COMMISSIONER OF INCOME TAX Vs. FORBES FORBES CAMPBELL AND COMPANY LIMITED

JUDGEMENT

(1.) IN this reference at the instance of the CIT, Bombay City II, Bombay, the following two questions have been referred to us for our opinion :

(2.) THE first question relates to the asst. yrs. 1964 65, 1965 66 and 1966 67, the previous accounting years in respect whereof were calendar years ended 31st Dec., 1963, 31st Dec., 1964, and 31st Dec., 1965, respectively ; consequently the material date, being the first day of the previous accounting period for the purpose of capital computation under the Companies (Profits) Surtax Act, 1964, would be 1st Jan., 1963, 1st Jan., 1964, and 1st Jan., 1965, respectively. For the relevant asst. yrs. 1964 65, 1965 66 and 1966 67 there were three amounts standing to the credit of gratuity reserve in the company's books, the amounts being Rs. 98,730, Rs. 1,10,000 and Rs. 81,000, respectively. In surtax assessment the assessee company included in the computation of its capital for these three assessment years the said three amounts. Admittedly, these amounts had not been allowed as a deduction under the IT Act, 1961. The ITO while computing the capital of the assessee company under the Companies (Profits) Surtax Act, 1964, did not include these amounts in the capital computation as, according to him, these amounts were meant for specific purposes. In appeals before the AAC the assessee company pressed its claim for including these amounts in the capital computation, but the AAC confirmed the orders of the ITO. When the matter was carried by the assessee company in second appeals to the Tribunal, the Tribunal followed its own decision in the case of Voltas Ltd. in which, after referring to the Supreme Court decision in Metal Box Co.'s case (1969) 73 ITR 53 (SC), it had allowed inclusion of amounts set apart for gratuity reserve in the capital computation. It, accordingly, held that these three amounts which had been set apart and appropriated towards gratuity reserve were includible in the capital computation. At the instance of the CIT, therefore, the first question mentioned above has been referred to us for our opinion.

(3.) IN Metal Box Co.'s case (1969) 73 ITR 53 (SC) the Supreme Court was concerned with the nature of liability under the scheme of gratuity in connection with the Payment of Bonus Act, 1965. The relevant portion of the head note in that case runs thus :