Law:

Section:

Rule 1 of second schedule to the super profits tax act, 1963/the companies profits surtax act, 1964 - Capital - Computation of - Whether amounts retained or appropriated or set apart by assessee-Company by way of provision for taxation and proposed dividends from out of profits and other surpluses could be considered as "other reserves" for inclusion in capital computation of company - Held, no - Assessee-company, after transferring Rs. 29,77,000 out of current year's profit to general reserves, paid Rs. 3,10,450 as dividend to its shareholders from such augmented general reserves - whether while computing capital of assessee-company for purpose of levy of surtax general reserves should be reduced by aforesaid sum of Rs. 3,10,450 - Held, on facts, yes - Whether a sum which is not a provision would automatically become reserve - Held, no - Assessee claimed that provision for retirement gratuity be considered as reserves - No material produced to show as to whether said appropriation based on actuarial valuation or based on ad hoc system - Whether basis of appropriation made to gratuity reserve had to bb ascertained before assessee's claim could be considered - Held, yes [case remanded back] Facts For the assessment years 1963-64, 1969-70 and 1970-71, for computing the chargeable profits for the purpose of levy of super profits surtax under the Super Profits Tax Act, 1963/the Companies (Profits) Surtax Act, 1964, the assessee-company claimed that the appropriations of certain amounts (a ) for taxation (only in the assessment year 1963-64), (b) for retirement gratuity, and (c) for proposed dividends (all of which items were shown under the head "Current liabilities and provisions" in the concerned balance sheet for the assessment year 1963-64) should be regarded as "other reserves" within the meaning of rule 1 of the Second Schedule and be included while determining its capital. The STO rejected the assessee's contention. The Tribunal eventually sustained the STO's order. On reference for the assessment year 1963-64, the High Court sustained the Tribunal's order. For the assessment year 1974-75, relevant for the accounting year ended 31-12-1973, the directors of…

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