COMMISSIONER OF INCOME TAX Vs. SIJUA ELECTRIC SUPPLY CO LTD
HIGH COURT OF CALCUTTA
COMMISSIONER OF INCOME-TAX
SIJUA (JHARRIAH) ELECTRIC SUPPLY CO. LTD.
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Suhas Chandra Sen, J. -
(1.) The following question of law has been referred at the instance of the Commissioner of Income-tax under Section 256(1) of the I.T. Act, 1961:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 66,964 appropriated towards 'Reserve for contingencies' is an allowable deduction in computing the assessee's business income from electric supply undertaking."
(2.) The facts relevant for this question stated by the Tribunal are as under:
"The assessee is an electric supply undertaking engaged in the business of generation and distribution of electricity and is governed by the Electricity (Supply) Act, 1948. As per paragraphs III to V of the Sixth Schedule to the aforementioned Act, it had to create a reserve called "Contingencies Reserve", to be utilised for the purposes set out in paragraph V of the said Sixth Schedule. In compliance with the provisions of the said Act, the assessee-company appropriated an amount of Rs. 66,964 towards "Reserve for contingencies" and deducted that amount in the computation of its taxable income of the previous year relevant to the assessment year 1973-74, For the reasons mentioned by him in the assessment order, the Income-tax Officer disallowed deduction of this amount in the computation of the assessee's business income and added back the same. The aforesaid disallowance, among others, was disputed by the assessee in the appeal preferred before the Appellate Assistant Commissioner against the assessment for the assessment year 1973-74. For the reasons mentioned by him in his order, the Appellate Assistant Commissioner confirmed the disallowance of the deduction in respect of this Contingency Reserve of Rs. 66,964."
(3.) The assessee preferred a further appeal to the Tribunal. The Tribunal held that the amount covered by contingency reserve was a diversion by reason of overriding obligation created by the statute and, therefore, for determining the commercial profits of the assessee, the amount of this reserve had to be deducted. The Tribunal further held that the amount of Rs. 66,964 was deductible while computing the assessee's total income under Section 28(1) of the I.T. Act, 1961.;
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