Provision for gratuity treated as a liability estimate, not a reserve, for surtax capital base computation.

Amounts set aside on a scientific basis to reflect a known and existing gratuity liability were treated as a provision, not a reserve, for surtax capital base computation. Applying the Supreme Court distinction between "provision" and "reserve", the High Court noted that an appropriation made to meet a fairly accurately estimated liability cannot be included as reserve in the capital base. On that reasoning, the Tribunal's contrary view was held unsustainable and the reference was answered in favour of the Revenue.

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Issues: Whether amounts set apart as provision for gratuity for the assessment years 1973-74 and 1974-75 were "reserve" or "provision" for the purpose of computation of capital base and statutory deduction under the relevant surtax computation.

Analysis: The amounts were made on a scientific basis to represent fairly accurately a known and existing liability for the relevant year. Applying the distinction between "provision" and "reserve" laid down by the Supreme Court, such an appropriation is a provision and cannot be treated as a reserve for capital base computation.

Conclusion: The amounts could only be treated as provision and not reserve; the Tribunal was not justified in law in holding otherwise, and the reference was answered in favour of the Revenue.

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