HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Karamchand Premchand Pvt. Ltd. v. Commissioner of Income Tax, Gujarat
Civil Appeal No. 2230 (NT) of 1977
[1993] 2 SCR 109 ·
Super Profits Tax Act, 1963: Second Schedule, rule 1 · Income-tax Act, 1922: section 23A
Sources & disclosures includedDownload original judgment / order
2-judge bench · B. P. Jeevan Reddy, J. · N. Venkatachala, J.
Assessment years: 1963-64
01 · Facts of the case
After a section 23A notice in 1955-56, the company set aside Rs. 6,52,000 in its books for the year ending 31 March 1956. Following a transfer of Rs. 2,02,000 to profit and loss in 1958-59, Rs. 4,50,000 remained for the anticipated tax liability. It sought to include that balance as a reserve in the AY 1963-64 capital computation. Its underlying section 23A challenge succeeded on 24 May 1965.
Source: SCR pp. 111-112 / PDF pp. 3-4
02 · Discussion by the Hon’ble Court
Applying Metal Box and Vazir Sultan Tobacco, the Court distinguished a provision against anticipated losses or liabilities, charged against profits, from a reserve appropriated out of profits and retained as business capital. The absence of an additional-tax levy by the relevant date did not make this sum a reserve. The company’s own description supported its purpose, but book labels were expressly not treated as conclusive.
Source: SCR pp. 112-113 / PDF pp. 4-5
03 · Judicial decision
The Court upheld classification of Rs. 4,50,000 as a provision, rather than a reserve eligible for capital inclusion. The assessee’s appeal was dismissed without costs.
Source: SCR p. 113 / PDF p. 5
04 · Outcome / in whose favour
In favour of Revenue on the single taxation-provision item before the Court. No Supreme Court determination of the three other listed reference items is represented by this note.
05 · AKHB REVIEW POINT
AKHB analysis: establish why a balance was created and its position at the relevant assessment date. A contingent or disputed tax exposure may still explain a provision; later success in the underlying tax litigation does not by itself establish that the earlier balance was a reserve. Use the substantive purpose rather than the ledger title alone, and keep the historical capital-base issue distinct from current financial-reporting standards.
Source: AKHB analysis based on SCR pp. 111-113 / PDF pp. 3-5
Source & verification
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- Scope classification: ancillary direct-tax statute; not an Income-tax Act, 1961 merits ruling. No 1961/2025 statutory mapping inferred.
Statutory scope
Historical Super Profits Tax Act capital computation. The note does not determine present accounting-standard recognition or modern income-tax deductibility.
Later treatment
Source checked 2026-10-09. Subsequent treatment has not been comprehensively verified. No current-law or citator clearance is represented.
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