COMMISSIONER OF INCOME TAX Vs. GOKAK MILLS LIMITED

JUDGEMENT

(1.) THIS is a reference under S. 18 of the Companies (Profits) Surtax Act, 1964 (referred to hereinafter as "The Companies Surtax Act"), r/w S. 256(1) of the IT Act, 1961. The question referred to us in this reference is as follows :

(2.) THE relevant facts can be very shortly stated. The assessment year with which we are concerned is the asst. year 1964 65. The reference relates to the computation of the capital of the assessee company for surtax purposes in terms of r. 1 of the Second Schedule to the Companies (Profits) Surtax Act. The capital required to be computed is as on 1st Jan., 1963, being the 1st day of the relevant previous year, namely, 1st Jan., 1963, to 31st Dec., 1963. Out of the profits of the assessee for year ended 31st Dec., 1962, the directors had appropriated on 10th May, 1963, a sum of Rs. 1,57,967 by way of transfer to the staff gratuity reserve. The assessee contended that this amount should be included in the capital of the company for the purposes of the Companies (Profits) Surtax Act. This contention of the assessee was not accepted by the ITO. On an appeal by the assessee to the AAC, the AAC held that this amount was in the nature of a provision and not a reserve, and he dismissed the appeal. The assessee thereafter preferred an appeal to the Tribunal. The Tribunal took the view that the aforesaid amount, representing the Staff Gratuity Reserve, could not be said to have been retained by way of providing for a known liability but it was a provision merely for a contingent liability and hence it was liable to be included in the capital of the assessee company for the purposes of the Companies (Profits) Surtax Act. The aforesaid question referred arises from this decision of the Tribunal.

(3.) IN the result, the question referred is answered in the negative and against the assessee. The matter will now go to the Tribunal, which will dispose of the case in accordance with what we have observed above. Looking to all the facts and circumstances of the case, there will be no order as to costs.