1988 (9) TMI 11

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....of the case, the Appellate Tribunal was right in holding that the amount standing to the 'plant replacement reserve' should be taken as capital for levy of surtax ?" The assessee has been assessed to surtax for the assessment year 1975-76. The assessee took up the stand that the "plant replacement reserve" should be treated as a free reserve for the purpose of inclusion in the capital computed under the Second Schedule to the Act. While completing the surtax assessment for the said assessment year, the Income-tax Officer held that the amount standing to the "plant replacement reserve" is not a reserve and should not be taken as a capital for the purpose of levy of surtax, as it is provided to meet a specific liability. On appeal, the Com....

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.... in the case of Gordon Woodroffe and Co. Ltd. (I. T. A. Nos. 14 and 15 (Mad) 1981-82 dated January 29, 1982), held that the plant replacement reserve could not be treated as a provision. A Division Bench of this court (Ramanujam and N. A. Sathar Sayeed JJ.) in T. C. Nos. 1001 and 1002 of 1982 judgment dated February 11, 1985 (CIT v. Gordon Woodroffe and Co., Madras) following the decision in T. C. Nos. 320, 321 and 375 of 1978 dated September 19, 1983 (CIT v. Gordon Woodroffe and Co. (Mad) Pvt. Ltd. [1990] 183 ITR 465) held that the plant replacement reserve could not be treated as a reserve since it was created for a particular purpose and accordingly answered the question in favour of the Revenue. Normally, we would have followed these....

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....en or is anticipated legitimately by the assessee though the quantum of the liability has not been determined, a fund to meet such present liability cannot be treated as 'reserves'. A fund, however, created for payment of a liability which had not already arisen or fallen due but is only a provision with regard to the sum that might become liable to be paid is 'other reserves' within the meaning of rule 1 of the Second Schedule and should be taken into account in computing the capital of the company for the purpose of the Companies (Profits) Surtax Act, 1964." In CIT v. Elgin Mills Ltd. [1986] 161 ITR 733, the Supreme Court has observed as follows (headnote) : "The distinction between 'provision' and 'reserve' is that while 'provision....