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TMI Blog1984 (3) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... the credit of the reserve for doubtful debts account in the assessment years 1964-65 to 1969-70 were includible in the computation of the capital of the assessee-company in respective years ? (2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 3,60,000 standing to the credit of the dividend reserve account in the assessment years 1965-66 and 1966-67 were includible in the computation of the capital of the assessee-company for the assessment years 1965-66 and 1966-67 ? (3) Whether, on the facts and in the circumstances of the case, the amounts of Rs. 5,89,039, Rs. 5,63,020 and Rs. 5,32,671 standing to the credit of the gratuity reserve account in the assessment years 1965-66 to 1967-68, respectively, were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt from the profit and loss account. The total sum of Rs. 3,85,000 was carried forward and shown as reserve for doubtful debts in the balance-sheet as of December 31, 1967. As against these reserves, the assessee company has made an accounting entry showing debts which are considered doubtful by the assesseecompany, Under Schedule VI to the Companies Act, 1956, a company is required to show in the balance-sheet its sundry debts. Under this bead, it is required to show separately debts which are considered as doubtful. Accordingly, in the balance-sheet as of December 31, 1962, the assessee-company has shown on the assets side, under the item " sundry debts" a sum of Rs. 53,791 as " debts considered doubtful ". It has reduced the quantum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount transferred to " reserve for doubtful debts " in each year, the assessee-company had appropriated the amounts to the extent to which the debts had become doubtful in each year. It is an accepted position that this is not correct statement, in view of the position as disclosed in the relevant years, balance-sheets and profit and loss accounts which are on record. In these circumstances, we have to consider whether the assessees are entitled to claim the aforesaid amounts as a reserve for the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964. In the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 (SC), the Supreme Court has described the distinction between a provision and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the debts which, it considered as doubtful. Accordingly, this exact amount was set aside as reserve for doubtful debts in each year. The court held, on the facts of that case, that the way in which, and the precise amounts with which this account had been built over the years furnished evidence of meticulous evaluation of the debts by the assessee to find out the chances of their recovery and of the making of an appropriate provision only for those debts which were doubtful in that regard. Looking to the character and aim of that account, the Madras High Court held that it was a provision and not a reserve. The court, however, observed that where a lump sum or an ad hoc amount is charged to the profit and loss account towards doubtful d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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