- (1.) THE Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following question of law for our opinion : "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified to hold that the sum of Rs. 8,64,961 was a reserve for the purpose of Rule 1 of Schedule II of the Super Profits Tax Act, 1963?"
(2.) THE assessment year with which we are concerned is 1963-64. The assessee is a limited company. Its registered office is at Nabha. The Income-tax Officer on 17th August, 1966, made an assessment under Section 7 (2) of the Super Profits Tax Act, 1963 (hereinafter called 'the Act' ). He computed the standard deductions from chargeable profits at Rs 31,53,591, after adding surplus profits of the company to the extent of Rs. 7,02,001 as well as the amount of proposed dividend amounting to Rs. 8,64,961. These amounts were claimed by the assessee as "reserves" within the meaning of Rule 1 of the Second Schedule to the Act. The Commissioner of Income-tax in exercise of his powers under Section 17 (1) of the Act set aside the order of the Income-tax Officer. The Commissioner passed his order on 31st July, 1968. The Commissioner took the view that the surplus profits and the provision for proposed dividend were not includible for the standard deduction. For this view support was derived from Commissioner of Income-tax v. Century Spinning and Manufacturing Company Ltd. , [1953] 24 ITR 499 (SC ). Thereafter, the Income-tax Officer passed a fresh order on 10th November, 1968. The assessee then preferred an appeal to the Appellate Assistant Commissioner, who, by Ms order dated 11th of August, 1969, confirmed the order of the Income-tax Officer.
(3.) THE assessee being dissatisfied with the order of the Appellate Assistant Commissioner preferred an appeal to the Income-tax Appellate Tribunal. Two matters were agitated before the Tribunal that, (a) the surplus profit amounting to Rs. 7,02,001, and (b) the proposed dividend amounting to Rs. 8,64,961, should have been held to be a "reserve" and not a "mass of undistributed profits". Therefore, the entire amount of Rs. 15,66,962 should have been held to be a "reserve" and allowed to be taken into account for computing the standard deduction. The Tribunal held that the sum of Rs. 7,02,001 was a "mass of undistributed profits" and, therefore, could not be treated as a reserve within the meaning of rule I of Schedule II of the Act. But with regard to the proposed dividend amounting to Rs. 8,64,961 it took the view that this was a reserve within the meaning of the aforesaid rule. The observations of the Tribunal in this behalf are as follows : "the question which arises for our consideration is whether the facts of the instant case before us are absolutely identical with the facts of the case before their Lordships in Commissioner of Income-tax v. Century Spinning and Manufacturing Co. Ltd. ";