TMI Blog2017 (4) TMI 1558X X X X Extracts X X X X X X X X Extracts X X X X ..... e Government. This, for the reasons set out above, is quite unacceptable. We hold that the amount credited to the Contingencies Reserve is not diverted by reason of an (3 of 4) [ITA-254/2011] overriding obligation or title and, in determining the business profits of the assessee, it must be taken into account. Mr. Sachar contended that if the amount credited to the Contingencies Reserved was includible in the computation of the business income of the assessee, the amount so appropriated should be allowed as a business deduction, being expenditure necessary to carry on the assessee's business. As the Calcutta High Court has pointed out, there is no expenditure. The amount appropriated to the Contingencies Reserve is set apart to meet pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exceeds a reasonable return (Clause II, Sixth Schedule). Again, the Contingencies Reserve is to be created from existing reserves or from the revenues of the undertaking . This clearly indicates that the monies which have to be put into the Contingencies Reserve reach the electricity company and are not diverted away from it. It is the electricity company which has to invest the sums appropriated to the Contingencies Reserve. The investment would be in its name and it would be the owner thereof. The restriction that the investment can be made only in securities mentioned in the Indian Trusts Act makes no difference to this position. That on the purchase of the undertaking the Contingencies Reserve has to be handed over to the purchaser a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on referred to us in the three references is answered in the affirmative and in favour of the Revenue. 4. Another judgment in the case of Liberty India vs. Commissioner of Income Tax reported in [2009] 317 ITR 218 (SC) wherein it has been held as under:- The cost of purchase includes duties and taxes (other than those subsequently recoverable by the enterprise from taxing authorities ), freight inwards and other expenditure directly attributable to the acquisition. Hence trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. Therefore, duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. They should be treated as s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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