Commissioner of Income Tax vs Killick Nixon and Co. Ltd.

S.K. Desai, J.—The question referred to us at the instance of the Commissioner reads as under : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,18,260 and Rs. 2,19,000 shown in the respective balance sheets for the accounting periods ended 31-7-1966 (assessment year 1967-68), 31-7-1967 (assessment year 1968-69), and 31-7-1968 (assessment year 1969-70) as employees retirement reserve is includible in the capital computation for the years concerned for the purpose of the Companies (Profits) Surtax Act, 1964, the said amount being a ''reserve'' and not a ''provision'' ?"

In respect of this question we find, although the assessee had succeeded before the Assistant Appellate Collector and the Tribunal, that there are no sufficient facts which would enable us clearly to opine whether the three sums or any part thereof would constitute provision or reserve applying the principles enunciated by the Supreme Court in Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, . It may be pointed out that the Tribunal in its order has in paragraph 3 given certain facts regarding creation of the said reserve and the changes made from year to year. It has also referred to the fact that the payments which became due from the assessee on the retirement of the employees from time to time were debited to the profit and loss account of the relevant year. The Tribunal further called upon the department''s representative to prove as to how the reserve for the three years under, consideration would really constitute provision and not reserve and it has observed that no material was brought by the departmental representative. We do not think the material on record, and we have taken into account the figures contained in paragraph 3, is sufficient for us to arrive at a definite conclusion for the entire amounts one way or the other. We, accordingly, answer the question in the negative qua the full amount indicated for the three years, subject to the directions hereinafter given. This is since we are of the opinion that the part of the amount may constitute provision and the balance would be reserve. On demand the matter will have to be reconsidered by the Tribunal and it will have to apply the observations of the Supreme Court in Vazir Sultan Tobacco Co. Ltd.''s case (supra) to be found at page 578 of the report. The Tribunal will have to give opportunity to the assessee to place additional relevant materials before it. In case such material is not produced the Tribunal will have to call for such material and then decide whether any part of this amount can be held to have been set aside to meet an existing liability of the company at the relevant point of time though payment may have to be made in future. The principles are well enunciated by the Supreme Court and if such additional material is made available, it should not be difficult for the Tribunal to decide the question properly and satisfactorily.

In our opinion, this disposes of the reference. Parties to bear their own costs.