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2000 (12) TMI 97 - SUPREME COURTWhether the loan redemption reserve amount to Rs. 1 crore is a reserve and not a provision and is to be included in the computation of capital for the purpose of surtax ? Held that:- The aspects taken into consideration by the Tribunal and affirmed by the High Court that there was no stipulation by the Government for creation of loan redemption reserve ; that the assessee had not kept to the schedule for repayment; that the assessee, on its own volition, had created a loan redemption reserve by making appropriation of profit of Rs. 10 lakhs each year beginning from 1970; that the total reserve amounting to Rs. 100 lakhs remained undisturbed till the year 1987 and in the year 1988 the same was transferred to general reserve and that the balance-sheet showed that the amounts credited to the "loan redemption reserve" were not invested outside the company but remained internally invested, on the facts found, were not relevant for determining as to whether the amount was an asset or provision. As held in Vazir Sultan's case [1981] 132 ITR 559 (SC), the true nature and character of an appropriation has to be determined with reference to the substance of the matter, one must have regard to the intention with which and the purpose for which the appropriation has been made, such intention and purpose being gathered from the surrounding circumstances. Vazir Sultan's case [1981 (9) TMI 105 - SUPREME Court) also holds that if any retention or appropriation of a sum falls within the definition of "provision" it can never be a reserve but it does not follow that if the retention or appropriation is not a "provision" it is automatically a reserve. The fact that the amount has been set apart for redeeming liabilities makes it obvious that the intention is for clearing liabilities and not acquiring an asset. Bearing in mind these aspects, it is clear that the amount in question cannot be regarded as a "reserve". It has to be regarded as a "provision". Clearly the amount was set apart to meet a loan liability. It may also be noticed that the amount set apart is less than the respondent's liabilities. It cannot be regarded as an asset. The decision in Vazir- Sultan's case was not correctly appreciated by the High Court. In this view, the questions deserve to be answered in the negative. For the aforesaid reasons, we allow the appeal and answer the questions in the negative, that is, in favour of the Revenue and against the assessee,
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