KARAMCHAND PREMCHAND PVT. LTD. vs COMMISSIONER OF INCOME TAX, GUJARAT

The Supreme Court held that provisions made against anticipated losses and contingencies are charges against profits, while reserves are appropriations of profits. In this case, the amount of Rs. 4,50,000 set apart by the assessee for a contingent liability was deemed a provision and not a reserve, thus not to be included in the computation of capital under Rule 1 of the Second Schedule of the Super Profits Tax Act, 1963. The Court affirmed the High Court's decision, dismissing the appeal.