S.B.SINHA, J. - (1.) LEAVE granted in all the Special LEAVE Petitions.
(2.) RESPONDENT is a subsidiary to the General Insurance Corporation of India. It is wholly a government owned company engaged in the business of general insurance. It is an income-tax asessee. Its affairs, indisputably, are governed by the provisions of the Insurance Act, 1938 (for short, 'the 1938 Act). For the assessment years 1974-75, 1975-76 and 1978-79, it filed its income tax returns. Such returns were filed relying on or on the basis of the annual accounts furnished by it before the Controller of Insurance. The Assessing Officer opined that Respondent was not entitled to any deduction in respect of the provisions of taxation by way of "reserve for bad and doubtful debts" and "entertainment allowance". The Commissioner (Appeals), however, in respect of the assessment year 1974-75 allowed various deductions and the order of the Assessing Officer disallowing certain expenditure was set aside by orders dated 09.02.1979 and 09.09.1980. Both the orders were questioned by the Revenue before the Income Tax Appellate Tribunal (for short, 'the Tribunal). By reason of an order dated 30.11.1981, the Tribunal held that the Assessing Officer was not correct in refusing to accede to the deductions under the aforementioned heads claimed by the assessee.
(3.) THE following questions of law were referred to the High Court under Section 256 of the Income Tax Act, 1961 (for short, 'the 1961 Act'). "1. Whether on the facts and in the circumstances of the case, and on a true interpretation of section 44 of the Income Tax, 1961 read with Rule 5 of the First Schedule to the said Act, the Tribunal was right in confirming the addition of the following amounts to the Balance of profits disclosed by the annual accounts of the assessee Insurance Company JUDGEMENT_758_TLPRE0_2007Html1.htm (This question is referred at the instance of the assessee for the assessment year 1974-75) 2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that reserve for bad and doubtful debts cannot be added to the Balance of profit disclosed in the annual accounts of the assessee insurance company ? (This question is referred at the instance of Revenue for the assessment year 1974-75)" The High Court, however, by reason of the impugned judgment answered the said reference in favour of the respondent and against the Revenue. Indisputably, the question as to whether the respondent was entitled to deductions under the head "Entertainment Allowance" is not in question before us.;