- (1.) THE Income-tax Appellate Tribunal, Chandigarh, has referred the following two questions for the opinion of this court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the sum of Rs. 2,00,000 standing against the narration, 'proposed dividend' in the relevant balance-sheets on the first day of the accounting period of each of the assessment years 1973-74 and 1974-75 could not be treated as a reserve in computing the capital for purposes' of surtax under the Second Schedule to the Companies (Profits) Surtax Act, 1964 ? Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the sum of Rs. 5,000 standing against the narration, 'staff Welfare Fund' in the relevant balance-sheets on the first day of the accounting period of each of the assessment years 1973-74 and 1974-75 could not be treated as a reserve in computing the capital for purposes of surtax under the Second Schedule to the Companies (Profits) Surtax Act, 1964?"
(2.) COUNSEL for the parties are agreed that in view of CIT v. British India Corporation Ltd. [1986] 161 ITR 741 (SC), the first question has to be answered in favour of the Revenue, in the negative and on consideration of the facts and keeping in view the aforesaid decision, we are of the opinion that they are right. On the first day of the accounting year relevant to the assessment years 1973-74 and 1974-75, the assessee, a limited company, proposed a dividend reserve in the sum of Rs. 2,00,000 but when the facts were seen, it was found that the liability of the company for payment of the dividend had already been quantified in the sum of Rs. 2,00,000 and, therefore, it was not a case of constituting a reserve but was a case of getting the amount set apart for meeting the committed liability. Since it was not a case of constituting reserve but was for making a provision to discharge the liability already created, the amount of rupees two lakhs for both the assessment years was rightly not treated as a reserve in computing the capital for purposes of surtax under the Second Schedule to the Companies (Profits) Surtax Act, 1964.
(3.) AS regards the second question, on the first day of the accounting period relating to the assessment year 1973-74, the assessee created a staff benefit reserve of Rs. 5,000 under the heading "staff Welfare Fund". It claimed that the reserve be considered in computing the capital for the purposes of surtax under the Second Schedule to the Companies (Profits) Surtax Act, 1964, but the assessee's plea failed up to the Tribunal. On the basis of the decision of the Delhi High Court in Addl. CIT v. Minerals and Metals Trading Corporation of India Ltd. [1982] 134 ITR 78, counsel for the assessee. has claimed 20% deduction on the aforesaid reserve on the ground that the amount was not set apart to meet any known liability, present or future, and was set apart with a view to be spent for such advantage of the employees as the assessee might choose in accordance with certain well-defined policies. We have gone through the aforesaid decision, the provision of law and the facts of the case and are of the opinion that the reserve created for the benefit of the staff was not an effort to make a provision to meet any known liability, present or future, and the assessee was entitled to deduction of 20% on the reserve of Rs. 5,000 and it had to be treated as a reserve in computing the capital for purposes of surtax under the Second Schedule to the Companies (Profits) Surtax Act, 1964.;