COMMISSIONER OF INCOME TAX Vs. HINDUSTAN LEVER LIMITED

JUDGEMENT

(1.) THE assessee -company claimed certain items as being includible in the computation of its capital for the purpose of Super Profits Tax Act, 1963, for the assessment year 1963 -64. These three items were as follows : Rs.99,723 Doubtful debts reserve.44,12,832 Retirement gratuity reserve.17,00,000 Contingency reserve.

(2.) IN addition to these three items the assessee -company also claimed that an amount of Rs. 1,61,88,099 being the proportionate increase in the capital with effect from May 25, 1962, should also be included in the computation of its capital for the purpose of the S. P. T. Act.

(3.) THIS order of the ITO was confirmed by the AAC and the assessee -company, therefore, appealed against the order of the AAC to the Tribunal. The Tribunal held that the first three items were reserves within the meaning of the terms in the Second Schedule to the Act and were, therefore, entitled to be included in the computation of the capital of the assessee -company. With regard to the amounts which were transferred to the contingency reserve, it was argued before the Tribunal on behalf of the assessee that the assessee -company followed the most conservative policy of providing against the remotest possibilities out of abundant caution and as a result Rs. 8,35,000 had been created as a matter of prudence and not because the company really expected any liability to arise in future. With regard to the claim for inclusion of Rs. 1,21,28,044 also the Tribunal held that the assessee was entitled to have that amount included in the computation of the capital of the assessee -company.