisions of the Surtax Act.