TaxTMI 
TaxTMI 
1978 (11) TMI 18
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....The facts admitted and/or not disputed are as follows : There is an Act called the Super Profits Tax Act, 1963, which received the assent of the President on the 4th May, 1963. The relevant provisions of the said Act are as follows : Section 4 " Charge of tax.--Subject to the provisions contained in this Act, there shall be charged on every company for every assessment year commencing on and from the 1st day of April, 1963, a tax (in this Act referred to as the super profits tax) in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the standard deduction, at the rate or rates specified in the Third Schedule. " Second Schedule to the Act : " 1. Subject to the other provisions contained in this Schedule, the capital of a company shall be the sum of the amounts, as on the first day of the previous year relevant to the assessment year, of its paid up share capital and of its reserve, if any, created under the proviso (b) to clause (vib) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (3) of section 34 of the Income-tax Act, 1961 (43 of 1961), and of its ot....
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.... rupees shall be increased or decreased proportionately : Provided further that where a company has different previous years in respect of its income, profits and gains, the aforesaid increase or decrease, as the case may be, shall be calculated with reference to the length of the previous year of the longest duration. Section 4: " Charge of tax.--Subject to the provisions contained in this Act, there shall be charged on every company for every assessment year commencing on and from the 1st day of April, 1964, a tax (in this Act referred to as the surtax) in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule. 5. Return of chargeable Profits.--(1) In the case of every company whose chargeable profits assessable under this Act exceeded during the previous year the amount of statutory deduction, its principal officer, or where in the case of a non-resident company any person has been treated as its agent under section 163 of the Income-tax Act, such person, shall furnish a return of the chargeable profits of the company during the pr....
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....lating to ' LIABILITIES ' in the ' FORM OF BALANCE-SHEET ' given in Part I of Schedule VI to the Companies Act,1956 (1 of 1956), shall not be regarded as a reserve for the purposes of computation of the capital of a company under the provisions of this Schedule. " In this particular case, the ITO excluded the reserve for super profits tax amounting to Rs. 9 lakhs from the computation of capital for the purpose of determining the statutory deduction from the chargeable profits of the assessee under this Act. The assessee appealed to the AAC. It was submitted on behalf of the revenue that the reserve for super profits tax should not have been excluded. The AAC did not agree with the aforesaid contention. He held that the above amount was in the nature of a provision and as such could not be considered for computation of capital. He, therefore, held that the ITO was justified in not including the aforesaid sum in the capital base for the purpose of determining the standard deduction under the Act. The assessee appealed to the Tribunal. The Tribunal accepted the assessee's contention. From the reference, it appears that it was not denied before the Tribunal that the Super Profits....
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.... for the purpose of ascertaining the standard deduction. There is no dispute regarding this.* Therefore, the only question is whether it is to be treated as a reserve. What is known as reserve has been discussed in the various decisions of this court and also the Supreme Court. In the present case, we are not in a position to accept that on the relevant date April 3, 1963, there was any known liability, whether contingent or otherwise. There was no Act at that point of time. Merely there was a Bill. A Bill might or might not be changed into an Act. We are unable to accept the contention of the revenue that the Bill must be treated as a contingent liability. A Bill introduced in Parliament cannot create any liability, contingent or otherwise. In the present case, when this amount was earmarked on April 3, 1963, or a little earlier as found by the Tribunal there was no such Act. In Braithwaite's case [1978] 111 ITR 825, a Division Bench of this court held as follows (p. 832): " It cannot be disputed that the accounts of the company may be made up for a year up to a particular date at a later point of time. A company is entitled in law to finalise later as to what was the position ....