ISMAIL J.

The Income-tax Appellate Tribunal, Madras Bench, under section 256 (1) of the Income-tax Act, 1961, has referred the following question for the opinion of this court :

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the amounts of Rs. 15, 50, 000 being provision for tax liability Rs. 1, 36, 060 being provision for payment of gratuity to employees and Rs. 5, 69, 000 being provision for payment of bonus to employees as on 1st April, 1962, being the first day of the previous year relevant to the assessment year 1963-64, were not to be included in computing the assesee's capital for the purpose of the Super Profits tax Act, 1963 ?" *

The matter lies within a very narrow compass and it concerns the questions as to what constitutes, "reserve" as contemplated by Paragraph 1 of Schedule II of the Super Profits Tax Act, 1963 (hereinafter called "the Act").

The assessee is a public limited company registered under the companies Act and is running a composite spinning and weaving mills at Mettur Dam, Salem District. Before the Income-tax Officer, certain amounts under various heads had been claimed as reserve for the purposes of computation of capital besides the opening share capital of Rs. 60, 00, 000. The Income-tax Officer was of the view that only general reserve, raw material fluctuation and assests replacement reserve were in the nature of reserves to qualify as reserves for inclusion in the capital. According to him, credit balance in profit and loss account, advertisement reserve, reserve for bonus, reserve for tax, reserve for gratuity and proposes dividends would not fall under "reserve". On appeal preferred by the assessee the Appellate Assistant Commissioner held against the assessee with regard to reserve for proposed dividends, reserve for taxation, reserve for gratuity and reserve for bonus. On further appeal to the Tribunal, the Tribunal also held that the three amounts involved in the question, namely, the provision for tax liability of Rs. 15, 50, 000 the provision for payment of gratuity to employees of Rs. 1, 36, 060 and provision for payment of bonus to employees of Rs. 5, 69, 000 cannot be said to be reserves within the scope of Paragraph 1 of Schedule Ii of the Act. It is the correctness of this conclusion in the present reference in the form of the question extracted above.Consequently, we have to consider the three provisions, namely, provision for tax liability in the sum of Rs. 15, 50, 000, the provision for payment of gratuity in the sum of Rs. 1, 36, 060 and the provision for payment of bonus to the employees in the sum of Rs. 5, 69, 000 Seperately. As far as then first amount being the provision for payment of tax liability is concerned, this court has already held that the said provision will constitute only "provision" and will not constitute "reserve". The Supreme Court in Metal Box Co. Of India Ltd. v. Their Workmen has held that an amount set aside out of the profit and other surplus not designed to meet a liability, contigency, commitment or diminution in value of assests known to exist at the date of the balance-sheet is a reserve but an amount set aside out of the profits and other surplus to provide for any known liability so that the amount cannot be determined with substantial accuracy is a provision. The Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax, has held that liability to pay income-tax was a present liability though the tax became payable after it was quantified in accordance with the ascertainable data. Consequently, the provision made by the assessee for tax liability in the sum of Rs. 15, 50, 000 cannot be said to be reserve at all and can only be a provision and, therefore, the Tribunal, rightly held that the same cannot be included in the capital. The learned counsel for the assessee sought to contend, relying upon a decision of this court in Nagammal Mills LTD. v