Commissioner of Income Tax vs Gokak Mills Ltd.

Desai, J.—The following three questions stand referred to us for our opinion :

"(1) Whether, on the facts and in the circumstances of the case the Tribunal erred in directing that the sum of Rs. 85,031 being the excess Development Rebate Reserve, Rs. 1,56,700 being the Staff Gratuity Reserve, and Rs. 10,26,000 being the Dividend Reserve be taken into account for the purpose of computing the capital of the assessee for the purpose of the Companies (Profits) Sur-tax Act, 1964 ?

(2) Whether, on the facts and in the circumstances of the case and particularly having regard to the provisions of the Expln. to r. 1 of the Second Schedule to the Companies (Profits the Second Schedule to the Companies (Profits) Sur-tax Act, 1964, the Tribunal erred in holding that the appropriation of Rs. 10,26,000 made to Dividend Reserve, which was approved by the General Body after the first day of the relevant previous year, be taken into account in the computation of the capital of the assessee-company for the purposes of the said Act ?

(3) Whether, on the facts and in the circumstances of the case and particularly having regard to the provisions of the Expln. to r. 1 of the Second Schedule to the Companies (Profits) Sur-tax Act, 1964, the Tribunal erred in holding that the appropriation of Rs. 5,82,000 and Rs. 1,55,000 to the General Reserve & Contingency Reserve respectively, which were approved by the General body after the first day of the relevant ''previous year'', be taken into account in the computation of the capital of the assessee-company for the purposes of the said Act ?"

Broadly stated, in these questions we are concerned with the following funds :

(a) Rs. 85,031 being excess development rebate reserve;

(b) Rs. 1,56,700 being the Staff Gratuity Reserve;

(c) Rs. 10,26,000 being the Dividend Reserve;

(d) Rs. 5,82,000 being the General Reserve, and

(e) Rs. 1,55,000 being the Contingency Reserve.

In case of this very assessee we have earlier determined IT Reference No. 153 of 1971. In the said reference, earlier decided by us on 24-8-181, we have dealt with provisions made for Staff Gratuity Contingencies, Freight, Rebate etc. and proposed dividend. We have referred to the decisions, both of the Supreme Court and of this Court which would govern the answers to be given to the questions referred to us. It would appear to us that it is unnecessary in this matter to discuss the facts elaborately. It would appear that the position is covered, as far as this Court is concerned for the dividend reserve amount by the decision of this Court in Shree Ram Milis Ltd. Vs. Commissioner of Income Tax, Bombay City-I, ) . Similarly, as far as the third question is concerned the position is concluded by the decision of the Supreme Court in Commissioner of Income Tax, Mysore Vs. Mysore Electrical Industries Ltd., Accordingly, we propose to answer the question as follows :

Questions 1 & 2 : The sum of Rs. 85,031 being the excess development re-date reserve is required to be taken into account for the purpose of computing the capital of the assessee for the purpose of the Companies (Profit) Sur-tax Act, 1964. Similarly, the sum of Rs. 1,56,700 being the staff gratuity reserve is required to be taken into account for the purpose of computing the capital of the assessee. The other amount of Rs. 10,26,000 being the Dividend Reserve is not to be taken into account for the purpose of computing the capital of the assessee for the purpose of the Companies (Profits) Sur-tax Act, 1964.

Question No. 3 : Both the amounts of Rs. 5,82,000 and Rs. 1,55,000 being appropriation made to the General Reserve and Contingency Reserve are to be taken into account for the computation of the capital of the assessee company for the purposes of the said Act.

Parties, however, to bear their own costs of the reference.