LOYAL TEXTILES MILLS LIMITED Vs. COMMISSIONER OF SUPER PROFIT

JUDGEMENT

(1.) THE dispute in this case is with regard to the treatment to the given to certain development rebate reserves in computing the capital of the company as on 1st July, 1961, the first day of the previous year ended 30th june, 1962. THE company has provided in its balance sheet as on 30th June, 1961 relating to the accounting period ended 30th June, 1961 relevant to the asst. yr. , 1962-63, a sum of Rs. 7, 09, 978 under the head "development Rebate reserve" for the accounting periods ended 30th June, 1958, 30th June, 1959, 30th June, 1960 and 30th June, 1961, no reserves have been created in the earlier years. THE reserve required to the created for the asst. yr. 1962-63 for the accounting period ended 30th June, 1961 at 75 per cent was Rs. 1, 99, 179 but the amount actually created as Reserve was Rs. 2, 65, 572. THE revenue to be created for the earlier three accounting years ending 30th June, 1958, 30th june, 1959 and 30th June, 1960 in items of s. 34 (3) of the IT Act, 1961, came to Rs. 4, 44, 406. THE provision and appropriation of the said amounts as reserve towards the development rebate were actually contained in the director's Report dt. 29th October, 1961 for the year ended 30th June, 1961. THE accounts together with the Director's Report thereon were adopted in the company's Annual General Meeting held on 28th December, 1961.

(2.) IN its super-profits tax assessment for the asst. yr. 1963-64 the company claimed that the entire development rebate reserve of Rs. 7, 09, 978 should be including in the computation of capital for the purpose of calculating the standard deduction at 6 per cent of the capital. Under s. 4 of the Super Profit Tax Act, 1963, super profits tax is payable on the excess of the chargeable profits of the previous year over the "standard deduction" and in terms of s. 2 (a) of the Act "standard deduction" is taken at 6 per cent of the capital of the company or Rs. 50, 000 whichever is greater. The super Tax Officer rejected the assessee's claim for inclusion of the said sum of Rs. 7, 09, 978 in the computation of the entire capital of the company, but included only a sum of Rs. 1, 99, 179 being the reserve statutorily required to be created for the accounting year ended 30th June, 1961. The reasons for disallowing the company's claim for inclusion of the balance of the reserve of Rs. 5, 10, 799 (That is Rs. 4, 44, 406 plus rs. 66, 393) in the capital computation however, have not been specifically set out by the Supper Profit Tax Officer in his assessment order.

(3.) THERE will be no order as to costs.