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TMI Blog1984 (7) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... section 8 of the Act. This ground was, however, not pressed during the hearing and it is, accordingly, dismissed. 3. The next common ground for all the years relates to the question of manner of treatment to be accorded to Quarry Land Amortisation Reserve shown in the balance sheet in the same name at Rs. 21,700 for the assessment year 1972-73, Rs. 1,05,500 for the assessment year 1975-76, Rs. 1,29,500 for the remaining four years. The assessee's accounting year is the year ending on 30th June. The question for consideration is whether the said reserve styled as a reserve should be taken as a reserve and, therefore, form part of the capital base or should be taken as a provision, as contended by the ITO. Schedule II to the Surtax Act pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancy practice. The ITO, therefore, took the view that this reserve should be treated as sinking fund and it was for this reason that he excluded the same from the computation of capital. The first appellate authority concurred with him on the ground that the assessee holds leases over a number of mines for extracting limestone for the manufacture of cement. Since it is a wasting asset, he was of the view that it was prudent on the part of the assessee to provide for future needs with a view to replace the loss. The description as a reserve cannot by itself help the assessee ; according to him, as it was meant as a provision. The assessee is in second appeal. 4. The learned counsel for the assessee referred us to a definition of 'sinking f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholders have approved such allocation. He urged that the fact that it has been earmarked as Quarry Land Amortisation Reserve, makes it a sinking fund. The fact that it was written back subsequent to these years to the profit and loss account during 1982-83, could not, prima facie, make the provision into a reserve during the relevant years. 5. We have carefully considered the records as well as the arguments. The Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. pointed out that the meaning assigned to the words 'provision' and 'reserve' should be the same as under the Companies Act. In fact, where the explanation is sought to be assigned as in this case, it is amply clear that the meaning should be the same as under the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, written back to the profit and loss account. Even if the subsequent conduct is ignored by us, the fact remains that there is no uniform or even any basis inferable for the allocation with reference to the accounts or any statements of the directors or any other objective or subjective criteria. It has been an ad hoc allocation. It is also needless to point out that there has been no material to suggest that it was a tied-up reserve in the sense that there was any obligation cast upon the directors either by themselves or by resolution of the shareholders to use the funds only for amortisation purposes. It is in this context that we must consider it as a reserve. In fact, it has been styled as a reserve in the accounts year after yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement of a debt, the redemption of stock, or the protection of an investment in depreciable property ; sometimes paralleled by a sinking fund reserve. A sinking fund established for the purpose of extinguishing indebtedness or reacquiring capital stock may also be known as a redemption fund. " The emphasis, it may be seen, is on the cash or other assets and not so much as mere accounting exercise as in the assessee's case, where the profit and loss appropriation account is debited and the reserve account is credited. Nothing more is done by the assessee. In fact, it has been written back. It was possible only because it was a reserve. Under these circumstances, we find that the amount represented by Quarry Land Amortisation Reserve is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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