- (1.) The point involved in this case is whether certain amount set apart for payment of gratuity to the retiring labourers would be a 'provision' or 'reserve' for the purpose of capital computation under the Second Schedule of the Super Profit Tax Act 1963. The reference in question arises from the assessment proceedings under the Super Profit Tax Act, 1963 for the assessment year 1963-64. The relevant previous year ended on 31st March, 1963.
(2.) Under the aforesaid Act tax should be levied on the charge of its profits of the previous year in accordance with the rates set out in the Third Schedule to the Act. ?Chargeable Profits? mean the total income of the assessee computed under the Income-tax Act, 1961 for any previous year and adjusted in accordance with the provisions of the First Schedule. The Super Profits Tax is levied only on the balance remaining after adjustment of the balance-sheet deduction against the chargeable profits.
(3.) The assessee is a company carrying on the business of building railway wagons. In the assessment year 1963-64 a sum of Rs. 19, 57, 258/- appeared as provision for labour retiring gratuity, as on 1st April, 1962, the relevant date and it continued in the balance-sheet as on 31st March, 1963 and 31st March, 1964 with some slight modification covering some actual payments made therefrom. The assessee claimed the said amount as a reserve before the assessing authority for inclusion in the capital computation. The Assessing Authority however, took the view that a 'reserve' would consist of funds which were not incumbared and not assigned and specifically set apart for meeting as at the date of the balance sheet. The Assessing Authority accordingly, opined the said amount was meant to be used for the specific contingency already foreseen though not quantified. So, the claim preferred by the assessee was disallowed.;