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TMI Blog1997 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 9,16,688 representing the bond redemption fund should be treated as a part of the paid-up capital for the purpose of computing the capital under the Act. The Surtax Officer however, was of the view that this was in the nature of a provision created to meet a known liability since the loan became due for payment in 1983. He, therefore, held that the said sum of Rs. 9,16,688 cannot be included as part of the capital and completed the assessment under the Surtax Act. The assessee went in appeal before the Commissioner of Income-tax (Appeals) who confirmed the view of the Surtax Officer holding that the same could not be treated as "reserve" under the provisions of the Companies Act and the action of the Income-tax Officer in excluding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?" Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the order of the Appellate Tribunal is erroneous in law as the Tribunal has not approached the question in the proper perspective to determine whether the bond redemption fund can be treated as a provision or a reserve. He submitted that the Tribunal has not addressed itself to the proper question to consider that the said fund can be regarded as a "reserve". He brought to our attention to the recent decision of the Supreme Court in the case of National Rayon Corporation Ltd. v. CIT [1997] 227 ITR 764, wherein the Supreme Court held that the debenture redemption reserve was not a "reserve" and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is in the nature of a provision or is in the nature of a reserve. The question when the amount set apart can be regarded as a provision or when it will be regarded as a reserve, came up for consideration before the Supreme Court and recently in National Rayon Corporation Ltd. v. CIT [1997] 227 ITR 764, the apex court has reviewed the earlier decision and held that the two concepts "reserve" and " provision" are fairly well known in commercial accountancy and they are used under the Companies Act dealing with preparation of balance-sheets and preparation of profit and loss accounts. The Supreme Court, therefore, held that the proper meaning that should be given to this expression should be the same meaning attached to them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the assessee and, therefore, it should be taken as a part of the reserve. The test whether the provision was made to meet a known liability or not has not been considered by the Appellate Tribunal. Since the Appellate Tribunal has not posed the proper question and decided the question in the manner it should be, we are of the view that the Tribunal has committed an error in law in holding that the bond redemption fund should be treated as reserve and the reserve should be included in the capital of the company for the purposes of the Surtax Act. Though we answer the question of law referred to us under the provisions of the Companies (Profits) Surtax Act in the negative and in favour of the Revenue, the Tribunal is directed to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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