1. Computation of capital under Rule I of Schedule II of Companies (Profits) Surtax Act, 1964 — Includibility of provisions for gratuity and dividend reserves. (Para 1 )
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1992 Supreme(SC) 852
SUPREME COURT OF INDIA
B.P.Jeevan Reddy : S.C.Agrawal
Commissioner Of Income Tax, Bombay
Versus
Forbes Forbes Campbell And Company Limited, Bombay
Case No. : 2516-18 of 1980
Date of Decision : 11/20/92
Important Points
Provisions for gratuity are not includible in the computation of the capital of an assessee company under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964.
Subject
Tax Law - Direct Tax
Act Referred
COMPANIES PROFITS SUR-TAX ACT: Sch.2, S.1
Headnote
(A) Companies (Profits) Surtax Act, 1964 - Rule I of Schedule II - Computation of capital for surtax - Provisions for gratuity - Whether sums representing provisions for gratuity are includible in computing the capital of the assessee company for the purpose of surtax - Held: Provisions for gratuity are not includible in the computation of capital. (Para 2)
Facts of the case:
For the assessment years 1964-65, 1965-66, and 1966-67, the assessee company had made provisions for gratuity. The Tribunal had held that these sums were includible in computing the capital of the company under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964. The High Court had subsequently answered this question in favor of the assessee.
Findings of Court:
The court found that the legal position regarding the includibility of provisions for gratuity in the computation of capital was already settled by a prior decision of the court.
Issues: Whether the sums representing provisions for gratuity for the assessment years 1964-65, 1965-66, and 1966-67 were includible in computing the capital of the assessee company under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964 for the purpose of surtax.
Ratio Decidendi: Relying on established judicial precedent, the court ruled that provisions for gratuity are not includible in the computation of the capital of the assessee company under the specified rule of the Companies (Profits) Surtax Act, 1964.
Result: Appeals allowed.
Facts of the case:
For the assessment years 1964-65, 1965-66, and 1966-67, the assessee company had made provisions for gratuity. The Tribunal had held that these sums were includible in computing the capital of the company under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964. The High Court had subsequently answered this question in favor of the assessee.
Findings of Court:
The court found that the legal position regarding the includibility of provisions for gratuity in the computation of capital was already settled by a prior decision of the court.
Issues: Whether the sums representing provisions for gratuity for the assessment years 1964-65, 1965-66, and 1966-67 were includible in computing the capital of the assessee company under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964 for the purpose of surtax.
Ratio Decidendi: Relying on established judicial precedent, the court ruled that provisions for gratuity are not includible in the computation of the capital of the assessee company under the specified rule of the Companies (Profits) Surtax Act, 1964.
Result: Appeals allowed.
Legal Category Hierarchy
Table of Contents
2. Whether provisions for gratuity and dividend reserves are includible in computing the capital of an assessee company for the purpose of surtax. (Para 1 )
3. The court observed that the issue regarding the includibility of provisions for gratuity is governed by existing judicial precedent. (Para 2 )
4. Provisions for gratuity are not includible in computing the capital of an assessee company under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964. (Para 2 )
5. Appeals allowed — High Court order set aside — Question regarding provisions for gratuity answered in the negative. (Para 2 )
6. Are provisions for gratuity includible in the computation of capital under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964?
No, provisions for gratuity are not includible in computing the capital of an assessee company for the purpose of surtax. (Para 2 )
(1) THESE appeals arise out of the judgment of the Bombay High court dated 30/7/1976 in I.T. Reference No. 152 of 1975 which related to the assessment years 1964-65, 1965-1966 and 1966-67. The following two questions were referred to the High court:
1 Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the sums of Rs. 98,730.00 for the assessment year 1964-65, Rs. 1,10,000.00 for the assessment year 1965- 66 and Rs. 81,000.00 for the assessment year 1966-67, representing provisions for gratuity were includible in computing the capital of the assessee company under Rule I of Schedule II of Companies (Profits) Surtax Act, 1964 for the purpose of Surtax?
2 Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the sums of Rs. 3,20,000.00 for the assessment year 1964-65, Rs. 3,48,943.00 for the assessment year 1965- 66, and Rs. 4,62,609.00 for the assessment year 1966-67, representing dividend reserves were includible in the computation of the capital of the assessee company under Rule I of Schedule II of the Companies (Profits) Surtax Act, 1964 for the purpose of surtax?
(2) THE High court answered question no. 1 in favour of the assessee and question No. 2 in favour of the Revenue. The appeals relate to question No. 1. Learned counsel for the respondent concedes that the matter is now covered by the decision of this court in Vazir Sultan Tobacco Co. Ltd. v.Commissioner of Income Tax. In view of the said decision, question No. 1 must also be answered in the negative. The appeals are therefore, allowed and the order of the High court is set aside, and question no. 1 is answered in the negative, i.e., in favour of the department and against the assessee. There will be no orders as to costs.
