Company in liquidation and super profits tax: capital-based standard deduction could not be computed, so assessment failed.

A company in liquidation was treated as outside the effective working of the Super Profits Tax Act, 1963, because the standard deduction depended on capital computed from identifiable share capital and reserves. The Act's capital-based formula could not be applied where liquidation accounts showed only a consolidated liquidator's fund and not the capital structure of a going concern. Read with the Companies Act and the Companies (Court) Rules, the scheme did not permit splitting the liquidation fund into capital and profits for super profits tax purposes. The answer to the referred question was therefore in favour of the assessee and against the revenue.

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Issues: Whether a company in liquidation could be subjected to super profits tax under the Super Profits Tax Act, 1963, when the standard deduction had to be computed with reference to share capital and reserves which could not be ascertained in liquidation.

Analysis: Chargeable profits under the Act are taxable only to the extent they exceed the standard deduction, and the standard deduction is computed as a percentage of the company's capital. The capital computation under the Second Schedule depends upon identifiable share capital and reserves as on the relevant date. In liquidation, the company's affairs are administered by the liquidator and the accounts disclose receipts and payments of a consolidated fund, not the continuing share capital and reserves of a going concern. On the scheme of the Act, read with the provisions governing liquidation accounts under the Companies Act and the Companies (Court) Rules, the concept of share capital is not workable in the same manner for a company in liquidation. The reasoning of the English decision in George Burrell and the Supreme Court's treatment of a liquidator's fund supported the view that the fund in liquidation is one consolidated fund which cannot be split into capital and profits for the purpose of the Act.

Conclusion: The company in liquidation was not liable to assessment under the Super Profits Tax Act, 1963, because the standard deduction could not be ascertained. The answer to the referred question was in favour of the assessee and against the revenue.

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