NATIONAL RAYON CORPORATION LTD. vs THE COMMISSIONER OF INCOME TAX

The Supreme Court upheld the High Court's decision that the Debenture Redemption Reserve of Rs. 79 lakhs should be classified as a 'provision' rather than a 'reserve' under the Companies (Profits) Surtax Act, 1964. The Court emphasized that amounts set aside for known liabilities must be treated as provisions, as defined in Part III, Schedule VI of the Companies Act. Consequently, the Court affirmed the High Court's conclusion that the reserve could not be considered excess since it was intended to meet a future liability that was certain to arise.