TMI Blog1993 (2) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee against the judgment of the Gujarat High Court answering the question, referred at the instance of Revenue, against the assessee. The following question was referred under section 256(1) of the Income-tax Act for the opinion of the High Court : "Whether, on the facts and in the circumstances of the case, the following amounts are to be included in the computation of capital of the assessee-company under rule I of the Second Schedule to the Super Profits Tax Act, 1963: (Rs) (i) Amount set apart for contingent liability (taxation) 4,50,000 (ii) Amount set apart for proposed dividend 19,90,000 (iii) Reserve for depreciation fund in excess of the amount allowed as deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the said judgment stood vacated. In its assessment relating to the assessment year 1963-64 under the Super Profits Tax Act, the assessee contended that the said sum of Rs. 4,50,000 is a reserve and should be included in its capital for the purposes of the Act. The Income-tax Officer did not agree and the matter was ultimately taken to the Income-tax Appellate Tribunal. By the date this appeal was taken up for hearing, another appeal preferred by the assessee relating to the subsequent assessment year (1964-65) was also before the Tribunal. That appeal arose under the provisions of the Companies Profits Surtax Act, 1964, which replaced the Super Profits Tax Act. The Tribunal first disposed of the appeal relating to the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distinction between a provision and a reserve is in commercial accountancy fairly well known. Provisions made against anticipated losses and contingencies are charges against profits and, therefore, to be taken into account against gross receipts in the profit and loss account and the balance-sheet. On the other hand, 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, Fifteenth edit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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