1992 (10) TMI 24

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....atuity reserve account should be included in the capital computation under the Companies (Profits) Surtax Act, 1964? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the dividend reserve was a reserve to be included in the capital computation for the purpose of the Companies (Profits) Surtax Act, 1964 ?" In the balance-sheet of the assessee-company as on March 31, 1965, there was a credit balance of Rs. 5,50,000 in the gratuity reserve account. The question is whether this amount should be treated as a reserve and included in the capital of the assessee-company for the determination of surtax payable by the company. In this connection the Tribunal has come to the conclusion t....

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....ecisions of our High Court in the case of CIT v. National Rayon Corporation Ltd. [1986] 160 ITR 716 and CIT v. Hindustan Lever Ltd. [1986] 160 ITR 700 will not be attracted to the facts of the present case. The Division Bench in the former case said that, ordinarily an appropriation to gratuity reserve will have to be regarded as a provision made for a contingent liability. If a company adopts a scientific method and determines by actuarial valuation the estimated liability of the company in respect of the payment of gratuity in the relevant year and an amount is set apart for meeting such liability, then the amount set apart for that purpose will be clearly a provision. If, however, an ad hoc sum is appropriated for meeting a liability for....