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Issues:
Whether the sum representing various provisions was allowable as a deduction in the computation of income for the assessment year 1971-72. Analysis: The judgment pertains to an application filed by the assessee, a bank in Members' Voluntary Liquidation, regarding the allowance of a sum of Rs. 16,36,398 representing provisions for bad debts, supervision charges, gratuity, bonus, and additional interest accrued during the relevant year in the computation of income for the assessment year 1971-72. The bank was nationalized, and its business was taken over by the Government of India. The Income-tax Officer made an assessment in 1978, which was set aside by the Commissioner of Income-tax (Appeals) in 1979 for a fresh assessment. Subsequently, a new assessment order was passed in 1982, leading to an appeal by the assessee before the Commissioner of Income-tax (Appeals), who issued an order in 1983. The assessee then appealed to the Tribunal, which allowed the deduction based on the Reserve Bank's directions in a letter dated March 11, 1971. The Tribunal found that the expenses had been incurred, and the provisions had become liabilities, justifying the deduction. The Revenue challenged this decision, but the Tribunal rejected the application for reference to the High Court. The assessee then filed the current application under section 256(2) of the Income-tax Act, 1961. The Reserve Bank of India's letter dated March 11, 1971, outlined the future setup of the bank's Malaysian branches, detailing various provisions and expenses to be considered in the transfer of business to a new Malaysian company. The letter specified the treatment of profits, bad debts, gratuity liabilities, and other expenses, ultimately leading to a revised surplus amount. Subsequently, the bank communicated with its Kuala Lumpur branch in May 1971 to pass entries in the books and transfer profits to the head office in Calcutta. The Tribunal's decision to allow the deduction was based on the bank's compliance with the Reserve Bank's directions and the satisfaction of liabilities as evidenced by the compensation received by the bank. The High Court agreed with the Tribunal's findings, stating that the deduction claimed was justified and in accordance with the Reserve Bank's directives. Consequently, the application was dismissed, and the rule discharged with no order as to costs. In conclusion, the High Court upheld the Tribunal's decision to allow the deduction of Rs. 16,36,398 representing various provisions in the computation of income for the assessment year 1971-72. The judgment emphasized the bank's compliance with the Reserve Bank's directions and the satisfaction of incurred liabilities, leading to the allowance of the claimed deduction.
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