Bombay High Court
Commissioner Of Income Tax vs Harinagar Sugar Mills Ltd. on 6 November, 1992
Author: Sujata Manohar
Bench: B.N. Srikrishna, Sujata V. Manohar
JUDGMENT Smt. Sujata Manohar, J.
1. Respondents are absent though served. The application undertakes to file affidavit of service by Monday, the 9th November, 1992.
2. The following two questions are referred to us under s. 256(1) of the IT Act, 1961 :
"(1) Whether, on the facts and in the circumstances of the case, the reserve for doubtful debts of Rs. 1,17,895 as on 1st October, 1969, Rs. 1,42,290 as on 1st October, 1969 and Rs. 3,10,590 as on 1st October, 1970 would constitute reserve includible in the computation of capital in terms of r. 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the asst. yrs. 1970-71, 1971-72 and 1972-73 respectively ?
(2) Whether, on the facts and in the circumstances of the case, the Dividend Reserve of Rs. 11,90,000 as on 1st October, 1968, Rs. 13,90,000 as on 1st October, 1969 and Rs. 11,00,000 as on 1st October, 1970 would constitute reserve includible in the computation of capital in terms of r. 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, for the asst. yrs. 1970-71, 1971-72 and 1972-73 respectively ?"
3. The matter relates to the computation of capital under r. 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. The relevant previous years ended on 30th September, 1969, 30th September, 1970 and 30th September, 1971 corresponding to the asst. yrs. 1970-71, 1971-72 and 1972-73 respectively. The first question relates to the "Reserve for Doubtful Debts" appearing in the balance sheet of the assessee-company for these three assessment years. The Tribunal has held that as at the date of each balance sheet in question pertaining to each of these assessment years, the amounts shown under the heading "Reserve for Doubtful Debts" were not designed to meet a known and existing liability or to meet any diminution in the value of the assets known to exits at the date of the balance sheet. In view of this fact the Tribunal has applied the ratio of the Supreme Court in the case of Metal Box Company of India Ltd. vs. Their Workmen and held that the amounts shown under this heading were 'reserve'.
4. For the same reasons which the Tribunal has set out, we also hold that these amounts are by way of "reserve" and are not a provision to meet any known or existing liability. The first question must, therefore, be answered in the affirmative and in favour of the assessee.
5. On the second question the findings are that the amounts shown as "Dividend Reserve" in the relevant balance sheet were later utilised for payment of dividend as declared at the subsequent Annual General Meeting of the shareholders. As the "Dividend Reserve" is directly relatable to the amount of dividend declared, the "Dividend Reserve" is clearly on amount set aside to meet known liability. Applying the ratio of the decision of the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. vs. CIT , the second question will have to be answered in the negative and in favour of the Revenue.
6. The questions are answered accordingly.
7. No order as to costs.