COMMISSIONER OF INCOME TAX Vs. HINDUSTAN LEVER LIMITED

JUDGEMENT

(1.) THIS is a reference under section 256(1) Of the Income -tax Act, 1961, as applied to the Companies (Profits) Surtax Act, 1964, by section 18 of the latter Act. The reference has been made at the instance of the Commissioner who is the applicant before us. The assessee is Hindusthan Lever Limited. The relevant assessment years are the assessment years 1964 -65 and 1965 -66. The questions referred to us for determination are as follows :

(2.) ASSESSMENT year 1964 -65 : 'Whether, on the facts and in the circumstances of the case, the following amounts were includible in the computation of capital of the assessee under rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 : Rs.(i) Contingency reserve 12,50,000(ii) Reserve for doubtful debts 3,70,852(iii) Super profits tax reserve 16,93,354(iv) Retirement gratuity reserve 45,65,674 ?'

(3.) THE questions referred pertain to the computation of capital or capital base, as it is called, for the purpose of the Companies (Profits) Surtax Act, 1964. We propose to refer to the said Act hereafter as 'the Companies Surtax Act'. Section 4 of the Companies Surtax Act, in brief, provides that subject to the provisions of that Act, there shall be charged on every company for every assessment year commencing on and from the 1st day of April, 1964, a tax on so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the statutory deduction, at the rate or rates specified in the Third Schedule. Clause (5) of section 2, the definition section, provides, in short, that 'chargeable profits' means the total income of an assesee computed in accordance with the provisions of the Income -tax Act, 1961, for any previous year or years and adjusted in accordance with the provisions of the First Schedule to the Companies Surtax Act. The relevant part of clause (8) of section 2 provides that 'statutory deduction' means an amount equal to 10% of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of two hundred thousand rupees, whichever is greater. Provisos to that clause are not material for our purposes. Rule 1 in the Second Schedule to the Companies (Profits) Surtax Act provides the manner in which the capital of a company has to be calculated and it says that, subject to the other provisions contained in that Schedule, the capital of a company would be the aggregate of the amounts set out in the said Rules. These amounts include, inter alia, the paid -up share capital of the company and its reserves. It is not necessary to consider the details of the provisions of rule 1.