SABYASACHI MUKHARJI, J.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, read with Section 19 of the Super Profits Tax Act, 1963, the following question has been referred to us :"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Debenture Sinking Fund of Rs. 2,32,8,123, Replacement and Contingencies Fund of Rs. 6,97,90,155 and Contingency Reserve Fund of Rs. 69,92,624 constituted reserves for the purpose of computing the capital of the assessee-company under the Second Schedule to the Super Profits Tax Act, 1963 ?"

( 2 ) THE assessee is the Calcutta Electric Supply Corporation Ltd. , and the relevant assessment year is 1963-64. The assessee-company claimed as part of its Capital Debenture Sinking Fund Rs. 2,32,08,123, Reserve for Plant Expansion Rs. 6,97,90,155 and Contingency Reserve Fund of Rs. 69,92,624 to be part of its capital. The ITO rejected the assessee's claim on the ground that the funds were not allowable for the capital computation to arrive at the standard deduction for a determination of the tax liability under the S. P. T. Act, 1963. Being aggrieved by this order, the assessee went up in appeal to the AAC. After referring to the several relevant decisions and authorities on accountancy, the AAC held that these three funds were reserves. Consequently, the AAC held that all the three funds constituted reserves and should be included in the computation of the capital base of the assessee-company for the purpose of the S. P. T. assessment.

( 3 ) BEING dissatisfied with the aforesaid finding of the AAC, the Revenue went up in appeal before the; Appellate Tribunal. Attention of the Tribunal was drawn to the balance-sheet as per Schedule VI of the Companies Act, 1956, and the interpretation clauses contained in Pt. III thereof. The Revenue urged the Tribunal to interpret the expression "reserves" on the same lines as in Schedule II to the C. (P.) S. T. Act, 1964, as according to it, the S. P. T. Act, 1963, was not to continue but its place was taken by the C. (P.) S. T. Act from the immediately succeeding year, that is to say, the assessment year 1964-65. It was further contended on behalf of the Revenue that the point in issue should be decided in the light of the provisions of the C. (P.) S. T. Act. The Revenue contended further that the Debenture Sinking Fund was created by setting apart amounts of profits to meet the known liability in the sense that the debentures which were redeemable on a future date did not form part of the capital of the company and as such the liability was known and was to be met out of the sinking fund. As regards the reserves for plant expansion, etc. , the Revenue's contention was with reference to the Indian Electricity (Supply) Act, 1948, that the assessee-company being only a licensee for carrying on the business of selling electric current either by purchase or by generating and transmitting it, was not concerned with the expansion of the plants. Therefore, it was urged that the fund was created by an appropriation out of the profits, which, according to the Revenue, could not be treated as reserves and moreover, the disputed fund was a breach of the Contingency Reserve Fund. Coming to the Contingency Reserve Fund, it was urged on behalf of the Revenue that the fund was created by way of appropriation out of the profits to meet certain contingencies according to Sections 57 and 57a of the Electricity (Supply) Act, 1948. According to the Revenue there was no difference between the assessee's Contingency Reserve Fund and the "provisions" in the pro forma balance-sheet as per Schedule VI of the Companies Act, 1956. On behalf of the assessee it was submitted with reference to the provisions of the Act and the decisions that the order of the AAC was proper. The Tribunal found that the Debenture Sinking Fund was set up in order to provide money for redeeming the debentures-which were issued in 1950. We are concerne

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