AR.LAKSHMANAN,C.J. - (1.) : Heard learned counsel for the petitioner.
(2.) THESE reference applications have been filed under S. 256(2) of the IT Act against the orders dt. 29th Nov., 1994, passed by the Tribunal, Jaipur, in RA No. 202/Jp/1994 arising out of STA No. 4/Jp/1990 relating to the asst. year 1986 87 and RA No. 203/Jp/1994 arising out of STA No. 5/Jp/1990 relating to the asst. year 1987 88. While making the assessment under S. 6(2) of the Surtax Act, 1964, the AO held that the provision for depreciation on investments, provision for bad and doubtful debts, provision for foreign exchange losses, provision for development fund for bank's provision, are not 'reserves' for the purposes of computation of capital employed under Companies (Profits) Surtax Act, 1964. Being aggrieved of the assessment order, the assessee filed appeal before the CIT(A) who dismissed the appeal of the assessee (Annex. 2). Thereafter, the assessee filed further appeal before the Tribunal, Jaipur, who by its order dt. 31st Jan., 1994, allowed the appeal of the assessee. Being aggrieved by the order of the Tribunal, the CIT submitted a reference application under S. 256(1) of the IT Act, 1961, requesting the Tribunal to refer the following question of law for the opinion of this Court: "Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in treating the provisions for depreciation on investments, bad and doubtful debts, provision for foreign exchange losses, provision for development fund for bank premises as 'reserve' for computation of capital employed under the Companies (Profits) Surtax Act, 1964 ?" The Tribunal vide order, dt. 29th Nov., 1994, rejected the reference application under S. 256(1) of the IT Act, 1961, (Annexure 4). According to Mr. R.K. Agrawal, the question mentioned in paragraph supra is a pure question of law and ought to have been referred to this Court for its decision. We have considered the submissions made by the learned counsel for the applicant. We have also perused the orders passed by the Tribunal. Before the Tribunal, it was argued by the counsel for the assessee that the lower authorities had gone merely by the words "reserve" and "provision" without understanding their implications under the Act. The counsel referred to Sch. II, cl. (iii) and Sch. VI of the Companies Act and also referred to the decisions in the cases of Vazir Sultan Tobacco Co. Ltd. vs. CIT (1981) 25 CTR (SC) 186 : (1981) 132 ITR 559 (SC) : TC 68R.281, CIT vs. Laxmi Sugar & Oil Mills Ltd. (1986) 58 CTR (SC) 105 : (1986) 161 ITR 168 (SC), CIT vs. Cymaid India Ltd. (1990) 89 CTR (Bom) 40 : (1992) 198 ITR 323 (Bom) and CIT vs. Kirloskar Cummins Ltd. (1991) 96 CTR (Bom) 114 : (1991) 192 ITR 357 (Bom) and CIT vs. Century Enka Ltd. (1992) 107 CTR (Cal) 14.
(3.) IN the instant case, it was explained that the depreciation on investments was in respect of the securities kept by the assessee bank and which are treated as stock in trade. It was also submitted that till the asst. year 1977 78, the bank had been valuing these securities at cost and if there were any profits on sales, they were shown as profits and income. From the asst. year 1978 79, the valuation system was changed, which as accepted by the IT Department, to the effect that from that year onwards, the securities were being valued at cost or market price, whichever is lower. Therefore, for the asst. year 1976 77 provision for possible fall in the value of securities was made though there was no known liability and hence, this provision was, in fact, in the nature of reserve. It was also submitted that this view is supported by the decision in the cases of CIT vs. British India Corpn. (P) Ltd. (1973) 92 ITR 38 (All) and CIT vs. English Electric Co. of India Ltd. (1985) 44 CTR (Mad) 219 : (1985) 151 ITR 116 (Mad). The Tribunal on consideration of the material placed before it and the authorities cited, came to the conclusion that the amount shown and claimed by the assessee would indicate that they are very exact amounts which are not merely for some contingent liability but which are against some ascertained liabilities and that is why many of the figures are not in found figures to give exact amount. The Tribunal agreed with the arguments advanced by the counsel that since the calculation of these provisions is on some percentage basis, it cannot be said that they are against some ascertained liability. The Tribunal has also agreed that in view of the case law cited by the learned counsel for the assessee and also the principle distinguishing between provision and reserve, the items mentioned by the assessee for the year under appeal have to be treated as reserves for the purposes of Companies (Profits) Surtax Act, 1964. Although, the word "provision" has been mentioned against them, yet, they should be considered as reserves for computation of capital under the Act. Accordingly, the Tribunal allowed the appeal filed by the assessee. The Tribunal has also held that they are unable to agree with the arguments given by the learned counsel for the Revenue and distinguished the judgments cited by him. Finally, the Tribunal held that the gross dividends received by the bank and not merely dividend income as computed after giving deductions under S. 80M of the IT Act should be taken into consideration for computation of chargeable profits under the Companies (Profits) Surtax Act, 1964. Accordingly, all the six appeals filed by the assessee were allowed.;