9911796707
TMI Blog1986 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved, the assessee preferred an appeal from the assessment to the Appellate Assistant Commissioner. It was contended before the Appellate Assistant Commissioner that though the said amount was stated to be a provision, the same was actually a reserve, as there were no specific items of liabilities in view for which the said amount had been set apart. The Appellate Assistant Commissioner accepted the contention of the assessee and held, inter alia, that there was no specific item contemplated or mentioned in the accounts of the assessee against which the said amount was intended to be adjusted. He held that the said appropriation was made for uncertain and unascertained liabilities and the same could be used for the purposes of the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act containing rules for computing the capital of a company for the purpose of surtax, which reads as follows: " Explanation.-For the removal of doubts it is hereby declared that any amount standing to the credit of any account in the books of a company as on the first day of the previous year relevant to the assessment year which is of the nature of item (5) or item (6) or item (7) under the heading I RESERVES AND SURPLUS' or of any item under the heading 'CURRENT LIABILITIES AND PROVISIONS' in the column relating to 'Liabilities' in the 'FORM OF BALANCE-SHEET' given in Part I of Schedule VI to the Companies Act 1956 (1 of 1956), shall not be regarded as a reserve for the purposes of computation of the capital of a company under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature and character of the appropriation must be determined with reference to the substance of the matter and the intention and purpose of the appropriation which had to be gathered from the surrounding circumstances. It is, however, to be noted that the Supreme Court did not expressly decide the scope and effect of the Explanation to rule I in the Second Schedule to the Surtax Act and observed that the said Explanation was only declaratory of the existing legal position. (c) CIT v. Hindustan Lever Ltd. [1986] 160 ITR 700. In this case, Division Bench of the Bombay High Court held that an appropriation made by way of a reserve for gratuity would have to be regarded as a provision made for a contingent liability and, as such, could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was some liability in the contemplation of the assessee, no amount having been ascertained in respect of such liability, the entire amount set apart for meeting such liability should be held to be an excess and should be treated as a reserve. In support of her contention, learned advocate for the assessee cited the following cases: (a) CIT v. Indian Standard Wagon Co. Ltd. [1979] 116 ITR 539 (Cal). In this case, an amount was set apart in the accounts as provision for labour retiring gratuity. The question arose before a Division Bench of this court as to whether the said amount could be treated as a reserve and be included in the capital of the assessee for the purpose of the Surtax Act. It was held that as the item could not be ascert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact whether an item set apart was a provision or a reserve. Learned advocate for the assessee also relied on the decision of the Supreme Court in the case of Vazir Sultan & Co. Ltd. [1981] 132 ITR 559 and submitted that the entire amount set apart in the instant case should be treated as an excess as no liability has been ascertained on account of any contingency. I In the facts before us which have not been disputed by the Revenue, it appears that the said amount of Rs. 26,342 was set apart in respect of contingencies which were unknown. In fact, there was no liability contingent which was known. In fact, there was no liability contingent or otherwise under any head against which the said amount could be set apart. In any event, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plation of the assessee against which this appropriation was made, such a liability remained absolutely unascertained at the relevant time and, therefore, the entire appropriation should be treated as an excess is also not without substance.
For the above reasons, we do not find any reason to interfere with the decision of the Tribunal in the instant case. We hold that the said amount of Rs. 26,342, though shown as a provision for contingency, must be held and treated to be a reserve inasmuch as there was no liability or no ascertained liability against which the said appropriation was made. The question referred is answered in the affirmative and in favour of the assessee.
There will be no order as to costs.
MONJULA BOSE J.-I agree. X X X X Extracts X X X X X X X X Extracts X X X X
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