Punjab & Haryana H.C : The Haryana State Small Industries and Export Corporation Ltd., a State Government undertaking, has approached this Court under Arts. 226 and 227 of the Constitution of India, praying for the issuance of a writ of certiorari, so as to quash the orders of the CIT, Patiala, dt. 31st July, 1974, (annex. P-1) passed in exercise of revisional powers under s. 17 of the Companies (Profits) Surtax Act, 1964.

Counsel Appeared

Garg & H.S. Sawhney, for the Petitioner : Ashok Bhan & A.K. Mittal, for the Respondent

M. PUNCHHI, J.:

The Haryana State Small Industries and Export Corporation Ltd., a State Government undertaking, has approached this Court under Arts. 226 and 227 of the Constitution of India, praying for the issuance of a writ of certiorari, so as to quash the orders of the CIT, Patiala, dt. 31st July, 1974, (annex. P-1) passed in exercise of revisional powers under s. 17 of the Companies (Profits) Surtax Act, 1964.

The facts giving rise thereto are straight and simple. For the asst. yrs. 1971-72 and 1972-73, the petitioner- Corporation filed its returns under s. 5 of the aforesaid Act. The returns were based in accordance with the charging s. 4. The ITO framed two assessment orders against the petitioner. The petitioner did not choose to file appeals therefrom to the AAC. However, before the expiry of the period of one year, it filed two revision petitions before the CIT under s. 17 of the Act. In the grounds of revision, which are a part of this record as annexs. R-3 and R-4, the petitioner claimed that for the asst. yr. 1971-72, it had made a reserve of a sum of Rs. 10,000 on account of “Price Stabilisation Reserve” under the Second Schedule to the Act. And further that the said “reserve” fell within the definition of “statutory deduction” as defined in sub-s. (8) of s. 2 of the Act. Similarly, in the grounds of revision pertaining to the asst. yr. 1972-73, a sum of Rs. 20,000 was claimed to have been put in the “Price Stabilisation Reserve” for a similar purpose. The CIT when hearing the petitions, permitted the petitioner to raise additional grounds with regard to the asst. yr. 1971-72, permitting it at that stage to point out that it had two more items of reserves: (i) for “bad and doubtful debts” amounting to Rs. 22,000, and (ii) “excess provision for taxation” amounting to Rs. 7,993. The aforesaid two items were also claimed to fall within the definition of “statutory deduction”. And on the strength thereof, it was claimed that the liability of the petitioner towards the surtax should be reduced appropriately.

The Tribunal, vide its impugned order, annex. P-1, disposed of the claims of the petitioner in the following words : “I have considered the submissions made by the petitioner and also looked into the records of the case. The contention raised by the petitioner are devoid of any force. In the case of Metal Box Co. of India Ltd. (1969) 73ITR 53,(SC) the Supreme Court observed at that an amount set aside to provide for any known liability which could not be quantified with substantial accuracy on the date of the balance- sheet is a ‘ provision ‘ whereas a ‘reserve’ is created without any contemplation to meet any liability, contingent or otherwise. The Supreme Court’s observations in question set at rest all the speculation whatsoever on the point at issue. The amounts claimed by the petitioner to be deductible for the purposes of computation of chargeable Profits are of the nature of ‘provisions’ and as such are not to be taken into account for working out the chargeable profits.”

The petitioner, challenging the aforesaid common order to both the revision petitions, maintains that though the CIT has noticed the distinction drawn by the Supreme Court with regard to “provision” and “reserve”, has not applied the distinction to the three Categories of claims which it bad put across, namely, (i) price stabilisation reserve, (ii) bad and doubtful debts, and (iii) excess provision for taxation. Grouse had been made that, without assigning any reason, the CIT has jumped to the conclusion that the amounts claimed by the petitioner are in the nature of “provisions” and as such are not to be taken into account for working out the chargeable profits.

In the return filed by the CIT, it has been highlighted that these sums were not claimed as deductions before the ITO. It would be relevant to mention here that the learned counsel for the petitioner does not dispute this assertion of the CIT. Further, it has been highlighted in the return that since the attention of the ITO was not invited to these items, they could not be pressed before the revising authority for the first time, but yet in the interest of justice these items were considered and disposed of by the impugned order justification has been pleaded for the view taken that these items were in the nature of “provisions” and not “reserves” as known to the tax law.

In Metal Box Company of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC): 39 Comp Cas 410, noted by the Tribunal, the Supreme Court had drawn a distinction between a “provision” and a “Reserve” in the following manner: “The distinction between a provision and a reserve is in commercial accountancy fairly well known. Provisions made against anticipated losses and contingencies are charges against profits, and, therefore, to be taken into account against gross receipts in the P & L A/C and the balance-sheet. On the other hand, reserves are appropriations of profits, the assets by which they are represented being retained to form part of the capital employed in the business. Provisions are usually shown in the balance-sheet by way of deductions from the assets in respect of which they are made, whereas general reserves and reserve funds are shown as part of the proprietor’s interest [see Spicer and Pegler’s Bookkeeping and Accounts, 15th Edn, p. 42]. An amount set aside out of profits and other surpluses, not designed to meet a liability, contingency, commitment or diminution in value of assets known to exist at the date of the balance-sheet is a reserve but an amount set aside out of profits and other surpluses to provide for any known liability of which the amount cannot be determined with substantial accuracy, is a provision : [see William Pickles Accountancy, 2nd Edn., P. 192 ; Part III, cl. 7, Schedule VI to the Companies Act, 1956, which defines provision and reserve”

The aforesaid principle was reiterated by the Supreme Court in Vazir Sultan Tobacco Co. Ltd vs. CIT (1981) 132 ITR 559 (SC). It was stated therein that the broad distinction between the two words is that whereas a “provision” is a charge against the profits to be taken into account against gross receipts in the P&L A/C a “reserve” is an appropriation of profits, the asset or assets by which it is represented being retained to form part of the capital employed in the business.

Now, in the instant case, the point boils down to this : Whether the items claimed by the petitioner and as held to be “provisions” by the CIT are in the nature of charges against the profits to be taken into account against gross receipts in the P&L A/C of the petitioner ? Obviously, such a question can be determined on the facts propounded before the IT authorities. This Court, in exercise of the jurisdiction under Art. 226 of the Constitution, does not normally enter into a fact-finding enquiry. It is the conceded case of the parties that these facts were not put across before the ITO and in a sense there has been no establishment of facts. The power of revision under s. 17 of the Act, vesting in the CIT, is also circumscribed by the language employed therein, for, the CIT has to call for and examine the records of any proceedings under the Act, which has been taken by an officer of subordinate jurisdiction. In other words, he is a “Court of error” for the purpose of the Act. If he detects an error committed by a subordinate officer he has been given the right to correct it and pass such order in relation thereto as he thinks fit, on the file. Here, it seems that the CIT entertained the plea of the petitioner, as he claims, in the interest of justice, i. e., on the supposition that these pleas would otherwise have foundation on facts. On that supposition, he has denied relief to the petitioner being of the view that such items as claimed by the petitioner were merely “provisions”. And on that finding of the Tribunal, will it be a case to warrant interference under Art. 226 of the Constitution by issuing a writ of certiorari is the consequential question ? As said before, the power of the CIT in revision is the one as conferred under s. 17 of the Act. Undoubtedly, he had the jurisdiction to call for the record of the proceedings taken by the ITO and pass corrective orders thereon. Obviously, he does not have then an inherent lack of jurisdiction to go into such question. The error, if any, is suggested to have been committed by him on the applicability of the law as laid down by the Supreme Court, in Metal Box Company’s case (supra), to the items claimed by the petitioner, as deductions. As said before, these claims were based on facts which were supposed to be existing but had not yet been determined at any forum. The CIT undertook the exercise purely in the abstract. In that situation, his order need not and should not be quashed by the issuance of a Writ of certiorari, for it is not an error of law alone which would justify interference at the end of this Court, but further if it was a case of manifest injustice to the petitioner. The petitioner by its own conduct, having failed to raise the items before the ITO, has disentitled itself to any indulgence from this Court to assume it to be a case of injustice to it. Thus, I am of the considered view that no relief be granted to the petitioner in the present proceedings.

For the view I have taken, this is not a case for interference by this Court under Arts. 226 and 227 of the Constitution. Accordingly, this petition fails and is hereby dismissed, but without any order as to costs.

[Citation : 142 ITR 293]