J.V.GUPTA, J. - (1.) THIS judgment will dispose of IT References Nos. 2 and 5 of 1974, as both of them one by the assessee and the other by the Revenue arise out of the same facts and the order of the Tribunal, Chandigarh Bench, dated May 26, 1975. The questions of law referred by the Tribunal in these references are as under :
(2.) QUESTIONS arising out of the assessee's reference application : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Rs. 8 lakhs is not a part of reserve within the meaning of r. 1 of the Second Schedule to the Super Profits Tax Act, 1963 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Rs. 3 lakhs is not a part of reserve within the meaning of r. 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?" Questions arising out of the Revenue's reference application : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the additional ground to be raised for the first time before it ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amounts of Rs. 2,40,966 and Rs. 2,09,999 respectively for provision for taxation and provision for dividends could be treated as 'reserve' to be included in the computation of the assessee's capital under r. 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?" The facts giving rise to these two reference applications are that the assessee known as M/s Oswal Woollen Mills Ltd., Ludhiana, is a company and the assessment year is 1963 64, the previous year being the calendar year 1962. The issue involved relates to the computation of capital under r. 1 of the Second Schedule to the S. P. T. Act, 1963. The computation of capital is provided in the aforesaid Act because an assessee gets a standard deduction of 6per cent of the capital computed or Rs. 50,000, whichever is greater, from the chargeable profits. This Act was in force only for the asst. year 1963 64 and was later on substituted by the C. (P.) S. T. Act, 1964. Under r. 1 of the Second Schedule, capital was to be computed as on the first day of the previous year, viz., January 1, 1962. In the balance sheet of the company as on December 31, 1961, there was an item of Rs. 11,09,293.07, being credit balance of profit and loss account, and this amount was shown under the head "Reserve and Surplus". It was common ground that no part of this amount was transferred to any reserve account in the books of the company for the calendar year 1961. The assessee, however, claimed that a sum of Rs. 11,00,000 out of this amount had been subsequently transferred to the reserve account and, therefore, this amount should be included in the capital computation. The amount of Rs. 11,00,000 consisted of two items : (1) Rs. 8 lakhs, and (2) Rs. 3 lakhs ; Rs. 5 lakhs was transferred to the reserve account on April 30, 1962, as per resolution passed by the board of directors of the company on March 1, 1962, but it appeared in the balance sheet as at December 31, 1962, and Rs. 3 lakhs were credited on August 31, 1963, and appeared in the balance sheet as at December 31, 1963. Before the ITO, the assessee's claim was that since the amount of Rs. 11,09,293 was not used for distribution of dividends in the subsequent year, it should be treated as a reserve. This contention was rejected by the ITO and for that he relied on the Supreme Court judgment in CIT vs. Century Spinning & Manufacturing Co. Ltd. (1953) 24 ITR 499 (SC). On appeal by the assessee before the AAC, he found that as on January 1, 1962, the amount of Rs. 11,09,293 was only a mass of undistributed profits and it was only later on that Rs. 8,00,000 was transferred to the reserve account. However, he did not deal with the amount of Rs. 3 lakhs specifically. Being aggrieved, the assessee filed a second appeal before the Tribunal and there, apart from claiming these two amounts of Rs. 8,00,000 and Rs. 3,00,000 as "reserve", the assessee sought permission to raise the following additional ground of appeal : "That the 'provision for taxation' of Rs. 2,40,966 and 'provision for dividends' Rs. 2,09,999 may also be considered as a part of the capital employed in the business for the purpose of computation of capital and standard deductions."
(3.) THOUGH the Departmental Representative objected to this ground being allowed to be raised at that stage because no such ground was taken before the authorities below, yet the learned Tribunal relying upon a judgment of this Court in CIT vs. Ram Sanchi Gian Chand (1972) 86 ITR 724 (P&H), allowed this additional ground to be taken and ultimately accepted the contention of the assessee relying upon a judgment of the Allahabad High Court in CIT vs. Security Printers of India (P.) Ltd. (1972) 86 ITR 210 (All). The view taken by the Allahabad High Court was that the "provision for taxation and provision for dividends" should be considered as "reserves" for the purpose of r. 1 of the Second Schedule to the S. P. T. Act, 1963. Respectfully following that judgment, the Tribunal directed that the amount of Rs. 2,40,966, being "provision for taxation", and Rs. 2,09,999, being "provision for dividends", should be treated as a part of the "reserves" for the purpose of r. 1 of the Second Schedule to the said Act. As regards the other contention, claiming the transfer of Rs. 8,00,000 and Rs. 3,00,000 from the profit and loss account to the reserve fund account, the same was not accepted. Thus, the appeal was partly allowed. Feeling aggrieved against this order of the Tribunal, dated 26th May, 1973, both the parties, i.e., the assessee as well as the Revenue, made two separate applications for reference, on which the abovementioned questions have been framed and referred to this Court. Question No. 1 arising out of the assessee's reference application is : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Rs. 8 lakhs is not a part of the reserve within the meaning of r. 1 of the Second Schedule to the S. P. T. Act, 1963 ?" ;