1984 (3) TMI 40 - HC - Income Tax

Summary

Issues:
1. Inclusion of amounts in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964 related to reserves for doubtful debts.
2. Inclusion of amounts in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964 related to the dividend reserve account.
3. Inclusion of amounts in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964 related to the gratuity reserve account.

Analysis:
1. The judgment addressed the inclusion of amounts in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964 concerning reserves for doubtful debts for the assessment years 1964-65 to 1969-70. The court examined the distinction between a provision and a reserve based on the intention and purpose of retention. It was noted that the reserves in question were determined ad hoc without specific anticipated liability and were not utilized for bad debt adjustments. The court concluded that the reserves were more akin to a reserve rather than a provision, following the decision in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC).

2. The judgment also dealt with the inclusion of amounts in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964 related to the dividend reserve account for the assessment years 1965-66 and 1966-67. Citing the decision in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC), the court ruled against the assessee, stating that these amounts should not be included in the computation of capital.

3. Furthermore, the judgment discussed the inclusion of amounts in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964 concerning the gratuity reserve account for the assessment years 1965-66 to 1967-68. Following the decision in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC), the court held against the assessee, stating that these amounts should not be considered in the computation of capital. The judgment concluded by answering question No. 1 in favor of the assessee and questions 2 and 3 against the assessee, with no order as to costs.