COMMISSIONER OF INCOME TAX Vs. ASHOK LEYLAND LIMITED

JUDGEMENT

(1.) THE instant reference has come up at the instance of the Revenue under s. 256(1) of the IT Act, 1961, as applied to surtax by s. 18 of the Companies (Profits) Surtax Act, 1964, hereinafter referred as "the Surtax Act". THE question referred to us for the opinion of the Court is :

(2.) THE assessee is a public limited company. It created a debenture redemption reserve of money in a sum of Rs. 51 lakhs but while completing the assessment for surtax for the asst. yr. 1974-75, the ITO rejected the contention of the assessee that the reserve created for debenture redemption should also be treated as part of the capital and appropriate relief given in arriving at the standard deduction, mainly on the ground that the assessee had created the reserve for the purpose of meeting a specific liability, viz., repayment of debenture loan, and, consequently, it could not be regarded as a reserve. On appeal, the CIT(A) held a different view According to him, the amount of money set apart for repayment of debentures was a reserve and not a provision. THE Tribunal affirmed the order of the CIT(A) and dismissed the Department's appeal.

(3.) WITH such legislative endeavours to circumscribe the area of reserve for the purpose of inclusion in the capital for the purposes of knowing the quantum of statutory deduction and accordingly to compute chargeable profits, for the purposes of the Surtax Act, one could think that persons who have been regularly dealing with trading accounts of companies found no difficulty in specifying such reserve, which qualified for the said purpose. There has, however, been no let to the confusion and cases after cases came up before the Courts for demarcation of the area which will comprise the field of "provision" and the area which will comprise the field of "reserve".