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TMI Blog1999 (7) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve for doubtful debts and doubtful advances was a 'reserve' within the meaning of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and was, therefore includible in the computation of capital for the purpose of the said Act ?" The facts relevant for the purposes of this reference are as follows : For the assessment year 1976-77, the assessee-company claimed that the sum of Rs. 7,04,278 representing provision for doubtful debts and the sum of Rs. 63,315 representing provision for doubtful advances should be included in their capital computation for the purposes of rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. For the assessment year 1977-78, similar claim was made in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reserves and were part of the capital of the assessee and, therefore, those amounts should not be deducted in the computation of the capital of the assessee company for the purpose of surtax. On appeal, the order of the Income-tax Officer was confirmed by the Commissioner of Income-tax (Appeals) and the Tribunal. Thereafter, at the instance of the assessee, a reference was made to this court on the question whether the Tribunal was right in holding that the provision for doubtful debts and the provision for doubtful advances cannot be treated as free reserves and cannot be included for the purpose of computing the capital of the company for the purposes of surtax. This court held that whether a particular amount kept apart by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court concluded that in that view of the matter, a provision for doubtful debts or doubtful advances is nothing but a reserve and it is a part of the capital of the assessee and, therefore, the Tribunal was not right in refusing to treat the same as a reserve for computing the capital of the company for the purpose of surtax. In our opinion, the facts of the case on hand are clearly covered by the above decision. The amounts which have been set aside by the assessee as representing doubtful debts and doubtful advances are merely to meet anticipated losses. They are not retained by way of providing for any known liability or existing liability. Therefore, the said amounts ought to be classified as "reserves". the actual losses by way of b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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