Commissioner of Income Tax vs Ayyappan Textiles Ltd.

Mishra, J.—The Tribunal has referred to this court the following questions of law :

Assessment year 1974-75 :

Whether, on the facts and circumstances of the case, the dividend proposed out of general reserve should be deducted from the general reserve

which is aggregated for computing the capital of the company for the purpose of the Companies (Profits) Surtax Act, 1964, under rule 2(ii) of the

Second Schedule thereto ?

Assessment year 1975-76 :

Whether, on the facts and circumstances of the case, the provision for gratuity should be regarded as reserve included in the capital computed

foe the purpose of the Companies (Profits) Surtax Act, 1964 ?

Whether, on the facts and in the circumstances of the case, the deductions computed u/s 80G of the Income Tax Act could be included as

income not includible in the total income of the assessee for the purpose of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act ?

The Tribunal has disclosed no information on the facts except that it has mentioned that the Commissioner of Income Tax (Appeals) has held

that the proposed dividend, payable out of the reserve, need not be deducted in computing the capital, which, according to it, was in terms of the

view of this court in the case of Madras Motor and General Insurance Co. Ltd. Vs. Commissioner of Income Tax, for the assessment year 1974-

75 and for 1975-76, on the first question, the decision of the Commissioner of Income Tax (Appeals) that the provision for gratuity should be

regarded as a reserve was in terms of the judgment of the Delhi High Court in the case of Commissioner of Income Tax, Delhi (Central) Vs. Orissa

Cement Ltd., . On the second question also, the Tribunal''s discussion is only to the following effect

The next objection is to his view that the deductions granted under Chapter VI-A of the Act do not require reduction of the capital. But, this view

was also based on the decision of the Madras High Court in the case of Additional Commissioner of Income Tax Vs. Bimetal Bearings Ltd., .

Since the decision of the Commissioner of Income Tax (Appeals) is in accordance with the decisions of the High Court on the points at issue, We

see no reason to interfere with the order.

We could have considered somewhat obstinate the stand of the Revenue that in spite of the clear statements with reference to the laws on the

subject, it has insisted on a reference as if sitting collaterally any Bench of this court can answer a question that was already answered by it and

thus gone into the details of this aspect of the matter, had learned counsel for the Revenue not drawn our attention to a judgment of the Supreme

Court in Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad, on the question

whether any amount set apart for gratuity can be regarded as a reserve and persuaded us to consider whether, in view of the said judgment of the

Supreme Court, the Tribunal should give a fresh consideration to the question, whether, on the facts and circumstances of the case, the provision

for gratuity should be regarded as reserve included in the capital computed for the purpose of the Companies (Profits) Surtax Act, 1964. As we

have noticed, we do not have the support of sufficient facts for any detailed examination of the application of law in this behalf. It will be proper in

such a situation to accept the Revenue''s case that the Tribunal should consider afresh, in accordance with law, the issue as to the above question in

the light of the judgment of the Supreme Court. The Revenue has not pressed the second question, whether, on the facts and in the circumstances

of the case, deductions computed u/s 80G of the Income Tax Act could be included as income not includible in the total income of the assessee for

the purpose of rule 4 of the Second Schedule to the Companies (Profits) Surtax Act ? The answer to the first question for the present thus is that

the Revenue is obliged to follow the judgment of the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd., Hyderabad and Others Vs.

Commissioner of Income Tax, Andhra Pradesh, Hyderabad, and the Tribunal is accordingly required to reconsider the whole matter. The second

question is returned unanswered because it is not pressed.

Learned counsel for the Revenue has drawn our attention to the question pertaining to the assessment year 1974-75 which has been referred to

this court for adjudication only because it was asserted on behalf of the Revenue that the correctness of the decision of this court in Madras Motor

and General Insurance Co. Ltd. Vs. Commissioner of Income Tax, was referred to a larger Bench. It is brought to our notice that the question,

whether, on the facts and in the circumstances of the case, the dividend proposed out of the general reserve should be deducted from the general

reserve, which is aggregated for computing the capital of the company for the purpose of the Companies (Profits) Surtax Act, 1964, under rule

2(ii) of the Second Schedule thereto, has been fully answered and the view in Madras Motor and General Insurance Co. Ltd. Vs. Commissioner

of Income Tax, has been held to be obiter and not correct, in Southern Roadways Ltd. Vs. Commissioner of Income Tax, Tamil Nadu-IV, . It is

obvious that the same is to be carried out and it has to be held that the Tribunal has erred in following the law as laid down in Madras Motor and

General Insurance Co. Ltd. Vs. Commissioner of Income Tax, . The Tribunal is thus required to take notice of the above judgment of this court

and the said question is answered accordingly. The matter is accordingly remitted to the Tribunal. There will be no order as to costs.