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TMI Blog1976 (6) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... nised distinction between a reserve and a provision and it is apparent from the judgment of the Supreme Court in the case of Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC). At page 68 it is observed : " Reserves are appropriations of profits, the assets by which they are represented being retained to form part of the capital employed in the business. Provisions are usually shown in the balance-sheet by way of deductions from the assets in respect of which they are made whereas general reserves and reserve funds are shown as part of the proprietor's interest (see Spicer and Pegler's Book Keeping and Accounts, 15th edition, page 42). An amount set aside out of profits and other surpluses, not designed to meet a liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71] 80 ITR 566 (SC). This was a case where the question of dividend reserve as such did not arise but the question was considered in relation to the amount set apart for plant modernisation and rehabilitation reserve, loss repatriation reserve and development rebate reserve. In respect of these specific types of reserves the Supreme Court took the view that the determination of the directors to appropriate the amounts to the three items of reserve on August 8, 1963, had to be related to April 1, 1963, viz., the beginning of the accounts for the new year, and had to be treated as effective from that day. Such a thing does not arise at all in this case, because there was no question of known or anticipated liability whatsoever. This decision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers had by their resolution of June 27, 1949, decided not only that these amounts should constitute reserves but also that these amounts should constitute reserves of the company as of December 31, 1948, and the profits out of which these amounts were reserved were profits made by the company before January 1, 1949, and the reserves were in existence on that date and could have been utilised for the working of the company as much as the capital, during the chargeable accounting period in question, the amounts transferred to the reserve funds must be taken into account in computing the capital for the purpose of allowing abatement under the Act for the relevant accounting period (i.e., from January 1, 1949, to March 31, 1949). This decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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