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TMI Blog1985 (5) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... benture Reduction of Rs. 11,00,000 should be taken into account for the purpose of computation of capital according to the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment year 1972-73? " The Income-tax Officer excluded the reserve for contingencies in the computation of capital under the Second Schedule to Companies (Profits) Sur-tax Act, 1964. The Appellate Assistant Commissioner supported the view taken by the Income-tax Officer without reasons. Before the Tribunal, it was contended by the assessee that the company had to statutorily create the reserve for contingencies according to the provisions of the Electricity (Supply) Act, 1948, and that the assessee was required to make specific appropriation fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, refers only to certain general contingencies under which the company was directed by the State Government to draw from this fund. At the hearing before us, it has been contended by Mr. A.C. Moitra, learned advocate for the Revenue, that having regard to the decision of the Kerala High Court in the case of Cochin State Power and Light Corporation Ltd. v. CIT [1974] 93 ITR 582, the decision of the Bombay High Court in the case of Amalgamated Electricity Co. Ltd. v. CIT [1974] 97 ITR 334 and the decision of the Patna High Court in Darbhanga Laheriasari Electric Supply Corporation Ltd. v. CIT [1979] 117 ITR 516, the contingency reserve under the Electricity (Supply) Act should be taken as provision and not reserve. Mr. Moitra, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be availed of. But it is clear beyond doubt that if any retention or appropriation of a sum is not a provision, that is to say, if it is not designated to meet depreciation, renewals or diminution in value of assets or any known liability, the same is not necessarily a reserve. We are emphasising this aspect of the matter because daring the hearing almost all counsel for the assessees strenuously contended before us that once it was shown or became clear that the retention or appropriation of a sum out of profits and surpluses was for an unknown liability or for a liability which did not exist on the relevant date, it must be regarded as a reserve. The fallacy underlying the contention becomes apparent if the negative and non-exhaustive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istake under section 13 of the Companies (Profits) Surtax Act, 1964. There, however, the Madras High Court considered that whether a contingency reserve was in the nature of general reserve and was includible in computing the capital of the company for the purpose of surtax was concluded by the various decisions of the Madras High Court and, as such, the reference application was rejected. The Supreme Court dismissed the Special Leave Petition filed by the Department in CIT v. Calcutta Electric Supply Corporation [1982] 138 ITR 111. This court at page 135 observed: "It, therefore, appears to us that contingencies reserve must have been created either out of the reserves or other sums or amounts available to the assessee. The said reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit an amount of Rs. 60,000 every year to the debenture redemption account. It was explained that every year, an amount of Rs. 60,000 was debited to the profit and loss account and credited to the debenture redemption reserve account. certificate signed by one of the directors had been furnished to state that payment of Rs. 60,000 every year to the debenture-holders was being directly made by debiting the debenture account and crediting bank. The certificate is also not made an annexure to the statement of the case. The Tribunal in the operative part of its order held that it accepted the evidence produced before it and that the reserve was not created for the purpose of paying debenture-holders and that the reserve was created to preserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case [1981] 132 ITR 559, held that ad hoc provision for gratuity cannot be regarded either as provision or reserve and that reserve must be consciously created and a mere appropriation of accumulated profits, without more, would not answer the description of reserve. The debenture trust deed dated July 26, 1951, is not available before us. It has not been annexed to the statement of the case. It is not known what was the scientific basis of payment of Rs. 60,000 every year to debenture-holders and whether any excess provision is made every year. In the absence of proper material touching on this crucial aspect, we are unable to decide the controversy. The matter has to be remanded to the Tribunal who shall decide this controversy in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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