9911796707
TMI Blog1988 (4) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant and it may be allowed to the Appellant and it may be allowed to alter, amend, add, substitute or withdraw any of the Ground(s) of appeal before or at time of hearing." The ground taken in the Departmental appeal is as under: "On the facts and in the circumstances of the case, the CIT(A) was not correct in holding that the amount of Rs. 587.37 lakhs (Rs. 712.52 - Rs. 130.15) would represent Reserve and from part of Capital as envisaged in Second Schedule to Companies (Profits) Sur-Tax Act, 1964." 2. As far as the Departmental appeal is concerned, it was brought to our notice that it is covered by an order of the Tribunal in the case of the assessee for the asst. yr. 1980-81. The reference application against the order of the Tribunal was also rejected. In view of the above position, the Departmental appeal is dismissed for the reasons given in the earlier year's order. 3. This brings us to the assessee's appeal. For the purpose of computing capital of the assessee-company in order to ascertain the Sur-tax liability, the ITO looked into the nature of reserve, which according to the assessee, was to be treated as part of the capital. The assessee had transferred deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Act and they must be interpreted so as to be intra vires. It was also submitted that where strict literal construction leads to injustice equitable construction is required while interpreting the statutes. In this connection, he relied on the decision of the Supreme Court in the case of CIT, Banglore vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) and the decision of the Delhi High Court in the case of All India Lakshmi Commercial Bank Officers' Union and Another vs. Union of India and Others (1984) 150 ITR 1 (Del). The Departmental Representative relied on the reasons given by the ITO and the CIT(A). 6. Having heard the parties, we are inclined to agree with the Revenue that after transfer to the general reserve, the development rebate reserve, which is a specific reserve, loses its identity and cannot be treated as development rebate reserve. The question of general reserve has to be considered only in sub-r. (iii) of r. 1 which mentions other reserves. Sub-r. (iii) provides that such reserves had to be reduced by the amounts for which allowance has been made in the computation of company's total income under the IT Act. Development rebate reserve is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This ground of the assessee is, therefore, rejected subject to the directions given above for ascertaining the excess amounts, if any, which can be included in the capital base. 7. The other claim of the assessee was that relating to provision for tax. This shows an amount of Rs. 990 lakhs. It was contended by the assessee that there was an excess provision to the extent of Rs. 2,94,228 and, according to the assessee to this extent this should be treated as reserve for the purpose of computing the capital. For this the assessee relied on the decision of the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. vs. CIT, AP (1981) 25 CTR (SC) 186 : (1981) 132 ITR 559 (SC). The ITO noted that in the asst. yr. 1980-81 the claim has not been allowed. This matter had also come up before the Tribunal for the asst. yr. 1980-81. The Tribunal observed as under: "20. We have gone through the finding of the two authorities and considered the submission of the learned counsel for the assessee. In face of the clear and unambiguous observation of their lordships of Supreme Court it does not appear that we shall be justified in turning down the plea of the appellant observation made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) has observed as under: "......Appellant's representatives have worked out the tax liability on the basis of the returns filed, including the revised return of Sur-tax which were filed subsequent to the end of the previous year ending on31st Dec., 1980. It is contended that for the assessment years taken into account in working out the excess, no assessment had been completed till the end of the accounting year for the year in appeal, therefore, the liability has been worked out on the basis of the returns filed since liability has been worked out on the basis of the returns filed since liability only to this extent was known and ascertained. Appellant's representatives also filed further information working out the tax liability as on 15th Jan., 1987, taking into account the latest appeal orders available, and on this basis the excess provision works out to Rs. 1,88,30,473. 7. The difference between a 'Provision' and 'Reserve' has been adequately dealt with by the Supreme Court in Vazir Sultan's case. In particular it has considered 'Provision of Taxation' and held that the amount set-apart by the Board of Directors for taxation must be regarded as provision for known and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount has to be estimated since the liability though known cannot be exactly quantified. As would be seen from Annexure II, amount provided for is less than the tax as per printed accounts as well as the tax assessed on completion of assessments. Though it is true that after appeal effect is given there would be reduction in this liability, yet what we have to consider is whether the tax provided for is more than what was reasonably necessary. Annexure II would also show that every year company writes back excess tax in its accounts and it, in a way, ultimately forms part of 'General Reserve.' Even though appellant company provides for some contingent additions, these can also not be regarded as unreasonable because the tax assessed by ITO on assessment is more than what is provided for. As stated above, whatever amounts the company considers as excess out of Provision of earlier years, it itself write these back in its accounts every year at the appropriate time when these are found to be excessive. Even if for some years Sur-tax provided for is more than tax assessed but for the asst. yr. 1980-81, this position is reversed. It would not be possible to say that as on1st Jan., 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of the decision of the Supreme Court in the case of Vazir Sultan Tobacco Co. vs. CIT (1981) 25 CTR (SC) 186 : (1981) 132 ITR 559 (SC). Their Lordships observed as under: "The principle is clear. Where a provision has been made on ad hoc basis which could have been fairly accurately on a scientific basis, it should be determined on a scientific basis and the excess, if any, should be regarded as a reserve. The principle is not a warrant for the argument which was advanced by Mr. Sathe that the difference between the provision originally made and the liability to tax as crystallised upon assessments should be treated as a reserve." The Supreme Court has further observed that an amount set apart by a company for liability to taxation in respect of profits which it has earned could have to be regarded as a provision for a known and existing liability, quantification whereof had to be done later; it had, therefore, to be regarded as a provision and not a reserve. It has not been shown before us that the assessee-company has not written back the excess provision for each assessment year to the general reserve as pointed out by the CIT(A). We, therefore, agree with the analysis o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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