Law:

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Rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 - Computation of capital reserve - Whether provision for dividend and bonus can be taken as 'reserve' Held, no - Whether, in respect of provision for taxation and gratuity only that portion of these provisions can be treated as 'reserves' which was in excess of actual liabilities under each head - Held, yes Facts The Tribunals held that the provisions for (a) taxation, (6) proposed dividend, (c) bonus in the nature of dividend, and (d) for gratuity could not be taken as 'reserves' within the meaning of rule 1. On reference by the assessee : Held Having regard to the of the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT [19811 132 ITR 559, insofar as the provision for dividend and bonus was concerned, the same could not be treated as 'reserves'. As regards the provisions for taxation and gratuity, only that portion of the provisions was to be treated as 'reserve' which was in excess of actual liabilities under each head. However, in the instant case, there was no material on record to indicate as to whether and to what extent the provisions made for these liabilities were in excess of actual liabilities. In the circumstances, the Tribunal was to be directed to determine the excess of the provisions over liabilities in respect of these items in the light of principles enunciated in the aforesaid decision and treat excess, if any, only as reserve for the purpose of capital computation. Case referred to Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC). N.A. Dalvi and N.R. Modi for the Applicant. G.S. Jetley, Mrs. M. Singh and K.C. Sidhwa for the Respondent. JUDGMENT…

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