Appeal No 2230 NT of 1977
From the Judgment and Order dated 131276 of the Gujarat High Court in Income Tax Reference No 36 of 1972
Mrs AK Verma for JBD  Co for the Appellant
GC Sharma EUEradi and TR Talwar for the Respondent
The Judgment of the Court was delivered by BP JEEVAN REDDY J
This appeal is preferred by the assessee against the judgment of the Gujarat High Court answering the question referred at the instance of Revenue against the assessee
The following question was referred under Section 2561 of the Income Tax Act for the opinion of the High Court 111 Whether on the facts and in the circumstances of the case the following amounts are to be included in the computation of capital of the assessee Company under Rule 1
of the Second Schedule of the  i Amount set apart for contingent Rs 450000 liability taxation ii Amount set apart for proposed divi Rs 1990000 dend iii Reserve for Depreciation fund in ex Rs 677122 cess of the amount allowed as depreciated in income tax iv Excess provision in Revenue Acco Rs 361876 unts disallowed in income tax assess ment for the assessment years
 Though the question refers to four items we are concerned in this appeal only with the first item
We shall therefore state the facts only in so far as they are relevant to the said item
The assessee is a Private Limited Company
The assessment year concerned is 1963 64
Sometime in 1955 56 a notice was issued to the assessee under Section 23A of the Income Tax Act 1922
Apprehending that it may become liable to pay additional tax under the said provision the assessee set apart a sum of Rs 652000 in its Books for the year ending March 31 1956
Out of this amount an amount of Rs 202000 was transferred to the profit and loss account during the year 1958 59 with the result that a sum of Rs 450000 continued to remain and was shown as a provision set apart to meet the taxation liability which the assessee called a contingent liability
At the same time the assessee had been contesting the proceedings taken against it under Section 23A
Though it failed at the earlier stages it succeeded ultimately in the Letters Patent Appeal filed by it in the East Punjab High Court
In the said appeal decided on May 24 1965 it was held that no action can be taken against the assessee under Section 23A
With this order all the orders passed and notices issued under the said provision prior to the date of the said judgment stood vacated
In its assessment relating to the assessment year 1963 64 under the 112  the assessee contended that the said sum of Rs 450000 is a reserve and should be included in its capital for the purposes of the Act
The Income Tax Officer did not agree and the matter was ultimately taken to the Income Tax Appellate Tribunal
By the date this appeal was taken up for hearing another appeal preferred by the assessee relating to the subsequent assessment year 1964 65 was also before the Tribunal
That appeal arose under the provisions of the Companies Sur tax Profits Act 1964 which replaced the 
The Tribunal first disposed of the appeal relating to the assessment year 1964 65
In so far as the item in question is concerned it held that it was a reserve
Following the said judgment the appeal pertaining to the assessment year 1963 64 was also allowed
It may be stated that the order of the Tribunal relating to assessment year 1964 65 was subsequently rectified by an order dated February 15 1972 and the said item was held to be a provision
But no such order was passed with respect to the assessment year 1963 64
Aggrieved by the judgment of the Tribunal the Revenue obtained the aforesaid reference
The High Court answered the same
in favour of Revenue and against the assessee following the decision of this Court in Metal Box Company of India Limited vs Their Workmen It held that the said amount being a provision made towards a liability which had attached on account of the issuance of a notice was a provision and not a reserve
In this appeal the correctness of the said view is questioned
The learned counsel for the appellant assessee submitted that inasmuch as no order levying additional tax under Section 23A was made on or before the date relevant to the assessment year 1963 64 the said amount cannot be treated as a provision
We find it difficult to agree
In Metal Box which has been followed in Vazir Sultan Tobacco Co Ltd etc
vs Commissioner of Income Tax Andhra Pradesh etc
  the distinction between provision and reserve is stated in the following words 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 accounts and the balance sheet
On the other hand reserves are appropriations of profits the assets by which they are rep resented being retained to form part of the capital 113 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 Book keeping and Accounts 15th Edn
p 42
 While approving the said statement it was stated in Vazir Sultan In other words the broad distinction between the two is that whereas a provision is a charge against the profits to be taken into account against gross receipts in the P L account a reserve is in appropriation of profits the asset or assets by which it is represented being retained to form part of the capital employed in the business
Bearing in mind the aforesaid broad distinction we will briefly indicate how the two concepts are defined and dealt with by the 
 Applying the said test it must be held that the provision made by the assessee in its Books for meeting the anticipated liability of tax under Section 23A was indeed a provision and not a reserve
The assessee itself called it a provision
It did not call it a reserve nor was it set apart or appropriated as a reserve
We are not suggesting that the description given or the Book entries made by the assessee are conclusive
We are only emphasizing how the assessee understood the said item itself
In the circumstances of the case we must hold that the High Court was right in holding it to be a provision and not a reserve
The appeal accordingly fails and is dismissed
No costs
GN Appeals dismissed


Summary:
The respondent in CA No182 of 1993 joined service as Section Officer under the appellant on 831971
On 29121976 he was promoted to the post of Sub Divisional Engineer and was confirmed on 1381985
With effect from 2111986 the
respondent was promoted as Executive Engineer Civil
The service particulars of the respondent in CA No183 of 1993 were identical
The respondents approached the Central Administrative Tribunal to determine their seniority in the cadre of Executive Engineers from the date of eligibility ie
111985 and not from 2111986
The Tribunal allowed the applications of the respondents against which the present appeals were riled by the Administration
Allowing the appeals this Court HELD101
The selection to the post of Executive Engineer was to be done by following the procedure laid down under Rule 8 of the Punjab Service of Engineers Class I Buildings and Roads Branch Rules 1960
Eligibility under Rule 6b of the Rules by itself does not give a right to a member of Class 11 service to be promoted to the post of Executive Engineer in Class I service
The promotion has to be made in accordance with the procedure laid down under Rule 8 of the Rules
No member of Class 11 service can claim 122 promotion to the post of Executive Engineer on the ground of eligibility alone
Unless a Class II officer has been selected in accordance with Rule 8 of the Rules he cannot be promoted to the post of Executive Engineer
125C E 102
The question of assigning seniority in Class I service only arises after a Class 11 officer has been selected and appointed to the said service
The seniority in class I is determined under Rule 12 of the Rules keeping in view the date of appointment as a result of selection under Rule 8 of the Rules
125F 103
The respondents in these appeals were appointed to the post of Executive Engineer as a result of selection held under Rule 8 of the Rules with effect from January 21 1986
Their seniority has to be determined in Class I service keeping in view the date of their appointments as January 21 1986
125F G 104 The Tribunal grossly erred in directing the Chandigarh Administration to give seniority to the Respondents from the date of their eligibility
The respondents can neither be given the date of appointment as January 1 1985 nor their seniority fixed from that date
The directions of the Tribunal in this respect are patently violative of the Rules
125G H