Law:

Section:

Section 261 of the Income-tax Act, 1961, read with Second Schedule to Companies (Profits) Surtax Act, 1964 - Appeal to Supreme Court - High Court, following its earlier decision in case of same assessee, held that appropriation made by assessee-company for its plant expansion and contingencies constituted reserves and was includible for purpose of computing its capital under Second Schedule to Companies (Profits) Surtax Act - Whether in view of Supreme Court's decision in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 1TR 559, revenue's application seeking leave for appeal to Supreme Court was liable to be dismissed - Held, yes Facts The assessee-company, in the relevant years, made certain special appropriation for its plant expansion and contingencies. The High Court, following its earlier decision in the case of the same assessee in CIT v. Calcutta Electric Supply Corpn. Ltd. L1982] 138 ITR 111 (Cal.), held that such contingency reserve was in the nature of general reserve and was includible for the purpose of computing capital under the Second Schedule to the 1964 Act. On an application under section 261, the revenue contended that subsequent to the aforesaid decision, the Supreme Court had further laid down the law in the controversy in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 and, thus, the matter needed further consideration by the Supreme Court. Held Similar submissions were made before the High Court in the case of CIT v. Sijua (Jharriah) Electric Supply Co. Ltd. [1986] 158 ITR 332and in the said case, earlier decision of the Court in Calcutta Electric Supply Corpn. Ltd.'s case (supra) was followed and the decision of the Supreme Court in Vazir Sultan Tobacco Co. Ltd.'s case (supra ) was also cited and considered. Thus, in view of the aforesaid decisions, the contingency reserve in the present case was in the nature of general reserve and was includible for purposes of computation of capital under the Second Schedule. Hence, the law in this regard stood settled by the decisions of the High Court as also of the Supreme Court. The application of the revenue seeking leave for appeal to the Supreme Court was, accordingly, dismissed. Cases…

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