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TMI Blog1972 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... SETH. JUDGMENT R. L. GULATI J.-This is a reference under section 256(1) of the Income-tax Act, 1961, read with section 10 of the Super Profits Tax Act, 1963, at the instance of the Commissioner of Income-tax, Kanpur. The assessee is a public limited company with its registered office at Kanpur. For purposes of the assessment of super profits tax there arose a dispute between the assessee and the income-tax department with regard to the computation of " standard deduction ". The assessee claimed that as many as fifteen accounts represented reserves which should be taken into account while determining the " standard deduction ". The Income-tax Officer disallowed the entire claim on the ground that the so-called reserves were not free res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions in the Second Schedule to the Super Profits Tax Act, 1963 ? " Under section 4 of the Super Profits Tax Act, 1963, hereinafter referred to as " the Act ", every company shall be charged for every assessment year commencing from 1st of April, 1963, a tax as super profits tax in respect of so much of its chargeable profits of the previous year as exceed the standard deductions at the rate or rates specified in the Third Schedule. " Standard deduction " has been defined in clause (9) of section 2 to mean : " An amount equal to six per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of Rs. 50,000, whichever is greater." The Second Schedule contains rules for compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability, contingency or diminution in value of assets, known to exist at the date of the balance sheet. On the other hand, the term 'provision' should be used to describe any amount charged against current revenue or set aside out of the profits or other surpluses of a prior period to provide for a specific commitment or contingency of a revenue nature or diminution in value in assets on the date of the balance sheet, the amount of which cannot be determined with substantial accuracy." These definitions have been accepted by the chartered accountants in India and the terms " reserves " and " provisions " are known in that sense in the commercial world. This is evident from the Commentaries on the Indian Companies Act by A. Ramaiya (6th e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Thus, this amount is clearly a reserve and there is no difficulty in holding it as such. Likewise, the amounts in stocks and stores reserves, bad and doubtful debts reserves, obsolescence reserve, loans and insurance reserves, and investment reserves also do not present any difficulty and can safely be held to constitute reserves according to the meaning of this term as set out above. The last item, namely, the forfeited monies reserve, presents some difficulty. The Tribunal in paragraph 17 of its appellate order has dealt with this account in the following words: " The forfeited monies amounting to Rs. 3,10,570 represents reserve in the sense that certain unclaimed dividends and other amounts have been transferred to the forfeited moni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears and becomes time-barred. In the first instance, there is no such finding given by any of the income-tax authorities or by the Income-tax Appellate Tribunal. We cannot accept the statement of the learned counsel at the Bar. There should have been a specific finding in that regard by the Income-tax Appellate Tribunal. The fact that the company pays the dividend as and when claimed by the shareholder shows that the claim is not time-barred. Even if it was time-barred, the liability of the company would not cease ; only the remedy is barred. It is open to the company to waive the bar of limitation and to make payment of a belated claim. When such a payment is made, it would still be a payment made against an existing liability. In any view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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