Suhas Chandra Sen, J. - (1.) The following question of law has been referred to this court by the Tribunal under Section 256(1) of the Income-tax Act, 1961 : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the 'contingency reserve' was not created for a specific purpose and, in that view, was correct in holding that the balance in the 'contingency reserve' should be taken in computing the capital base of the company in terms of Rule 1(iii) of the Second Schedule to the Surtax Act"
(2.) The facts, as narrated by the Tribunal in the statement of case, are as under : The Income-tax Officer who completed the assessment for the assessment year 1978-79 noted in the order that the assessee claimed contingency reserve of Rs. 3,64,679 as reserve to be taken as the computation base. This reserve was created by the transfer of the amount from their profit and loss appropriation account. The Income-tax Officer noted that although there was no explanation in the auditor's note, the assessee submitted that the reserve was created to make subsequent bonus payment, if it fell short. The claim was made under Rule 1 of the Second Schedule under the category "other reserves". The Income-tax Officer pointed out that reserve has been differentiated from provision, although there was no definition given in the Act. In the instant case, he pointed out that the reserve was created towards a known liability but the quantum was unascertained and the payment had been made out of it in the relevant year and in the following years also and, therefore, it could not be said that there was a reserve created to strengthen the capital base. He pointed out that it was nothing but a provision for bonus reserve. The claim of the assessee was accordingly rejected. That was in the assessment year 1978-79.
(3.) In the assessment year 1979-80, the Income-tax Officer disallowed the claim on the same basis in respect of the amount which was stated to be Rs. 3,89,699. In the assessment year 1980-81, a similar claim was made for Rs. 3,79,285. The Income-tax Officer on the basis of his earlier order declined to accept the contention of the assessee.;