Skip to content


Commissioner of Income-tax Vs. Bombay Tyres International Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 201 of 1971
Judge
Reported in[1983]141ITR710(Bom)
ActsCapital (Profit) Surtax Act, 1964
AppellantCommissioner of Income-tax
RespondentBombay Tyres International Ltd.
Excerpt:
- .....is required to be answered accordingly. the amount, therefore, is required to be considered as a reserve and the question has to be answered in question of the assessee.3. the question referred to us are accordingly answered as follows :question no. 1 : the said amount of rs. 2,08,42,527 would not constitute a reserve for the purpose of computation of capital. question no. 2 : the amount of rs. 1,45,90,317 would not constitutes a reserve for the purpose of computation of capital. question no. 3 : the provision for gratuity in the amount of rs. 20,51,526 constitutes a reserve for the purpose of computation of capital. question no. 4 : the excess amount of rs. 2,202 constitutes a reserve. question no. 5 : does not arise.4. parties to bear their own costs.
Judgment:

1. The following five question are referred to the High Court for the opinion under s. 256(1) of the I.T. Act, 1961, by the Income-tax Appellate Tribunal (Bombay Bench-D), at the instance of the assessee, Bombay Tyres International Ltd. :

'(1) Whether, on the facts and in the circumstances of the case, the profit and loss account surplus of Rs. 2,08,42,527 constitutes a reserve the purpose of computation of capital in terms of rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?

(2) Whether, on the facts in the circumstances of the case, the provision for taxation of Rs. 1,45,90,317 constitutes a reserve for the purpose of computation of capital in terms of rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?

(3) Whether, on the facts and in the circumstances of the case, the provision for gratuity of Rs. 20,51,526 constitutes a reserve for the purpose of computation of capital in terms of rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?

(4) Whether, on the facts and in the circumstances of the case, the excess of Rs. 2,202 of the reserve for development rebate as per the balance sheet of the company over the reserve statutorily required to be maintained is a reserve created under section 10(2)(vib) of the Indian Income tax Act, 1922/section 34(3) of the Income Tax Act, 1961, as contemplated under rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?

(5) If the answer to question No. 4 is in the negative, whether the excess reserve of Rs. 2,202 falls in the category of 'other reserves' referred to in rule 1 of the Second Schedule to the Super Profits Tax Act, 1963, and is, therefore, not to be included in the computation of capital to the extent the portion of the amount has been allowed in computing the company's profits for the purposes of the Income-tax Act, 1961 ?'

2. Counsel are agreed that the answers to be given to these questions are concluded : question No. 1 by a decision of the Supreme Court, and the others, namely, questions Nos. 2, 3 and 4, by the decision of this court. In view of the answer proposed to be given to question No. 4, question No 5 will be required to be ignored.

Question No. 1 pertains to surplus in the profit and loss account, and in accordance with the decision of the Supreme Court in CIT v. Century Spg. and Mfg. Co. Ltd. : [1953]24ITR499(Bom) , we hold that this is not a reserve but a provision. The question will have to be answered accordingly.

Question No. 2 concerns the provision for taxation in the amount of Rs. 1,45,90,317. This is concluded against the assessee by a decision of this court in Shree Ram Mills Ltd. v. CIT : [1977]108ITR27(Bom) . It has been held in the said decision that this would be a provision and not a reserve. The question will have to be answered accordingly.

Question No. 3 concerns provision for gratuity in the aggregate amount of Rs. 20,51,526. It would appear from annex. G that Rs. 1,80,000 used to be provided every year (that is, up to the accounting year 1962-63). The payments for each year varied. It is clear, therefore, that the amount added to the gratuity provision was not correlated with the liability. These were ad hoc additions and considered as such. It would appear that the answer to be given is concluded in favour of the assessee by a decision of this court in CIT v. Forbes Forbes Campbell & Co. Ltd. : [1977]107ITR38(Bom) . The question will have to be answered in accordance with this decision.

Question No. 4 relates to excess of Rs. 2,202 in the reserve for development rebate. This is governed by a circular dated January 11, 1971, issued by the CBDT, which circular has been noted and applied in CIT v. Otis Elevator Co. (India) Ltd. : [1977]107ITR241(Bom) . Question No. 4 is required to be answered accordingly. The amount, therefore, is required to be considered as a reserve and the question has to be answered in question of the assessee.

3. The question referred to us are accordingly answered as follows :

Question No. 1 : The said amount of Rs. 2,08,42,527 would not constitute a reserve for the purpose of computation of capital.

Question No. 2 : The amount of Rs. 1,45,90,317 would not constitutes a reserve for the purpose of computation of capital.

Question No. 3 : The provision for gratuity in the amount of Rs. 20,51,526 constitutes a reserve for the purpose of computation of capital.

Question No. 4 : The excess amount of Rs. 2,202 constitutes a reserve.

Question No. 5 : Does not arise.

4. Parties to bear their own costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //