Law:

Section:

Second Schedule to the Super Profits Tax Act, 1963 - Capital - Computation of - Whether amount set apart for proposed dividend being for discharge of specific liability cannot be treated as 'reserve' - Held, yes - Whether actual amount paid towards taxes out of amount set apart for taxes cannot be treated as reserve and only excess provision can be treated as reserve - Held, yes FACTS The assessee company claimed that provisions for tax and proposed dividends should be taken as 'other reserves', occurring in rule 1 of Second Schedule, while computing capital base. The Super Profits Tax Officer, however, held that the above sums were not includible in the capital as on 1-1-1962, on the ground that they did not represent 'reserves' on that date. The AAC affirmed the computation of capital by Super Profits Tax Officer. The Tribunal rejected the assessee's contention that the said sums represented 'reserves' created by the company on the only ground that the appropriation of these sums for the respective purposes came to be made only on 31-05-1962, and that on 1-1-1962, the sums were part of undistributed profits. On reference : HELD In view of the decision of the Supreme Court in CIT v. Mysore Electrical Industries Ltd. [1971] 80 ITR 566, 571, the reasoning of the Tribunal that the sum in question represented mass of undistributed profits on 1-1-1962, could not be accepted. The amount set a part for discharging a specific liability and which are actually paid out by the company cannot be treated as a reserve for the reason that the sums so set apart are not available for the future use of the company. Therefore, it had to be held that the amounts set apart for payment of proposed dividend were for discharging a specific liability of the company which had been created by a resolution of the board of directors declaring the dividends. Therefore, it would cease to be a reserve under rule 1 of Schedule 2. As regards the provision for taxation, it was not known as to what is the exact amount which had been paid as tax during the year. The AAC merely stated that the advance tax paid up to 31-12-1961, was more than Rs. 2,60,000 and the Tribunal had not gone into the…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492