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TMI Blog1973 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is a public limited company engaged in the manufacture and sale of cotton yarn. In the year ending on 30th April, 1961, it made a profit of Rs, 9,91,092. the balance of profit brought forward from the earlier year was Rs. 2,12,352. The board of directors in their report dated November 12, 1961, to the shareholders recommended the following appropriations for the year. Rs. 1. Provision for taxation (after adjustment of the surplus provision of the preceding year.) 5,00,000 2. Proposed dividends : Preference shares 31,465 Ordinary shares 3,12,020 --------------- 3,43,485 3. Provisions for bonus to staff and workers 60,000 4. Transfer to general revenue 2,00,000 This left a balance of Rs. 99,759 which was carried forwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of capital made by the Super Profits Tax Officer. He held that neither the board of directors nor the general body of the shareholders had passed resolutions treating items Nos. 1 to 3 as reserves. In regard to item No. 4 he held that this was the excess over what had to be created as development rebate reserve and, therefore, it should not be taken to be a development rebate reserve. The assessee thereafter appealed to the Appellate Tribunal. It was contended by the assessee that out of Rs. 7,50,000, Rs. 3,87,040 was the actual tax payable and, therefore, the excess of Rs. 3,62,960 should be considered as a reserve, that the sum of Rs. 4,598 representing the excess reserve in respect of development rebate and the sum of Rs. 28,439 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amount of the development rebate at the rate of 75% was allowed for the computation of the assessee's income. At the instance of the assessee the following question has been referred to this court in T.C. No. 260 of 1967 : "Whether, on the facts and in the circumstances of the case, the sums provided towards payment of bonus, for payment of dividends and for the payment of income-tax totalling in all Rs. 8,71,924 were not reserves under rule No. 1 of the Second Schedule to the Super Profits Tax Act, 1963 ? " At the instance of the revenue the following question has been referred to this court in T.C. No. 261 of 1967. "Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,50,000 was a reserve under rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting period" as distinguished from the words "as on" used in rule 1 of Schedule 2 of the Super Profits Tax Act with which we are concerned. Therefore, the view taken by the Tribunal that the appropriation came to be made subsequent to the first day of the previous year and, therefore, it should be taken that on the relevant date the profits have not been appropriated for any particular purpose cannot, therefore, be accepted. Though the appropriation came to be actually made by the company on November 12, 1961, it should be deemed to relate back to the first day of the previous year. Therefore, we proceed to consider the questions raised in this case on the basis that there has been appropriation by the company under the various is heads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the future use of the company so as to partake the character of capital. The said sum set apart for payment towards a specific liability cannot be said to be a reserve for future use of the company. This sum has, therefore, to be treated as not a reserve. So far as the provision for taxation is concerned, the total sum set apart was Rs. 7,50,000 as against the actual tax liability of Rs. 3,87,040. The said sum of Rs. 3,87,040 have been paid out of the company for discharging the actual tax liability, it cannot be taken to be an amount set apart or appropriated for a specific purpose, or for future use of the company and it is only a provision made for discharging a specific liability. Therefore, the said sum cannot be treated as a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant period and were not intended for a future use by the company. The liability to pay income-tax cannot be said to be contingent and it has arisen during the previous year, and only the quantification remains to be done after the close of the year. As pointed out by the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax the liability to pay income-tax was a present liability though the tax becomes payable after it was quantified in accordance with the ascertainable data, that it becomes a perfected debt at any rate on the last day of the accounting year and that it is not a contingent or future liability. The tax liability is, therefore, a present liability of an ascertainable amount whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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