Law: Income Tax Act, 1922

Section: 4,4(1)

Income-tax Act (XI of 1922)--S. 4(1). Explanation 5--'"Free reserve," meaning of--Free reserve is in the nature of a reserve which is allocated or taken out of profit of the Company-- Unapportioned profits prior to introduction of statutory definition of "free reserve", held, would not amount to "free reserve". Pakistan. Gum Industries Ltd. v. Commissioner Income-tax (East) Karachi 1982 P T D 370; P L D 1960 S', C: 40 and Peakles and Lafferty v Accounting IV Edn. p. 718 ref. JUDGMENT SALEEM AKHTAR, J.-- The applicant has filed this application under section 66 (2) of the Income-tax Act, 1922 raising the following question:- "Whether on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in holding that the provision for payment of dividend and unappropriated profit do not fall a part of free reserve and consequently not fall within the purview of Explanation 5 to subsection (1) of section 4 of Income-tax Act Mr. Khawaja Salahuddin the learned counsel for the applicant has stated that he does not wish to press the question relating to dividends as it has been decided by the Tribunal as question of fact. Therefore, we have framed the question in respect of appropriated profits as follows. "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that unappropriated profits of the assessee for the assessment year 1967-68 were 'free reserve' and as such liable to super-tax? During the assessment year 1967-68 the Income-tax Officer calculated the "free reserve" amounting to Rs.64,15,964. In computing this amount the Income-tax Officer included the provision for payment of dividend and unappropriated profits. Against this assessment order the respondent filed an appeal before the Income-tax Appellate Tribunal, which…

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