Law:

Section:

JUDGMENT Sriramulu, J.-The Vazir Sultan Tobacco Company Ltd. is an assessee under the Super Profits Tax Act, 1963 (No. 14 of 1963) (hereinafter referred to as "the Act"), for the assessment year 1963-64. For computing the chargeable profits of the previous year for the purpose of levy of super profits tax, the assessee-company claimed that the provision of (i) Rs. 33,68,360 for taxation, (ii) Rs. 9,08,106 for retiring gratuity, and (iii) Rs. 18,41,820 for dividends, should be considered as "other reserves" within the meaning of Schedule II to the Act and taken into consideration for the determination of its capital. The Super Profits Tax Officer rejected the assessee's contention as, in his opinion, all those items were current liabilities and provisions, and not "reserves". He, accordingly, held that those items could not be taken into account for computation of the capital of the assessee-company. The Super Profits Tax Officer, on that basis, determined the capital, the standard deduction and levied super profits tax on that portion of the chargeable profits of the previous year which exceeded the standard deduction. Although the Appellate Assistant Commissioner, in first appeal by the assessee against the assessment, accepted the assessee's contention and held that those items were "other reserves", the Income-tax Appellate Tribunal, in the appeal filed by the Super Profits Tax Officer against the order of the Appellate Assistant Commissioner, accepted the department's contention and held that they were not "reserves" within the meaning of the Second Schedule to the Act and those items could not enter into the computation of the capital of the assessee-company. At the instance of the assessee-company, the Income-tax Appellate Tribunal, under section 256(1) of the Income-tax Act, read with section 19 of the Super Profits Tax Act, referred the following question of law to this court: "Whether, on the facts and in the circumstances of the case, the provision, (a) for taxation Rs. 33,68,360; (b) retirement gratuity, Rs. 9,08,106; and (c) dividends Rs. 18,41,820, could be treated as reserves for computing the capital for the purpose of super profits tax under the…

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