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TMI Blog1983 (1) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable profits under the Super Profits Tax Act, 1963 ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the amount of Rs. 56,62,050 credit balance in an account styled as contingency reserve should be taken into consideration for computing the capital under the Super Profits Tax Act, 1963 ? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the amount of Rs. 1,20,956 credit balance in an account styled as charity reserve should be taken into consideration for computing the capital under the Super Profits Tax Act, 1963 ?" The facts of the case as set out in the statement of the case show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a case under the I.T. Act, the important part of that decision can be quoted here immediately (p. 68): " An amount set aside out of profits and other surpluses, not designed to meet a liability, contingency, commitment or diminution in value of assets known to exist at the date of the balance-sheet is a reserve but an amount set aside out of profits and other surpluses to provide for any known liability of 'Which the, amount cannot be determined with substantial accuracy is a provision. " Applying this test, the Tribunal had held that the sum of Rs. 7,50,000 mentioned earlier is a reserve. It did not relate to any liability which could be ascertained with any degree of accuracy. It was not an amount which related to any deductions whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 ITR 499. Reference was also made to the decision of the Supreme Court in ,First National City Bank v. CIT [1961] 42 ITR 17 and CIT v. Standard Vacuum Oil Co. Ltd. [1966] 59 ITR 685. Another judgment of the Calcutta High Court in CIT v. Jugantar P. Ltd. [1981] 128 ITR 619, held that a provision made for anticipatory contingency and to meet anticipatory diminution in value was a known contingency and anticipated, though not determined with accuracy. This was. therefore. not a reserve includible in computing the capital. In another judgment of the Madras High Court in India Motor Parts Accessories Ltd. v. CIT [1981] 130 ITR 311, it was held that a provision for taxation could not be a reserve but a provision for proposed dividends coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As far as the sum of Rs. 7,50,000 was concerned, it was said as follows: " The claim of the assessee is not correct as, in accordance with the principles of accountancy, reserve consists of appropriation from profits, and other surpluses which have been earned in the past, being amounts which are not designed to meet any liability, contingency, commitment or at the date of the balance-sheet. " It appears that the ITO thought that the use of the terms contingency reserve established that this reserve was being made for an existing contingency, but this is not apparent from the balance-sheet. It appears that the assessee merely described the reserve as being a contingency reserve without any real existing contingency. Similarly, as regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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