COMMISSIONER OF WEALTH TAX Vs. S RAM

JUDGEMENT

(1.) THIS judgment disposes of as many as 146 tax cases. They are from different taxing statutes. But all of them raise an identical question about "provision for gratuity". And they were all heard together In ordinary times, a comprehensive hearing of this kind would have been unthinkable.

(2.) THE court would have had to mull over each case, as it arose, within the confines set by the question in each reference. But, then, the Supreme Court had recently come out with a ruling on the "provision for gratuity" in Vazir Sultan Tobacco Co. Ltd. v. CIT. THE Supreme Court were there engaged in disposing of references which arose under the Super Profits Tax Act, 1963, and the Companies (Profits) Surtax Act, 1964. But they utilised the occasion to go into the fundamental concept of "provision for gratuity" just about that time, by a stroke of luck, as it were, we had in our dockets a number of tax references, all of them on the same point about provision for taxation and gratuity, although they arose under different taxing enactments. When it was proposed to hear them all together, no objections were heard from any quarter.

(3.) A company's capital, as normally understood, represents its paid-up capital plus reserves. That is also broadly the basis of calculation of capital for purposes of the Super Profits Tax Act and the Surtax Act. Schedule I of these Acts broadly follows the method of adding a company's reserves to its paid-up capital in order to arrive at its overall capital. In this statutory milieu, the temptation for surtax and super profits tax assessees was always to increase the capital base and show it at as high an amount as possible, so that it might thereby obtain a very high standard deduction and, in consequence, a pro tanto lower surtax profit. The opposite tendency can be discerned in the approach of the taxing department. For, the Department would always be interested in asking for as low capital base as possible.