Contingency reserve qualifies as a deductible reserve for surtax computation where no real liability exists.

Amounts transferred to a contingency reserve were treated as reserves for surtax purposes because they were not referable to any real and existing liability. On that basis, the sum standing in the contingency reserve was deductible from chargeable profits and was to be taken into account as reserve on the first day of the previous year for computing capital under the Companies (Profits) Surtax Act, 1964. The treatment was consistent with the earlier view taken for similar reserves in the assessee's past assessment years.

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Issues: Whether the amount transferred to a contingency reserve constituted a reserve deductible from chargeable profits and to be taken into account as reserve on the first day of the previous year for computing capital under the Companies (Profits) Surtax Act, 1964.

Analysis: The amount standing in the contingency reserve was examined in the light of the character of the fund and the absence of any real and existing liability. Following the earlier view taken in respect of similar reserves in the assessee's past assessment years, the amounts credited to contingency reserve, like other similar reserves, were treated as amounts not referable to an actual liability and therefore as reserves for surtax purposes.

Conclusion: The amount transferred to contingency reserve was held to be a reserve and was to be treated as such for the purposes of the Companies (Profits) Surtax Act, 1964.

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