A provision for taxation is not a reserve within the meaning of the S. P. T. Act, 1963.

( 1 ) THIS reference arises out of the assessment of A. P. V. Engineering Co. Ltd. , under the Super Profits Tax Act, 1963, in the assessment year 1963-64, the previous year thereto being the calendar year 1962. The facts found and/or admitted in the proceedings are as follows : in the balance-sheet of the assessee as at 31st December, 1961, a sum of Rs. 3,35,914 was shown under the head "provision" as "provision for Taxation less advance payments under provisional assessments". Under the head "reserves and Surplus ", another sum of Rs. 11,41,689 was shown as " Manufacturing, Trading and Profit and Loss Account--balance at credit after providing for the proposed dividend for the year ended 31-12-61".

( 2 ) THE assessee plaimed that the said amounts of Rs. 3,35,914 and Rs. 11,41,689 should both be treated as reserves under Rule 1 of the Second Schedule to the S. P. T. Act, 1963, and be included in its capital base in the said assessment year. The ITO held that the amounts did not represent reserves inasmuch as one of them was specifically earmarked as a provision to meet a particular liability and the other represented unappropriated profits not transferred to a reserve account.

( 3 ) THE assessee preferred an appeal from the said assessment. The AAC held that the said amount of Rs. 3,35,914 set apart was a provision against a known liability and the other amount of Rs. 11,41,689 was a mass of undistributed profits without any allocation or appropriation. He confirmed the order of the ITO.

( 4 ) ON a further appeal to the Income-tax Appellate Tribunal, it was contended by the assessee that, as it had not filed any return at the relevant time and as no tax had been determined, therefore, on the 1st January, 1962, the said sum of Rs. 3,35,914 could not be a provision against any accrued liability but was a free reserve includible in the capital base of the company for computation of super profits tax. The other amount of Rs. 11,41,689 was stated to have been set apart by the directors of the assessee to be carried over to the next accounting year and, therefore, amounted to a reserve.

( 5 ) THE Tribunal held that the assessee had treated the said amount of Rs. 3,35,914 in its books as a provision for tax liability calculated on actual book profits shown in its own account. This liability had to be discharged in respect of the said accounting year and, accordingly, the item was a provision and not a reserve. The Tribunal also held that the unappropriated amount of Rs. 11,41,689 was not a reserve. The appeal of the assessee was accordingly dismissed.

( 6 ) ON an application of the assessee under Section 256 (2) of the I. T. Act, 1961, read with Section 19 of the S. P. T. Act, 1963, this court directed the Tribunal to draw up a statement of case and refer the following question for the opinion of this court as a question of law arising out of the Tribunal's order :" Whether, on the facts and in the circumstances of the case, the Tri bunal was justified in holding that the provision for income-tax amounting to Rs. 3,35,914 and the balance of unappropriated profit of the year ended 1961 after setting apart all reserves and provisions and declaration of dividend amounting to Rs. 11,41,689 did not qualify as reserves within the meaning of Rule 1 of the Second Schedule of the Super Profits Tax Act, 1963 ?"

( 7 ) WHETHER a provision for taxation is a " reserve " within the meaning of the S. P. T. Act, 1963, or not has been considered by this court in two earlier decisions in Braithwaite and Co. (India) Ltd. v. CIT and the second is Duncan Brothers and Co. Ltd. v. CIT. which followed the former decision. In tooth decisions the principles laid "down by the Supreme Court in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 ; 39 Comp Cas 410, were applied and it was held that a provision for taxation was not a reserve within the meaning of the S. P,t. Act, 1963.

( 8 ) MR. Kalyan Roy, learned counsel for