9911796707
TMI Blog1994 (6) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ears involved are 1982-83, 1983-84 and 1984-85, for which the corresponding previous years were the financial years 1981-82, 1982-83 and 1983-84. The facts as stated by the Tribunal in the statement of facts were as under: The Assessing Officer in the course of assessment, while computing "capital" relevant to the respective surtax assessment, did not consider leave pay liability as "reserve" inasmuch as this liability was provided for meeting a known liability arising in future and, as such, it was only a provision and not a reserve. Being aggrieved, the assessee went up in appeal before the Commissioner of Income-tax (Appeals), and urged that in income-tax assessment, provision for leave salary was disallowed on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax (Appeals) confirmed the order of the Assessing Officer. Being aggrieved, the assessee came up in appeal before the Tribunal. The Tribunal considering the nature of the claim and arguments advanced by the assessee, was of the opinion that the assessee deserves to succeed. The Tribunal relied on the decision of the Supreme Court in the case of' CTT v. Laxmi Sugar and Oil Mills Ltd. [1986] 161 ITR 168 and of the Calcutta High Court in the cases of CIT v. Bharat General and Textile Industries Ltd. [1986] 157 ITR 159 and CIT v. Shaw Wallace and Co. Ltd. [1987] 167 ITR 27 and found that the decisions in the abovementioned cases squarely cover the issue under consideration and are directly applicable to the facts of the instant case. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contained in this Schedule, the capital of a company shall be the aggregate of the amounts, as on the first day of the previous year relevant to the assessment year of,-- (i) its paid-up share capital ; (ii) its reserves, if any, created under the proviso (b) to clause (vib) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922, or under sub-section (4) of section 32A or sub-section (3) of section 34 of the Income-tax Act, 1961 ; (iii) its other reserves as reduced by the amounts credited to such reserves as have been allowed as a deduction in computing the income of the company for the purposes of the Indian Income-tax Act, 1922, or the Income-tax Act, 1961." "1A. Where a company has not made any credit in any accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be treated as "reserve". The Supreme Court attached great importance to the fact that the entry had been actually reversed by the assessee himself in their relevant yearly account. In the case of CIT v. Elgin Mills Ltd. [1986] 161 ITR 733 (SC), the Supreme Court reiterated the principles enunciated in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53, at page 67 and 68, and observed : "The next question is whether the amount so provided is a provision or a reserve. The distinction between a provision and a reserve is in commercial accountancy fairly well-known. Provisions made against anticipated losses and contingencies are charges against profits and, therefore, to be taken into account against gross receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounting period. The liability to redeem the debentures was a future liability. The debenture had been separately shown in the balance-sheet as a liability. Therefore, the Tribunal was right enough in holding the contention of the assessee. The Delhi High Court took a similar view in the case of CIT v. Modi Industries Ltd. (No. 2) [1992] 197 ITR 655. It is held in that case that the debenture redemption fund had been created only for the purpose of setting apart a certain sum of money for use in future. Therefore, the fund could not be treated as provision. Our attention was also drawn to the case of CIT v. Dey's Medical Stores Ltd. [1994] 205 ITR 612 (Cal). In that case, it was held : "...... whether the contingency reserve was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been contended on behalf of the assessee that in the instant case, the assessee ultimately did not get any deduction on account of the item shown as "provision for leave salary". The assessee, however, did not pursue the matter before the higher authorities or the court. On a reference, it cannot be inferred from this fact that the amount which was disallowed as deduction according to the Income-tax Act must be treated as "reserve" under the provisions of the Companies (Profits) Surtax Act, 1964. The obligation to pay leave salary is a statutory liability created by section 79 of the Factories Act. Every worker who has worked for a period of 240 days or more in a factory must be allowed leave with wages for a number of days calculated a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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