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TMI Blog2012 (8) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... Contingent liability on revenue account. (f) Net Worth = (d) - (e). 2. Whereas according to the writ petitioner, Contingent Liability to a Revenue Account would only be such sums as would be recorded in the balance-sheet which conform to the opinion dated July 15, 1962 of the Institute of Chartered Accountants of India in the following words:- "The Committee is of the view that a contingent liability in respect of guarantees arises when a company issues guarantees to another person on behalf of a third party e.g. when it undertakes to guarantee the loan given to a subsidiary or to another company or gives a guarantee that another company will perform its contractual obligations. However, where a company undertakes to perform its own obligations, and for this purpose issues, what is called a "guarantee", the committee is of the view that this does not represent a contingent liability and it is misleading to show such items as contingent liabilities in the Balance Sheet. Section 126 of the Indian Contracts Act, 1872, defines a contract of guarantee as "a contract to perform the promise or discharge the liability, of a third person in case of his default". It is clear from this th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liers letters of credit etc. For this purpose, the company issues a "counter-guarantee" to its Bankers. Such "counter-guarantee" is not really a guarantee at all, but is an undertaking to perform what is in any event the obligation of the company, namely, to pay the insurance premia when demanded or to make deferred payments when due. Hence, such performance guarantees and counter-guarantees should not be disclosed as contingent liabilities." with additional argument based on Accounting Standard 29 which defines, as per the writ petitioner, Contingent Liability: (a) A possible obligation that arises from past events that existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) A present obligation that arises from past events but is not recognized because: (i) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) A reliable estimate of the amount of the obligation cannot be made. 3. As per the writ petitioner the said aspect as to whether a guarantee issued for towards own obligations by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows, by various lexicons as under: Black‟s Law Dictionary Revenue. Gross income or receipts. MITRA'S LEGAL AND COMMERCIAL DICTIONARY Revenue. Gross income or receipts; earnings; intake; proceeds; return or yield. The word "revenue" is a word of somewhat indefinite import, but in its ordinary sense in relation to a business undertaking it connotes those incomings of the undertaking which are the products of or are incidental to the normal working of the undertaking. [London, Midland etc. V. Anglo-Scottish Railways, etc. 150 LT 361]. Revenue Account. The account of a firm or a company showing the result of its operations and what profit or loss it has made. For the purpose of ascertaining profits arising from the business of a company, capital account and revenue account are prima facie to be treated as separate accounts. The credit balance of revenue account is applicable for dividend. WHARTONS LAW LEXICON Revenue - Income, annual profit received from land or other funds; Revenue Account is thus the profit and loss account annually drawn by the enterprise. (b) A collective and conjoint reading of the said connotations do suggest that Contingent liability on R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on profits. The liability crystallize upon final decision of the case, till such time it shall remain as Contingent Liability on Revenue Account. 9. But, according to the respondents, amounts which ultimately would be debited to the Revenue would have to be treated as Contingent Liability on Revenue Account. 10. We note that the officers concerned with the Notice Inviting Tender have held various deliberations, minutes whereof have been recorded from time to time and as regards the two rival viewpoints pertaining to the writ petitioner, in the minutes of the 4th meeting of the Empowered Committee of Secretaries (ECS) held on July 09, 2012 have noted on the subject with respect to the balance-sheet of the writ petitioner, to be specific, in para 2.3.1 of the minutes as under:- "2.3.1. M/s. Ishar Gasoil Pvt. Ltd. clarified that LCs were obtained for the purpose of procurement of goods for trading and BGs were obtained as surety or guarantee to statutory organizations. M/s. Ishar Gasoil Pvt. Ltd. in their letter dated 03.05.2012 stated that "contingent liability on revenue account is nil and share application money received as subscription against issued share capital is non refu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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