Sriramulu, J. -
(1.) THE Vazir Sultan Tobacco Company Ltd. is an asses-see under the Super Profits Tax Act, 1963 (No. 14 of 1963) hereinafter referred to as "the Act"), for the assessment year 1963-64. For computing the chargeable profits of the previous year for the purpose of levy of super profits tax, the assessee-company claimed that the provision of (i) Rs. 33,68,360 for taxation, (ii) Rs. 9,08,106 for retiring gratuity, and (iii) Rs. 18,41,820 for dividends, should be considered as "other reserves" within the meaning of Schedule II to the Act and taken into consideration for the determination of its capital. THE Super Profits Tax Officer rejected the assessee's contention as, in his opinion, all those items were current liabilities and provisions, and not "reserves". He, accordingly, held that those items could not be taken into account for computation of the capital of the assessee-company. THE Super Profits Tax Officer, on that basis, determined the capital, the standard deduction and levied super profits tax on that portion of the chargeable profits of the previous year which exceeded the standard deduction.
(2.) ALTHOUGH the Appellate Assistant Commissioner, in first appeal by the assessee against the assessment, accepted the assessee's contention and held that those items were "other reserves", the Income-tax Appellate Tribunal, in the appeal filed by the Super Profits Tax Officer against the order of the Appellate Assistant Commissioner, accepted the department's contention and held that they were not "reserves" within the meaning of the Second Schedule to the Act and those items could not enter into the computation of the capital of the assessee-company.
At the instance of the assessee-company, the Income-tax Appellate Tribunal, under Section 256(1) of the Income-tax Act, read with Section 19 of the Super Profits Tax Act referred the following question of law to this court:
" Whether, on the facts and in the circumstances of the case, the provision, (a) for taxation Rs. 33,68,360 ; (b) retirement gratuity, Rs. 9,08,106; and (c) dividends Rs. 18,41,820, could be treated as reserves for computing the capital for the purpose of super profits tax under the Second Schedule to the Super Profits Tax Act, 1963, for the assessment year 1963-64 ? "
The super profits tax is levied on companies and on no other assessable entities. Section 4 is the charging section under the Act. According to that section, every company for every assessment year commencing on and from the first day of April, 1963, shall be charged with super profits tax in respect of so much of its chargeable profits of the previous year or years, as the case may be, as exceeds the standard deduction, at the rate or rates specified in the Third Schedule to the Act.
(3.) THE expression "chargeable profits" and "standard deduction" occurring in the charging section are defined in Sections 2(5) and 2(9) of the Act, respectively. Section 2(5) reads as follows :
" ' Chargeable profits ' means the total income of an assessee computed under the Income-tax Act, 1961, for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule."
Section 2(9) of the Act reads :
" ' Standard deduction ' means an amount equal to six per cent, of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of fifty thousand rupees, whichever is greater:
Provided that where the previous year is longer or shorter than a period of twelve months, the aforesaid amount of six per cent, or, as the case may be, of fifty thousand rupees shall be increased or decreased pro-portionetely :
Provided further that where a company has different previous years in respect of its income, profits and gains, the aforesaid increase or decrease, as the case may be, shall be calculated with reference to the length of the previous year of the longest duration. "