Commissioner of Income Tax vs Raj Kumar Mills Ltd.

Sohani, J.—The order in this case will also govern the disposal of Miscellaneous Civil Case No. 192 of 1984 (CIT v. Rajkumar Mills) and Miscellaneous Civil Case No. 251 of 1984 (CIT v. Rajkuntar Mills Ltd.).

These are applications u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

The material facts giving rise to these applications, briefly, are as follows :

The assessee is a company and was assessed to surtax for the assessment years 1973-74, 1974-75 and 1975-76. While computing the liability of the assessee under the provisions of the Companies (Profits) Surtax Act, the assessing authority did not take into consideration the reserve for leave with wages for the purpose of calculating the capital under the provisions of that Act. Aggrieved by that order, the assessee preferred an appeal which was decided by the Commissioner of Income Tax (Appeals) in favour of the assessee. Aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the Department preferred second appeals before the Tribunal. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals). An application made by the Department u/s 256(1) of the Act was rejected by the Tribunal. Hence, the applicant has filed these applications.

Having heard learned counsel for the parties, we have come to the conclusion that the question as to whether the reserve for leave with wages should be taken into account for calculating the capital of the assessee for the purpose of determining the surtax liability is a question of law and it does arise out of the order passed by the Tribunal.

The applications are therefore, allowed, we direct the Tribunal to state the case and refer the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that ''reserve for leave with wages'' has to be taken into account for determining the capital of the assessee for the purpose of determining the surtax liability ?"

In the circumstances of the case, the parties shall bear their own costs of these applications.