Judgment:
S. Natarajan and; Sabysaschi Mukharji, JJ.
1. The following question came up for consideration before the High Court of Allahabad under Section 256(1) of the Income Tax Act, 1961 (hereinafter called the “Act”):
“Whether, on the facts and in the circumstances of the case, it was rightly held that (1) proposed dividends, (2) provision for taxation, (3) credit balance of profit and loss account, (4) depreciation reserve (being excess of book depreciation over depreciation allowed in the income tax assessment) represented ‘reserves’ and were to be included in the computation of capital under the Super Profits Tax Act, 1963?”
The High Court by its judgment and order dated December 23, 1971 answered the question on the different items. The High Court was of the view that the four items, namely, (1) proposed dividends, (2) provision for taxation, (3) credit balance of profit and loss account and (4) depreciation reserve, that is, excess of book depreciation over depreciation allowed in the income tax assessment did not represent reserves and should not be included in the computation of capital under the Super Profits Tax Act, 1963 and answered the question in the negative in favour of the assessee.
2. The assessee came up in appeal before us. So far as the items called proposed dividends, provision tor taxation and credit balance of profit and loss account are concerned, in view of the decision of this Court in Vazir Sultan Tobacco Co. Ltd. v. CIT1 and the decision in CIT v. Century Spinning and Manufacturing Co. Ltd.2, the questions answered in favour of the Revenue by the High Court must be held to have been rightly answered. So far only Item No. 4, that is to say, depreciation reserve (being excess of book depreciation over depreciation allowed in the income tax assessment) is concerned, a sum of Rs 2,23,185 which was described as depreciation reserve, it was found by the High Court that it was the excess of the book depreciation over the income tax depreciation allowed. The High Court found that there was no evidence that this was put to any future use. There is also no evidence that this was meant to be or intended to be put up for use in future. If that is the position, then it cannot be said that these formed part of the reserve even though they were in excess of the actual depreciation allowed by the Income Tax Act, unless there is a conscious decision to set apart a certain amount for future use, it cannot be called reserve.
3. So far as the depreciation reserve is concerned, it is not quite clear as to how this amount was treated. In view of the position in law as discussed by the authorities mentioned before us as well as in CIT v. Elgin Mills Ltd.3 we remand the case back to the High Court with a direction to remand the matter back to the Tribunal to find out as to how this reserve was dealt with by the assessee, as was done in the case of Vazir Sultan Tobacco Co. Ltd. v. CIT1. The question therefore is answered by saying that the High Court was right so far as the proposed dividends, provision for taxation, credit balance of profit and loss account was concerned and so far as item depreciation reserve is concerned, the matter is remanded back to the High Court in the manner indicated above, with no order as to costs.