- (1.) These appeals by certificate granted on 12/12/1977 by the Gujarat High court arise out of its judgment and order dated 21/6/1977 in Income Tax Reference No. 6 of 1976. The Commissioner of Income Tax, Gujarat is the appellant while the assessee company is the respondent. The Income Tax Appellate tribunal, Ahmedabad referred the following question for the opinion of the High court of Gujarat under Section 18 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the Surtax Act") read with Section 256 (1 of the Income Tax Act, 1961: "Whether, on the facts and in the circumstances of the case, the tribunal was correct in law in holding that reserve for doubtful debts and gratuity reserve created by the assessee were includible in computing the capital for the purpose of computing statutory deduction -however, the Division bench of the High court by consent of the parties reframed the question as under: "Whether on the facts and in the circumstances of the case, the tribunal was correct in law in holding that rehabilitation reserve, reserve for doubtful debts and gratuity reserve created by the assessee were includible in computing the capital for the purpose of computing statutory deduction -the said reframed question was answered against the Revenue and in favour of the assessee and that is how at the instance of the Revenue the present proceedings have arisen on certificate granted by the High court.
(2.) At the time of final hearing of these appeals the learned counsel for the appellant Commissioner of Income Tax placed for our consideration only the following aspects of the question: 1. Whether reserve for meeting doubtful debts was a reserve or a provision. 2. Whether gratuity reserve created by the assessee was a reserve or a provision. So far as the aforesaid two aspects of the question are concerned we may at the outset note a few introductory facts leading to these proceedings. Introductory Facts
(3.) The concerned assessment years are 1967-68 and 1968-69, the previous years being calendar years 1966 and 1967 respectively. The respondent-assessee is a company which at the relevant time was carrying on business at Baroda. The respondent was governed by the provisions of the Surtax Act. The respondent claimed that in computing its capital base for the relevant years gratuity reserve of Rs. 5,60,000. 00 and reserve for doubtful debts of Rs. 85,000. 00 should be taken into consideration. The Surtax Officer held that the said amounts cannot be considered for computation of capital. He accordingly excluded them from the capital computation in the assessment proceedings. Being aggrieved by the orders of the Surtax Officer the assessee carried the matter in appeal before the Appellate Assistant Commissioner of Surtax, B-Range, Baroda. The Appellate Assistant Commissioner following the decision of the tribunal in STAs Nos. 7 and 8 (Ahd. ) of 1971-72 decided on 19-8-1973 which arose out of the assessee's surtax assessments for the assessment years 1965-66 and 1966-67 held that theaforesaid reserves should be considered as part of the capita] while computing the capital base for calculation of statutory deduction.;