Pathak, J. - (1.) 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 Rs. 2,76,00/- to its profit and loss accounts of the relevant previous years respectively. The amounts were debited on the ground that they represented the assessee's liability of the relevant years for the additional cane price payable to cane growers in terms of a price linking formula to be fixed by the Competent Authority under the Sugarcane Price Control Order 1955. Accordingly an item of Rs. 8,16,000/- being the sum of the two amounts, was shown in the Balance-Sheet of the assessee as on September 30, 1962. The item was shown under the head "Current liabilities and provisions".
(3.) In assessment proceedings under the Super Profits Tax Act, 1963 for the assessment year 1963-64, the Income-tax Officer did no include the amount of Rs. 8,16,000/- in the capital computation of the assessee. Dismissing the assessee's appeal, the Appellate Assistant Commissioner affirmed the view taken by the Income-tax Officer. The Appellate Assistant Commissioner held that the amount did no qualify as 'reserve' inasmuch as the assessee had itself shown it as 'provision' in its Balance Sheet. On second appeal, the Appellate Tribunal noted that the liability had not been allowed as a deduction on revenue account by the Income-tax authorities and that the decision was accepted by the assessee. It also observed that in the subsequent accounting year ending September 1963, the assessee had credited its profits by the said amount by reversing the entries, and further that the assessee had not made any such provision in the subsequent years. It was also not disputed that no such payment was ever actually made by the assessee. In the circumstances, the Appellate Tribunal held that the liability for which the 'provision' was made at the best unreal and imagined or the mere possibility of a liability. The Appellate Tribunal was unimpressed by the description of the item as a 'provision' by the assessee in its Balance-Sheet. The Appellate Tribunal held that the amount represented a 'reserve' and should have been included in the capital computation of the assessee.;