Super profits tax computation fails where liquidation leaves no identifiable capital structure for statutory standard deduction.

A company in liquidation was held not liable to super profits tax where the statutory charging scheme depended on a computable standard deduction linked to share capital and reserves. The court reasoned that, after liquidation, the liquidator held a single undifferentiated fund and the company's capital structure could not be broken into separate components for the Second Schedule computation. As the Act did not expressly authorise such notional disintegration, the standard deduction could not be ascertained in the manner required for assessment. The reference was answered for the assessee, and the proposed super profits tax assessment was not sustained.

---

---

Issues: Whether a company in liquidation, in the absence of identifiable share capital and computable reserve, was liable to super profits tax for assessment year 1963-64, and whether the standard deduction under the Super Profits Tax Act, 1963 could be ascertained for levying tax.

Analysis: The charging provision imposed super profits tax only on chargeable profits exceeding the standard deduction, and the standard deduction had to be computed with reference to the company's capital under the Second Schedule. In liquidation, the accounts were confined to receipts and payments, the concept of share capital ceased to operate in the same manner, and the liquidator held one consolidated fund which could not be broken up into separate components of capital and profits for the purpose of the statutory computation. The exemption provision was also considered in the context of a company without share capital. The reasoning followed the principle that, in liquidation, the fund in the liquidator's hands cannot be notionally disintegrated unless the statute expressly so provides.

Conclusion: The company in liquidation was not liable to assessment to super profits tax on the footing adopted by the revenue, because the standard deduction could not be computed in the manner required by the Act.

Final Conclusion: The reference was answered in favour of the assessee and against the revenue, affirming that no super profits tax assessment could be sustained on the company in liquidation on the facts found.

Ratio Decidendi: Where the charging scheme of a fiscal statute makes tax liability dependent on a computable standard deduction linked to share capital and reserves, and liquidation leaves only a single undifferentiated fund without identifiable capital structure, the tax cannot be levied unless the statute expressly authorises such disintegration for computation.

---