1982 (5) TMI 19

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....edule to the Companies (Profits) Surtax Act, 1964 ? 2. Whether, on the facts and in the circumstances of the case, and on a proper understanding of the principle laid down by the Supreme Court in the case of Metal Box Company of India Ltd. v. Their workmen [1969] 73 ITR 53; 39 Comp Cas 410, the Tribunal was right in holding that the amount shown as reserve for loss on future contracts was not in the nature of a provision made against anticipated losses and contingencies ? " The references arise under the C.(P.)S.T. Act, 1964, for the assessment years 1966-67 and 1967-68, for which the previous years were 31st October, 1965 and 1966, respectively. The assessee is a manufacturer of lead and chemicals. Its practice was to enter into forw....

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....ed as reserve under r, I of the Second Schedule to the Act for the purpose of computation of capital. It was stated that the assessee who was a manufacturer of red lead and litharge had to create a reserve for loss relating to unexpired contracts at the end of each accounting year as the market in these two products fluctuated considerably. The AAC, relying on the Explanation to r. 1, referred to above, held that what the assessee had claimed was nothing but provision for a contingent liability which could not be ascertained when the accounts were closed. He, therefore, agreed with ITO that the amounts in question in the two years could not be considered as reserves and, therefore, the claim that they should be included in the computation o....

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....ned in the Explanation to r. 1 of the Second Schedule to the Act. The Tribunal, therefore, directed the ITO to take the above amount into consideration in the computation of the assessee's capital for working out the statutory deduction. Out of this order two questions have been referred to this court which have been quoted above. The principle as to how the amount set apart as reserve should be judged, has been settled by the Supreme Court in the case of Vazir Sullan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 judged by that principle, it appears that the Tribunal was correct in its conclusion on the nature of the amount to be considered as reserve bat whether the entirety of the amount should be considered as reserve or not, the Tribunal s....