Law:

Section:

RULE 1 OF THE SECOND SCHEDULE TO THE COMPANIES (PROFITS) SURTAX ACT, 1964 - CAPITAL-COMPUTATION OF - WHETHER SUMS CREDITED IN CONTINGENCY RESERVE' AND NOT RELATED TO ANY REAL EXISTING LIABILITY CONSTITUTED RESERVE INCLUDIBLE IN THE CAPITAL COMPUTATION OF ASSESSEE - HELD, YES Facts For the assessment year 1970-71, the Tribunal held that the amount transferred by the assessee company to an account styled as 'contingency reserve' represented a reserve and that the credit balance in such an account should have been taken into consideration in computing the capita of the assessee. On reference: Held A similar question had arisen in the assessee's case for the assessment year 1963-64 where, on reference, it was held that the sums credited in contingency reserve, charity reserve and other similar accounts were 'reserves' as they did not relate to any real existing liability. Following that , the amounts transferred to contingency reserve, in the instant case, were treated as 'reserves' and had to be included in the capital computation of the assessee-company. IT REFERENCE NO. 143 OF 1976. G.C. Lalwani and P.N. Mishra for the Applicant. JUDGMENT Kapur, J. -At the instance of the Commissioner the following questions have been referred to under section 256(1) of the Income-tax Act, 1961 for the assessment year 1970-71: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the amount of Rs. 78,00,000 transferred to an account styled as…

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