Law:

Section:

Rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 - Capital - Computation of - Whether surplus shown in profit and loss account brought forward from preceding year as also provision for taxation or any part thereof were includible in capital computation of assessee for granting standard deduction -Held, no FACTS In computing the capital base of the assessee-company for ascertaining the tax payable by it, the SPTO did not include the amount shown as surplus in the assessee's profit and loss account, which had been brought forward from the preceding year, as well as the amount of provision for taxation. The assessee's appeal to the AAC was allowed. On revenue's further appeal, the Tribunal held that the amount standing in the profit and loss account as surplus could not be regarded as a general reserve or equated with an earned surplus, and that it remained a mass of undistributed profits available for distribution as it was not earmarked as a reserve. In regard to the provision for taxation, the Tribunal concluded that it did not represent a reserve. The Tribunal, accordingly, held that both the impugned amounts could not be included in the computation of the capital base. On reference, the assessee pointed out that in view of certain litigation, the Calcutta High Court had appointed a special officer to administer the company, who had brought the amount into the reserves and surpluses because of his inability to distribute dividends, etc., and as such, the amount shown as surplus should, in the special circumstances of the case, be considered as a reserve under the provisions of rule 1 of the Second Schedule. As regards the provision for taxation, the assessee contended that looking to the assessments finally made in respect of the various assessment years falling before the assessment year under reference, the provision made was excessive and that this excess should be treated as a reserve. HELD It is well settled that a mass of undistributed profits could not automatically become a reserve and somebody possessing the requisite authority had to clearly indicate that the amount had been separated from the general mass of profits with a view to…

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