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PETITIONER:

ASSOCIATED POWER CO. LTD.

Vs.

RESPONDENT:

COMMISSIONER OF INCOME-TAX

DATE OF JUDGMENT28/11/1995

BENCH:

BHARUCHA S.P. (J)

BENCH:

BHARUCHA S.P. (J)

FAIZAN UDDIN (J)

MAJMUDAR S.B. (J)

CITATION:

1996 AIR 894 1996 SCC (7) 221

JT 1995 (9) 146 1995 SCALE (6)702

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E N T

BHARUCHA, J.

These are references by the Income Tax Appellate

Tribunal to this Court under Section 257 of the Income Tax

Act, 1961. The references have been made because of a

divergence of opinion between several High Courts.

The Assessment Year in question in Tax Reference Case

No.13 of 1981 is 1973-74; in Tax 1973-74; and in Tax

Reference Case No.16 of 1981 it is 1972-73.

The assessee in the three cases is the same. It is a

company engaged in the business of generation of electricity

and distribution thereof to consumers. It is governed by the

Electricity (Supply) Act, 1948.

For the sake of convenience the facts in Tax Reference

Case No.13 of 1981 are set out. By reason of the provisions

of the Electricity (Supply) Act and of the Sixth Schedule

thereto, the assessee appropriated the sum of Rs.46,460/-

out of its revenues to a Contingency Reserve account during

the previous year relevant to the Assessment Year 1973-74.

This amount was claimed by the assessee as a deduction in

the computation of its total income for the purposes of

income tax. The I.T.O. rejected the claim. The Appellate

Assistant Commissioner allowed the assessee's appeal,

relying upon the decision of the Kerala High Court in the

case of Cochin State Power & Light Corporation Ltd. vs.

C.I.T., Bombay, 97 I.T.R.334. The Revenue filed an appeal

before the Tribunal and cited the judgment of the Madras

High Court in the case of Vellore Electric Corporation Ltd.

vs. C.I.T..Madras, 109 I.T.R. 454. The Tribunal relied on

the decision of the Madras High Court, which had disagreed

with the view taken by the Kerala High Court and the Bombay

High Court. It set aside the order of the Appellate

Assistant Commissioner, but referred the following question

to this Court :

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"Whether, on the facts and in the

circumstances of the case, the Income-

tax Appellate Tribunal was correct in

holding that the sum of Rs.46.460

transferred to the Contingencies Reserve

Account is not allowable as a deduction

in arriving at the taxable business

income of the assessee-company?"

Section 57 of the Electricity (Supply) Act reads thus :

"57. Licensee's charges to consumers -

The provisions of the Sixth Schedule

shall be deemed to be incorporated in

the licence of every licensee, not being

a local authority -

(a) in the case of a licence granted

before the commencement of this Act,

from the date of the commencement of the

licensee's next succeeding year of

account; and

(b) in the case of a licence granted

after the commencement of this Act, from

the date of commencement of supply,

and as from the said date, the licensee

shall comply with the provisions of the

said Schedule accordingly, and any

provisions of the Indian Electricity

Act, 1910 (9 of 1910), and the license

granted to him thereunder and of any

other law, agreement or instrument

applicable to the licensee shall, in

relation to the licensee, be void and of

no effect in so far as they are

inconsistent with the provisions of

Section 57-A and the said Schedule."

The Sixth Schedule to the Electricity (Supply) Act sets out

financial principles applicable to electricity companies and

their application. Clause I requires a licensee to so adjust

his charges for the sale of electricity that his clear

profit in any year of account shall not, as far as possible,

exceed the amount of reasonable return. The expressions

"clear profit" and "reasonable return" are defined in the

Sixth Schedule. Sub-clauses (1) and (4) of clause II reads

thus :

"II.(1) If the clear profit of a

licensee in any year of account is in

excess of the amount of reasonable

return, one-third of such excess, not

exceeding five per cent of the amount of

reasonable return, shall be at the

disposal of the undertaking. Of the

balance of the excess, one-half shall be

appropriated to a reserve which shall be

called to Tariffs and Dividends Control

Reserve and the remaining half shall

either be distributed in the form of a

proportional rebate on the amounts

collected from the sale of electricity

and meter rentals or carried forward in

the accounts of the licensee for

distribution to the consumers in future,

in such manner as the State Government

may direct.

"(4) On the purchase of the undertaking,

after the expiry, or on the revocation,

of its licence or otherwise, all amounts

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of rebate lying undistributed to the

consumers on the date of such purchase

shall be handed over to the purchaser

who, in turn, shall enter the same in

the his books of account, under the

heading Consumers' Rebate Reserve and

any amount lying undistributed in that

Reserve shall be carried forward for

distribution to the consumer concerned :

Provided that the share of money in the

Consumers' Rebate Reserve payable to the

consumers who are not traceable or who

have ceased to be consumes in relation

that undertaking, may be utilised in the

development works of the purchaser."

Clauses III, IV & V are most relevant to our purpose and

they read thus :

"III. There shall be created from

existing reserves or from the revenues

of the undertaking a reserve to be

called "Contingencies Reserve".

IV. (1) The licensee shall appropriate

to Contingencies Reserve from the

revenues of each year of account a sum

not less than one-quarter of one per

centum and not more than one-half of one

per centum of the original cost of fixed

assets, provided that if the said

reserve exceeds, or would by such

appropriation be caused to exceed five

per centum of the original cost of fixed

assets, no appropriation shall be made

which would have the effect of

increasing the reserve beyond the said

maximum.

(2) The sums appropriated to the

Contingencies Reserve shall be invested

in securities authorised under the

Indian Trusts Act, 1882, (2 of 1882),

and such investment shall be made within

a period of six months of the close of

year of account in which such

appropriation is made.

V. (1) The Contingencies Reserve shall

not be drawn upon during the currency of

the licence except to meet such charges

as the State Government may approve as

being -

(a) expenses or loss of profits arising

out of accidents, strikes or

circumstances which the management could

not have prevented;

(b) expenses on replacement or renewal

of plant or works other than expenses

requisite for normal maintenance or

renewal;

(c) compensation payable under any law

for the time being in force and for

which no other provision is made.

(2) On the purchase of the undertaking,

the Contingencies Reserve, after

deduction of the amounts drawn under

sub-paragraph (1), shall be handed over

to the purchaser and maintained as such

Contingencies Reserve :

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Provided that where the undertaking is

purchased by the Board or the State

Government, the amount of the Reserve

computed as above shall, after further

deduction of the amount of compensation,

if any, payable to the employees of the

outgoing licensee under any law for the

time being in force, be handed over to

the Board or the State Government, as

the case may be.

Before we advert to the judgments of the High Courts that

took divergent views, it is appropriate to refer to the

judgment of this Court in Poona Electric Supply Co. Ltd. vs.

C.I.T.. Bombay City, 57 I.T.R.521. This was a case that

related to the Consumers' Rebate Reserve. The Poona Electric

Supply Co. Ltd., the assessee in that case, claimed

deduction of the amount credited to this reserve from its

taxable income. This Court noted the provisions of the

Electricity (Supply) Act and its Sixth Schedule and observed

that their object was to statutorily rationalize and

regulate the rates chargeable for energy supplied in the

interest of the public and for electrical development. Under

the rules emobodied in the Sixth Schedule certain

appropriations and deductions had to be made to arrive at

the clear profit; otherwise, the its might be manipulated to

sustain a demand for abnormal rates. These rules had no

concern with income-tax; though, for the purposes of

arriving at the clear profit, the taxes paid were

deductible. The Court then said :

"Under section 10(1) of the Income-tax

Act, tax shall be payable by an assessee

under the head "profits and gains of

business" in respect of profits and

gains of any business carried on by him.

The said profits and qains are not

profits regulated by any statute, but

profits in a business computed on

business principles. They are business

profits and not statutory profits. They

are real profits and not notional

profits. The real profit of a

businessman under section 10(1) of the

Income-tax Act cannot obviously include

the amounts returned by him by way of

rebate to the consumers under statutory

compulsion. It is as if he received only

from the consumers the original amount

minus the amount he returned to them. In

substance there cannot be any difference

between a businessman collecting from

his constituents a sum of Rs. Y in

addition to Rs. X by mistake and

returning Rs.Y to them and another

businessman collecting Rs. X alone. The

amount returned is not a part of the

profits at all."

(Emphasis supplied)

After considering various judgments, this Court was led to

observe that income tax was a tax on real income, i.e., the

profit arrived at on commercial principles subject to the

provisions of the Income-tax Act. The real profit could be

ascertained only by making the permissible deductions. There

was a clear-cut distinction between deductions made for

ascertaining the profits and distributions made out of

profits. In a given case, whether the outgoing fell in one

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or the other of the heads was a question of fact to be found

on the relevant circumstances, having regard to business

principles. Another distinction that had to be borne in mind

was that between real profits and statutory profits, that

is, between commercial profits and statutory profits; the

latter were statutorily fixed for a specified purpose. The

assessee was a commercial undertaking. It did the business

of supply of electricity subject to the provisions of the

Electricity (Supply) Act. As a business concern its real

profit had to be ascertained on the principles of commercial

accountancy. As a licensee governed by the statute its clear

profit was ascertained in terms of the statute and its

Schedule. The two profits were for different purposes - one

was for commercial and tax purposes and the other was for

statutory purposes in order to maintain a reasonable level

of rates. For the purposes of the Electricity (Supply) Act,

during the accounting year the assessee credited an amount

to the Consumers Rebate Reserve. It was a part of the excess

amount paid to it and it was reserved to be returned to the

consumers. It did not form a part of the assessee's real

profit. So, to arrive at the taxable income of the assessee

from the business, that amount had to be deducted from its

total income.

In Cochin State Power & Light Corporation Ltd. vs.

C.I.T.. Kerala, 93 I.T.R. 582, the question referred to the

Kerala High Court was whether the Tribunal was right in

holding that the sums transferred to the Contingencies

Reserve, the Development Reserve and the Special Reserve

were not to be deducted in arriving at the taxable income of

the assessee, which was a company carrying on the business

of distribution and supply of electricity and was governed

by the provisions of the Electricity (Supply) Act, 1948. The

High Court considered the nature of the Contingencies

Reserve and observed :

"Paragraph III of the Sixth Schedule

indicates that the creation of the

contingencies reserve is from out of the

revenues of the undertaking. This is

quite significant. The term "revenue" in

the context in which it has been used in

that Paragraph refers to the total

receipts and not to what is left as

profit after meeting the expenses.

Therefore, the creation of a reserve is

irrespective of the profit of the

licensee. It is either out of the

existing reserves or from the revenues

of the undertaking. As Paragraph IV of

the Sixth Schedule indicates, the amount

that has to be appropriated to such

reserve has no relation to the profit

made in any year, but is a fixed

percentage of the original cost of fixed

assets. The paragraph further provides

that on no account shall such

appropriation be made to such reserve to

exceed five per cent, of the original

cost of fixed assets. Sub-clause (2) of

Paragraph IV is also significant. The

sums appropriated to the contingencies

reserve have to be invested in

securities within a fixed period and it

is that which could be drawn upon for

specified purposes as provided under

Paragraph V(1). Sub-clause (2) of

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Paragraph V indicates that on the

purchase of the undertaking this reserve

has to be handed over to the purchaser

and maintained as such subject to the

proviso therein.

The High Court referred to this Court's

judgment in the case of Poona Electric Supply

Co. Ltd. and the passage therein which is

extracted above. It said that the view

expressed by this Court appeared to it to be

that in computing the commercial or real

profit such diversions as the Consumers'

Benefit Reserve must be deducted. Though,

before the Kerala High Court, counsel for the

assessee urged that the amount of this

reserve was not a part of the assessee's

income, what he really meant, the High Court

said, as elaborated in the argument, was that

in determining the real profits the statutory

diversion in regard to these amounts had to

be noticed and deducted. The Contingencies

Reserve had been created from out of revenues

and not out of profits and it was to be done

irrespective of whether the assessee made a

profit or not. Though the amount of the

reserve could be utilised for certain

purposes, the nature of the purposes

indicated in clause V of the Sixth Schedule

was sufficient to show that the purposes were

not general. The Contingencies Reserve could

be utilised only in certain specified

contingencies. The amount of the reserve had

to be invested in securities authorised under

the Indian Trusts Act, 1882, and that had to

be done within a specified time. Clause V

provided that the Contingencies Reserve

should not be drawn upon during the currency

of the licence. This was subject to the

exception that it could be drawn upon for

meeting the charges therein specified as the

State Government might approve. On the

purchase of the undertaking the reserve had

to be handed over to the purchaser, who had

to maintain it as such. If the undertaking

was purchased by the Electricity Board or the

State Government, after deduction of the

compensation payable to the employees of the

out-going licensee, the reserve had to be

handed over to the Electricity Board or the

State Government. In the provisions in the

Indian Electricity Act, 1910, relating to

price fixation, when such Board or the State

Government took over, no allowance was made

in the purchase price for the amount of the

Contingencies Reserve. All these provisions

indicated that though to a very limited

extent the assessee might have a benefit from

out of the Contingencies Reserve, in that in

certain contingencies which the State

Government approved he might get the benefit

of the amount reserved, generally, the amount

was not one which was at the disposal of the

assessee in the matter of its application.

The creation of the reserve was apparently

with the prime object of making available

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sufficient resources for meeting commitments

necessary for the efficient running of the

business, commitments which, if the licensee

failed to meet them, would really affect the

consumers. An uninterrupted supply of

electric energy and proper maintenance of the

supply from time to time by the licensee were

amenities which had to be assured to the

public and the object of the clause

concerning this reserve appeared to be to

assure them these. The High Court then said :

"Bearing in mind the fact that the

amount under the contingencies reserve

is not available to the assessee for any

purpose of him own or even for any

purpose other than those indicated in

Paragraph V of the Sixth Schedule and

also noticing the object of the creation

of this reserve and further noting the

provision that it is a diversion from

the revenue, we think that the diversion

is one which is deductible in

determining the real profit. There is

the further fact that the assessee does

not get even compensation on account of

this reserve as and when the undertaking

is purchased and even the purchaser has

to maintain the reserve as such.

Therefore, in spite of the distinction

that we have pointed out in regard to

certain features between this reserve

and the consumers' benefit reserve with

which the Supreme Court was concerned in

the Poona Electric Supply Company by the

contingencies reserve is 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

has to be deducted."

The question that was referred was, insofar as it related to

the deduction of the amount credited to the Contingencies

Reserve, answered in favour of the assessee.

The Bombay High Court followed the judgment in Cochin

State Power & Light Corporation Ltd., in a Tax Reference. It

said :

"In other words, it is clear that the

Kerala High Court was considerably

influenced, and in our view rightly, by

three or four aspects of this

contingencies reserve, namely, the

source from which this reserve is

created, the purpose for which this

reserve could be drawn upon as mentioned

in paragraph V, that this reserve was

not available to the assessee for any

purposes of its own, that the assessee

would not get any compensation on

account of this reserve as and when the

under taking would be purchased and that

the purchaser is required to maintain

the reserve as such. We, therefore, feel

that substantial reasons have been given

by the Kerala High Court for coming to

the conclusion that the transfers or

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appropriations made by the assessee to

the contingencies reserve should be

deducted while computing the real profit

of the assessee. In this view of the

matter, the question, so far as it

relates to transfers or appropriations

made by the assessees to the

contingencies reserve in the instant

case before us, will have to be answered

in favour of the assessees. We

accordingly answer the question in

favour of the assessees.

It is interesting to note that the same Bench of the Bombay

High Court had thereafter occasion to consider the

Contingencies Reserve in the context of the Wealth Tax Act,

that is to say, whether the amount standing to the credit of

that reserve was liable to be included in determining the

net wealth of the assessee, which was also accompany that

generated and supplied electrical energy and was governed by

the provisions of the Electricity (Supply) Act, 1948. This

was the case of Commissioner of Wealth Tax, Bombay vs.

Bombay. Suburban Electric Supply Co. Ltd. The judgments in

Cochin State Power & Light Corporation Ltd. and Amalgamated

Electricity Co. Ltd. were cited on behalf of the assessee.

It was submitted that in both these cases it had been held

that the amount standing to the credit of the Contingencies

Reserve was deductible under the Income-tax Act and,

therefore, it could not be regarded as an asset. The Court

said :

"At the outset it should be pointed out

that in both these cases the court was

really concerned with the question of

determination of the income of the

assessee-company under the head of

profits and gains of business. Questions

which may be relevant for the purpose of

determining the liability to pay income-

tax may not be germane or applicable

while deciding a question whether a

particular asset is an asset belonging

to the assessee and can be subjected to

a liability for payment of wealth-tax.

Under the Income-tax Act "income-tax" is

a tax on the real income, i.e., profits

arrived at on commercial principles

subject to the provisions of the Act.

The real profit can be ascertained only

by permissible deductions. We are not

concerned in the present case with the

question of determination of real

profits or real income. As shown in

paragraph III of Schedule 6,

contingencies reserve can be created

either from the existing reserves or

from the revenues of the undertaking

which by itself shows that it is created

from assets which form part of the net

wealth of the assessee-company. In can

never be said that existing reserves do

not form part of the assets of a

company. Even in the case of revenue it

is first received by the assessee and

thereafter it is appropriated in the

manner permitted by paragraph IV of

Schedule 6 of the Electricity (Supply)

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Act. In either event it will be treated

as part of the assets belonging to the

assessee. The character of the asset is

not altered by the fact that there are

restrictions upon the user of the

contingencies reserve and that in the

event of a compulsory purchase under law

it has to be handed over to the

purchaser like the Electricity Board,

the State Government or local authority

who are under an obligation to maintain

such reserve and continue the

undertaking."

The Madras High Court in Vellore Electric Corporation Ltd.

vs. C.I.T. Madras, 109 I.T.R. 454, was required on a

reference by the Tribunal to determine whether the Tribunal

had been right in holding that the amount transferred to the

Contingencies Reserve was not to be deducted in arriving at

the taxable profits of the assessee, which was a company

engaged in the business of generating and supplying

electrical energy and was governed by the provisions of the

Electricity (supply) Act, 1948. The decision of this Court

in Poona Electric Supply Co. Ltd. was cited on behalf of the

assessee. The Madras High Court said that it was of no

assistance to the assessee. The amount standing to the

credit of the Contingencies Reserve could not be said to be

an amount which had gone out of the hands or control of the

assessee and become the subject matter of ownership of

somebody else. The statute had imposed certain restrictions

over the disposal of that amount by the assessee, but that

did not mean that the amount had ceased to be money

belonging to the assessee. What was meant by diversion of

profits by overriding title was that a part of profits

earned by an assessee was not really his profit but it

belonged to somebody else and the assessee had no title. As

far as the Contingencies Reserve was concerned, the statute

had clearly indicated the purposes for which it could be

spent and those purposes clearly showed that they were

connected with the business of the assessee and it was the

assessee which would have to utilise it. Equally, the fact

that the assessee was required to invest the amount standing

to the credit of Contingencies Reserve in securities

authorised under the Indian Trusts Act, 1882, did not in any

way affect this position. The assessee continued to be the

owner of the investment and, however limited be the benefit

that the assessee might derive from such an investment, it

could not be held that the investment was not the assessee's

investment but somebody else's investment. Simply because

the statute required a licensee like the assessee to make an

appropriation out of its revenue for a particular purpose,

and it was a compulsory appropriation which the assessee had

to make, did not mean that for the purpose of income-tax

such appropriation must necessarily be deducted for arriving

at the profits and gains of the assessee's business. The

judgments in the case of Cochin State Power and Light

Corporation Ltd., was, therefore, not followed.

The Calcutta High Court in Commissioner of Income Tax,

West Bengal vs. Sijua (Jharriah) Electric Supply Co. Ltd.,

145 I.T.R. 740, was also concerned with a case in which the

assessee was an electric supply company governed by the

Electricity (Supply) Act, which had appropriated an amount

towards the Contingencies Reserve and had claimed its

deduction in the computation of its business income. The

cases aforementioned were considered. The Calcutta High

Court held that there had been no diversion of income by an

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overriding title. The amount appropriated to the

Contingencies Reserve was collected by the assessee as its

revenue from sale of electricity. The amount remained at the

disposal of the assessee and for the benefit of the

assessee. It could be used only for a few specified

purposes, but the purposes for which the fund could be used

were all business purposes of the assessee. Payment of

compensation to workers, replacement of plant and machinery

and other expenditure envisaged in clause V of Schedule 6

were all normal business expenditure of a company. This was

not a case of diversion of income before it reached the

assessee but only a case of setting apart of a portion of

the assessee's income under compulsion of law for the use

and benefit of the assessee although the mode and the

objects of the expenditure were statutorily restricted. A

portion of the revenue earned by the assessee had been set

apart and kept in a reserve fund for some specific purposes

of the assessee. That fund belonged to the assessee, the

assessee had the use of it. Under those circumstances, it

could not be said that there had been any diversion of

income at source by an overriding title from the assessee or

that the amount that had been appropriated did not form part

of the real income of the assessee. It was contended before

the Calcutta High Court that the appropriation to the

Contingencies Reserve was, in any event, expenditure wholly

and exclusively laid out for the assessee's business and

should be allowed as a deduction. This argument was not

accepted for the appropriation that had been made was not

towards any known liability. The money had been set apart

for meeting unknown future liabilities. It was not a

provision but a reserve. There had been no expenditure in

the real sense of the term.

Mr. Sachar, learned counsel for the assessee before us,

submitted that there was no distinction between the

Consumers' Benefit Reserve which had been considered by the

Supreme Court in the case of Poona Electric Supply Co. Ltd.

and the Contingencies Reserves. The argument is fallacious.

We have quoted the appropriated passage of this Court's

earlier judgment. The emphasis is on the fact that the

amount paid into the Consumers' Benefit Reserve has to be

returned to the consumers. Therefore, it is as if the

electricity company had not received the amount which it was

obliged to return. The amount that it was obliged to return

was not a part of its income. This is altogether different

from the case of monies standing to the credit of the

Contingencies Reserve which are set apart to be utilised by

the electricity company for the purposes set out in clause V

of the Sixth Schedule. These are to meet expenses or recoup

loss of profits arising out of accidents, strikes or other

circumstances which the electricity company could not have

prevented; to meet expenses on replacement or renewal of

plant or works; and for payment of compensation required by

law for which no other provision has been made. These are

all expenses which the electricity company has to incur.The

reservation is made so that money is always available for

meeting these expenses and the supply of electricity is not

interrupted. For the same reason, payments out of the

Contingencies Reserve can be made only with the State

Government's approval. It is particularly noteworthy that

the electricity company can make good from out of the

Contingencies Reserve even a loss of profit arising out of

strikes, accidents and other circumstances over which it has

no control. There can be no doubt, in the circumstances,

that the monies in the Contingencies Reserve belong to the

electricity company.

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The application of the doctrine of diversion of income

by reason of an over-riding title is quite inapposite. The

doctrine applies when, by reason of an over-riding title or

obligation, income is diverted and never reaches the person

in whose hands it is sought to be assessed [See CIT vs.

Sitaldas Tirathdas, 41 I.T.R. 367 (S.C.).] In the present

case, the statute requires the electricity company to create

certain reserves if its clear profit exceeds a reasonable

return (clause II, Sixth Schedule). Again, the Contingencies

Reserve is to be created from existing reserves or from "the

revenues of the undertaking". This clearly indicates that

the monies which have to be put into the Contingencies

Reserve reach the electricity company and are not diverted

away from it.

It is the electricity company which has to invest the

sums appropriated to the Contingencies Reserve. The

investment would be in its name and it would be the owner

thereof. The restriction that the investment can be made

only in securities mentioned in the Indian Trusts Act makes

no difference to this position.

That on the purchase of the undertaking the

Contingencies Reserve has to be handed over to the purchaser

and maintained as such is only to make explicit the obvious

for the reserve is for the purposes of the undertaking that

is being transferred. There is nothing in the statute to

suggest, as argued, that the amount standing to its credit

cannot be taken into consideration in arriving at the

purchase price. For the purposes of sale to a State Board or

Government, a different statute lays down how the price is

to be fixed, and with it we are not here concerned.

We must add that we asked Mr. Sachar to whom, in his

submission, the amounts credited to the Contingencies

Reserve were diverted. Mr. Sachar replied that they were

diverted to and vested in the State Government. This, for

the reasons set out above, is quite unacceptable.

We hold that the amount credited to the Contingencies

Reserve is not diverted by reason of an overriding

obligation or title and, in determining the business profits

of the assessee, it must be taken into account.

Mr. Sachar contended that if the amount credited to the

Contingencies Reserve was includible in the computation of

the business income of the assessee, the amount so

appropriated should be allowed as a business deduction,

being expenditure necessary to carry on the assessee's

business. As the Calcutta High Court has pointed out, there

is no expenditure. The amount appropriated to the

Contingencies Reserve is set apart to meet possible

exigencies. It is not a provision for known, existing

liabilities.

In the result, the identical question referred to us in

the three references is answered in the affirmative and in

favour of the Revenue.

The assessee shall pay to the Revenue the costs of the

references, quantified in the sum of Rs.10,000/-.