- (1.) THIS judgment will dispose of Income-tax 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 Income-tax Appellate Tribunal, Chandigarh Bench, dated May 26, 1975. The questions of law referred by the Income-tax Appellate Tribunal in these references are as under : Questions arising out of the assessee's reference application: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 rule 1 of the Second Schedule to the Super Profits Tax Act, 1963 ?"
(2.) 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 Rule 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 6% of the capital computed or Rs. 50,000, whichever is greater, from the chargeable profits. This Act was in force only for the assessment year 1963-64 and was later on substituted by the C. (P.)S. T. Act, 1964. Under Rule 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 v. Century Spinning and Manufacturing Co. Ltd. [1953] 24 ITR 499.
(3.) 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.;