Commissioner of Income Tax vs South India Corporation (Agencies) Ltd.

Janarthanam, J.—South India Corporation (Agencies) Limited, Madras, is the assessee. The assessment year is 1981-82 for which the

accounting period ended March 31, 1981.

The assessee in the course of assessment proceedings placing implicit reliance on the decision of the Calcutta High Court in the case of Duncan

Brothers and Co. Ltd. Vs. Commissioner of Income Tax, Central, contended that the provisions for taxation amounting to Rs. 57,86,074 should

be deducted from the cost of investments.

The Income Tax Officer rejected the claims so made entertaining the view that the decision of the Calcutta High Court relied on by the assessee

had not reached the stage of finality, in the sense of the same having been agitated before the Supreme Court and pending there.

When the assessee took up the matter in appeal, the Commissioner of Income Tax (Appeals) directed the Income Tax Officer to allow the

asses-see''s claim for reduction of this amount by following the decision reported in Duncan Brothers and Co. Ltd. Vs. Commissioner of Income

Tax, Central, .

The Department took up the matter on further appeal to the Tribunal and the Tribunal, in turn, dismissed the appeal as of no merit, since the

decision of the Commissioner of Income Tax (Appeals) was based on the decision of the Calcutta High Court in Duncan Brothers and Co. Ltd.

Vs. Commissioner of Income Tax, Central, .

It is on these facts, the Tribunal at the instance of the Revenue referred the common question as below u/s 256(1) of the Income Tax Act, 1961,

read with Section 18 of the Companies (Profits) Surtax Act, 1964 : ""Whether, on the facts and in the circumstances of the case, the provision for

taxation amounting to Rs. 57,86,074 was a surplus fund and the assessee is entitled to deduction of the said amount from the cost of investments to

be reduced from the capital base under rule 2 of the Second Schedule ?

Arguments of Mr. R. Sivaraman, learned counsel, representing Mr. C. V. Rajan, learned junior standing counsel representing the applicant and

of Mr. K. Vaitheeswaran, learned counsel, representing Subbaraya Aiyar, learned counsel appearing for the respondent were heard.

No doubt true it is, that an identical question arising for consideration in the instant case arose for consideration in the case of Duncan Brothers

and Co. Ltd. Vs. Commissioner of Income Tax, Central, . It is equally true that the said question had been answered in favour of the assessee and

against the Revenue by the Calcutta High Court, holding that the assessee was entitled to the deduction of the provision for taxation from its cost of

investments in terms of Clause (ii) of Rule 2 of Schedule II. While so holding their Lordships of the Calcutta High Court followed an earlier

decision of the said court in the case of the same assessee in Duncan Brothers and Co. Ltd. Vs. Commissioner of Income Tax, . The case in

Duncan Brothers and Co. Ltd. Vs. Commissioner of Income Tax, Central, , is relatable to the assessment year 1965-66. The decision in Duncan

Brothers and Co. Ltd. Vs. Commissioner of Income Tax, , was agitated before the apex court, as is seen from the decision reported in

Commissioner of Income Tax (Central-II), Calcutta Vs. M/s. Duncan Brothers and Co. Ltd., Calcutta, . The Supreme Court after elaborate

consideration reversed the decision of the Calcutta High Court in Duncan Brothers and Co. Ltd. Vs. Commissioner of Income Tax, , in the sense

of answering the question raised against the assessee and in favour of the Revenue. Such being the position, it goes without saying that the Tribunal

was rather wrong in deciding the issue in favour of the assessee, placing implicit reliance on the decision of the Calcutta High Court in Duncan

Brothers and Co. Ltd. Vs. Commissioner of Income Tax, Central, , which followed the decision in Duncan Brothers and Co. Ltd. Vs.

Commissioner of Income Tax, . We, therefore, answer the common question that the provision for taxation amounting to Rs. 57,86,074 cannot at

all be deducted from the cost of the investments to be reduced from the capital base under rule 2 of the Second Schedule. The question is

answered accordingly.

These tax cases are thus disposed of. There shall, however, be no order as to costs, on the facts and in the circumstances of the cases.