Mahindra and Mahindra Ltd. vs Commissioner of Income Tax

Sugla, J.—The reference is made at the instance of the assessee and raises the following composite question :

"Whether, on the facts and in the circumstances of the case, the provision for (a) taxation, (b) proposed dividend, (c) bonus in the nature of dividend, and (d) for gratuity could be taken as reserves within the meaning of Rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?"

Counsel are agreed that, having regard to the judgment of the Supreme Court in Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, , in so far as the provision for dividend and bonus is concerned, the question must be answered in the negative and in favour of the Revenue.

In so far as provision for taxation and gratuity is concerned, only that portion of the provision is to be treated as reserve which is in excess of the actual liabilities under each head. However, there is no material on record to indicate as to whether and to what extent the provision made for these liabilities is in excess of the actual liabilities. In the circumstances, we have to direct the Tribunal to determine the excess of the provision over liabilities in respect of these items in the light of the principles enunciated in the aforesaid decision and treat the excess alone, if any, as reserve for the purpose of capital computation.

The order is, accordingly, made. No order as to costs.