9911796707
TMI Blog1981 (8) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee-company is the Gokak Mills Ltd. The four funds, with which we are concerned in this reference, which are enumerated in the statement of the case, are as follows: Rs. " (a) Provision for staff gratuity 1,62,917 (b) Provision for contingencies 74,930 (c) Provision for freight, rebate, etc. 48,388 (d) Proposed dividend 11,88,579 --------------------- 14,74,814 " --------------------- The question very briefly paraphrased would be whether the four amounts or funds were reserves and liable to be included in the computation of the capital of the company. As far as items (a) and (d) are concerned, the question would seem to be concluded by decisions of the Bombay High Court, and we propose to answer them in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found credited in the gratuity reserve will have to be regarded as amounts retained not intended to provide for any known or existing liability and as such these will have to be regarded as reserves." The said propositions will be equally applicable to the present case. Thus, as far as this provision is concerned, it will have to be held to be reserve liable to be included in the computation of the capital of the company for the purpose of determining the standard deduction under s. 2(9) of the S.P.T. Act, 1963. The answer is accordingly in favour of the assessee and against the revenue. As far as item (d) is concerned, the argument advanced on behalf of the assessee, which found favour with the Tribunal, was that this was fund set apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for incurring any expenditure or making any disbursements in a current year, then ordinarily the same will come out of the income of the company if it is available and only if it is insufficient then the past savings will be resorted to for the purpose of incurring the expenditure or making disbursements. In the present case there is no doubt that, ordinarily, if the current profits are sufficiently available, then the same will be utilised for the purpose of payment of the dividend and, looked at from that point of view, the sum of Rs. 2,310,000 should be regarded as having been paid out of the sum of Rs. 4,35,000. The aggregate amount thus standing to the credit of the dividend reserve account would be Rs. 3,60,000 after payment of the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own as provision for contingencies. On a scrutiny of the factual position it was found that the provision for contingencies made by the assessee was not for an existing liability. The Division Bench followed the principles laid down by the Supreme Court in Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC), where it was observed that an amount set aside out of the profits or 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 would be a reserve. Applying the principles enunciated in Century Spg. Mfg. Co.'s case [1977] 108 ITR 431 (Bom) as also the principles enunciated by the Supreme Court in Metal Box Company's case [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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