METTUR INDUSTRIES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) 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:

(2.) 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 purpose 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 fixed assets 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 proposed dividends would not fall under "reserve". On appeal preferred by the asses-see, 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 that is challenged in the present reference in the form of the question extracted above.

(3.) THEN remains the last question regarding the provision for payment of Rs. 5,69,000 to the employees of the assessee as bonus. The Tribunal has stated in paragraph 6 of its order that the said amount had been debited under the caption "expenses" to the profit and loss account and its nature was apparent from the following extract from the report of the directors to the shareholders :