Commissioner of Income Tax vs National Rayon Corporation Ltd.

T.D. Sugla, J.—There are as many as five questions referred to this court by the Tribunal as questions of law. The questions are :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the dividend paid on cumulative preference shares of Rs. 9,67,065 is be included while computing the capital of the assessee for the purpose of surtax assessment ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of dividend paid on equaity shares should be included in the capital computation of the assessee-company under the Surtax Act ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the capital of the company should not be reduced in proportion to the relief allowed to the assessee u/s 80-I of the Income Tax Act, 1961, and that rule 4 of the Second Schedule to the Companies (Profits) Surtax Act does not apply in this case ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the sums of Rs. 1,41,00,000 and Rs. 17 lakhs representing debenture redemption reserve and gratuity reserve were includible in computing the capital of the assessee under rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?

Whethere, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that a sum of Rs. 11,71,505 representing the increase in liability on account of devaluation of the rupee should be included in computing the capital of the company for the purpose of surtax assessment ?"

The proceedings relate to the assessment years 1970-71, 1971-72 and 1972-73. Counsel are agreed that the first two questions are covered by the Supreme Court decision in the case of Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, and our court''s judgment in the case of Commissioner of Income Tax Vs. Tata Chemicals Ltd., in favour of the Revenue. Accordingly, the first two questions are answered in the negative and in favour of the Revenue.

Counsel are also agreed that question No. 3 is covered by our court''s judgment in the case of Commissioner of Income Tax, Bombay City III Vs. Century Spg. and Mfg. Co. Ltd., , in favour of the assessee. The question is, accordingly, answered in the affirmative and in favour of the assessee.

As regards the fourth question, counsel are agreed that it is covered by our court''s judgment in the assessee''s own case reported in Commissioner of Income Tax Vs. National Rayon Corporation Ltd., . Accordingly, we have to hold that the reserve to the extent it represents debenture redemption reserve is not to be treated as a reserve and the reserve to the extent it represents gratuity reserve will be treated as reserve only in so far as it is in excess of the assessee''s liability to gratuity valued on the basis of the actuarial valuation or any other scientific basis. Therefore, when the matter goes back to the Tribunal, the Tribunal will determine whether or not there is any excess of revision over the liability in respect of gratuity.

Question No. 5 is also varied by our court''s judgment in the assessee''s own case in Commissioner of Income Tax Vs. National Rayon Corporation Ltd., in favour of the assessee. Accordingly, the question is answered in the affirmative and in favour of the assessee.

No order as to costs.