Law:

Section:

Income-tax----"Reserves and provision"--Determination of--Assessee debiting certain amount representing his liability for additional cane price payable to cane growers under head 'current liabilities and provisions'--Evidence disclosing that there was no liability on assessee requiring it to set apart a sum as charge against profits-¬Payment never made--Amount is reserve and not provision. In determining whether an item is a 'provision' or a 'reserve' the true nature and character of the sum so retained or appropriated must be determined and its mere description by the assessee in its Balance Sheet is not conclusive of its true nature. A 'provision' is a charge against the profits, being made against anticipated losses and contingencies. A 'reserve', on the contrary, is an appropriation of profits, the assets by which it is represented being retained to form part of the capital employed in the business. Unlike a 'provision' which is a present charge against the profits, the assesee continues to enjoy a proprietor's interest in the 'reserve'. Where the assessee had debited certain amount under the head 'current liabilities and provisions', on the ground that the amount represented the assessee's liability of relevant years for the additional cane price payable to cane growers in terms of a price linking for formula fixed by the competent authority, but the evidence clearly disclosed that there was no liability at all on the assessee requiring it to set apart a sum as a charge against its profits and there was never any intention to make payments to the cane growers nor was payment ever made but, on the contrary, the assessee reversed the entries in subsequent year in its books, it was held that the amount could not be described as a 'provision', it could only be described as a 'reserve' 132 ITR 559 and 73 ITR 53 ref. JUDGMENT PATHAK, J.-- This appeal by special leave is directed against the judgment of the High Court of Allahabad pronouncing on the meaning of the expression 'reserves' in the Second Schedule to the Super Profits Tax Act, 1963. 2. For the assessment years 1961-62 and 1962-63 the assessee had debited an amount of Rs.5,40,000 and an amount of…

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