Ajit K. Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, read with Section 18 of the Companies (Profits) Surtax Act, 1964, the following question of law has been referred to this court for the assessment year 1972-73 : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding Reserve for Contingencies of Rs. 2,26,610 and the Reserve for Debenture Reduction of Rs. 11,00,000 should be taken into account for the purpose of computation of capital according to the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the assessment year 1972-73?" The Income-tax Officer excluded the reserve for contingencies in the computation of capital under the Second Schedule to Companies (Profits) Sur-tax Act, 1964. The Appellate Assistant Commissioner supported the view taken by the Income-tax Officer without reasons.
(2.) Before the Tribunal, it was contended by the assessee that the company had to statutorily create the reserve for contingencies according to the provisions of the Electricity (Supply) Act, 1948, and that the assessee was required to make specific appropriation from profit for the purpose of creating reserve known as " reserve for contingencies " in terms of the Sixth Schedule to the Electricity (Supply) Act, 1948. It was also contended that under Rule V of the Sixth Schedule to the Electricity (Supply) Act, 1948, the assessee-company could draw on the said reserve only on occasions as provided by the State Government. Occasions referred to are, e.g., (I) Expenses or loss of profits arising out of accidents, strike or circumstances which the management could not have prevented; (II) Expenses on replacement or removal of plant or works other than expenses requisite for normal maintenance or renewal; and (III) Compensation payable under any law for the time being in force and for which no other provision is made.
(3.) It was contended that the above occasions are general in nature and it cannot be concluded that the reserve was created was for any specific purpose. On the other hand, it was contended by the Revenue that this reserve was made for certain specific expenditure as provided in rule V of the Sixth Schedule to the Electricity (Supply) Act, 1948. The Tribunal, however, reversed the view taken by the Income-tax Officer. The Tribunal held that the assessee had to create certain reserves according to Sixth Schedule of the Electricity (Supply) Act. Contingencies provided in rule V of the Sixth Schedule are general in nature and this reserve was not created for certain specific contingencies. Rule V of the Sixth Schedule, according to the Tribunal, refers only to certain general contingencies under which the company was directed by the State Government to draw from this fund.;