Commissioner of Income Tax vs Associated Cement Company Ltd.

Sugla, J.—These are cross-references by the Revenue and the assessee. Two questions of law have been referred at the instance of the assessee and one at the instance of the Revenue. The questions are :

At the instance of the assessee

"(i) Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,92,10,796 being the "provision for taxation" could be said to constitute a "reserve" includible in the capital base ?

(ii) Whether, on the facts and in the circumstances of the case, the credit balance in the "Profit & Loss Account" appearing in the balance sheet under the head "Reserve and Surplus" could be said to constitute a "Reserve" includible in the capital base ?"

At the instance of the Department

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,28,89,726 representing "provision for proposed dividend" was includible in the computation of capital of the assessee company under r. 1 of the Second Schedule to the super Profits Tax Act of 1963 ?"

It is agreed that Question No. 1 at the instance of the assessee is covered by the Supreme Court''s decision in the case of Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, and is to be answered in the negative and in favour of the Revenue. However, when the matter goes back to the Tribunal, the Tribunal will have to determine whether there is any excess provision for taxation in the sum of Rs. 2,92,10,796, and to the extent the provision exceeds the assessee''s actual tax liability, such an excess will be deemed to be a reserve includible in the computation of the capital of the assessee company.

As regards Question No. 2, Shri Dilip Dwarkadas, the ld. counsel for the assessee, contended that the Supreme Court''s decision in the case of Commissioner of Income Tax, Bombay City Vs. The Century Spinning and Manufacturing Co. Ltd., was distinguishable. It was stated that the credit balance in the profit and loss account and appeared in the balance-sheet under the head "Reserve and Surplus" and could not, therefore be treated as a mass of undistributed profits. However, on going through the order of the ITO and AAC, it is found that the balance to the credit of profit and loss account appearing in the balance-sheet represented undistributed profits only. It appeared as a separate item under the heading "Reserve and Surplus". It is not as if it was consciously set apart as Reserve. In this view of the matter, the Supreme Court decisions in Commissioner of Income Tax, Bombay City Vs. The Century Spinning and Manufacturing Co. Ltd., and Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, squarely cover the issue against the assessee. Accordingly, the second question is also answered in the negative and in favour of the Revenue.

The question at the instance of the Revenue, it is agreed, is also covered by the Supreme Court''s decision in Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, and this question is to be answered in the negative and in favour of the assessee. The questions are so answered with no order as to costs.