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Issues:
1. Classification of provision for contingencies as reserve for computation of capital under Companies (Profits) Surtax Act, 1964. Analysis: The case involved a dispute regarding the treatment of a sum of Rs. 26,342 shown as provision for contingencies in the computation of capital for surtax assessment. The Appellate Assistant Commissioner initially accepted the contention that the amount should be treated as a reserve due to the absence of specific liabilities against which it was set apart. The Revenue appealed to the Income-tax Appellate Tribunal, which upheld the decision, equating the provision for contingencies with a general reserve. The Tribunal referred a question of law to the High Court regarding the correct classification of the amount. The High Court considered relevant legal provisions and precedents cited by both parties. The Revenue argued that the amount should be treated as a provision based on the specific classification under "Current liabilities and provisions." However, the assessee contended that since no specific liability was identified or quantified against the appropriation, the amount should be considered a reserve. The court examined various decisions, including CIT v. Jugantar P.Ltd., Vazir Sultan Tobacco Co. Ltd. v. CIT, and CIT v. Hindustan Lever Ltd., to determine the nature of such appropriations. The court noted that the absence of a known or quantified liability against which the amount was set apart supported the assessee's argument that it should be treated as a reserve. Emphasizing the uncertainty and unascertained nature of the liability, the court agreed with the assessee's position. It highlighted the principle that the true nature of an appropriation should be considered based on the surrounding circumstances and intention behind the allocation. The court also referenced the Supreme Court's decision in CIT v. Laxmi Sugar & Oil Mills Ltd. to support the distinction between provisions and reserves based on actual liabilities and intentions. Ultimately, the High Court held that the amount of Rs. 26,342, despite being labeled as a provision for contingency, should be treated as a reserve due to the lack of identified liabilities against which it was allocated. The decision favored the assessee, affirming the Tribunal's ruling. The judgment emphasized the need to assess the actual nature of appropriations to determine their classification for capital computation under the Companies (Profits) Surtax Act, 1964.
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