HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Vazir Sultan Tobacco Co. Ltd. and connected assessees v. Commissioner of Income-tax, Andhra Pradesh, Hyderabad
Civil Appeal No. 860 of 1973 and connected matters
[1982] 1 SCR 789 ·
Super Profits Tax Act, 1963: Second Schedule rule 1 · Companies (Profits) Surtax Act, 1964: Second Schedule rule 1 · Companies Act, 1956: Schedule VI
Holding and result. A provision meets a known liability while a reserve is an appropriation retained as business capital; labels are not decisive. Tax provisions and proposed-dividend appropriations were not reserves, gratuity required factual valuation, and current-year dividend generally reduced current profits before general reserve.
Sources & disclosures includedDownload original judgment / order
Three-judge bench; principal judgment by V. D. Tulzapurkar, J.; concurring opinion by Amarendra Nath Sen, J. · V. D. Tulzapurkar, J. · E. S. Venkataramiah, J. · Amarendra Nath Sen, J.
01 · Facts of the case
Connected company cases disputed whether appropriations for taxation, retirement gratuity and proposed dividends counted as reserves in computing capital for special excess-profits taxes. A further reference concerned a transfer of current profits to general reserve followed by dividend payment.
02 · Discussion by the Hon’ble Court
The Court used commercial-accounting substance and the Companies Act framework. A charge against profits for a known liability is a provision; an appropriation retained as capital is a reserve. An excess provision may qualify as reserve, but needs evidence. Proposed dividend, although not yet a legal debt, was earmarked for distribution rather than retained as capital. Gratuity classification depended on a scientific estimate and any demonstrated excess.
Source: Primary judgment: reasoning
03 · Judicial decision
Tax provisions were excluded; proposed-dividend appropriations were not reserves; gratuity issues requiring valuation were remitted; and, absent contrary evidence, current dividends were treated as paid from current profits before determining the general reserve.
Source: Primary judgment: holdings
04 · Outcome / in whose favour
Civil Appeal No. 860 of 1973 partly allowed; Civil Appeal No. 1614 (NT) of 1978, Review Petition No. 57 of 1980 and Tax Reference Cases Nos. 2-3 of 1977 and 5 of 1978 dismissed.
05 · AKHB REVIEW POINT
AKHB analysis: classify each balance-sheet appropriation by purpose, liability and evidentiary basis at the relevant date. Do not infer reserve status merely because an amount is not technically a provision, or from its label or temporary availability in the business.
Source & verification
Download original judgment / order · Open cited source rendition
Complete 47-page SCR report read in page-preserving text and every page image inspected, from the reported opening page through the operative disposition.
- Exact catalogue SHA-256 and 47-page count verified; every page was read and visually inspected.
Statutory scope
Historical statutory provisions are described as they appeared in the report. Verify the current enactment, amendments and later judicial treatment before reliance.
Later treatment
Source checked 2026-10-12. No comprehensive later-treatment or present-law clearance is represented. The note reports the historical statutory text and result in this primary report only.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
AI disclosure & professional disclaimer
This AKHB research note was prepared with AI assistance from the identified primary report and has not been represented as independently human-reviewed.
General legal and tax research only; not legal or tax advice. Verify the complete judgment, governing statutory version and subsequent judicial treatment before reliance. The AKHB REVIEW POINT is editorial analysis, not the Court's holding, and no current-law clearance is claimed.