COMMISSIONER OF INCOME TAX Vs. CYNAMID INDIA LIMITED

JUDGEMENT

(1.) THIS is an application under S. 256(2) of the IT Act, 1961, requesting that we should direct the Tribunal to refer to us the following question as a question of law arising out of the Tribunal's order. The question is : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the following funds constituted 'reserves' and were to be included in the computation of the assessee company's capital for the purpose of the Companies (Profits) Surtax Act, 1964 :

(2.) THE affidavit in reply of the respondent explains that the reserve under the Drugs Order (Price Control) is created as per the provisions of the Drugs (Price Control) Order, 1970. The amount standing to the credit of the said reserve has not been allowed as a deduction in computing the respondent's income under the IT Act, 1961, in any of the assessment years in which such amounts were transferred to the said reserve. It represents an amount set aside out of the profits and other surpluses not designated to meet any liability.

(3.) ITEMS No. (iii), which is also a provision for contingencies is to meet a possible liability for bonus. The respondent's practice was to pay bonus to its employees irrespective of the salary earned by the employees. The Payment of Bonus Act, 1965, was amended w.e.f. 18th Dec., 1985, as a result of which employees drawing salary in excess of Rs. 1,600 per month were not eligible for bonus. The said amendment further provided that when the salary or wage of an employee exceeded Rs. 750 per month, the bonus payable to such employee would be as if the salary were Rs. 750 per month. The respondent felt that despite these provisions of the Payment of Bonus Act, its employee might make a claim for bonus on the basis of its past practice. There was, in fact, no demand at the relevant time from the employees at all for such payment of bonus. This amount has been included in the computation of the respondent's income.