ADDITIONAL COMMISSIONER OF INCOME TAX Vs. INDIAN TELEPHONE INDUSTRIES

JUDGEMENT

(1.) THE assessee in all these three cases is M/s. Indian Telephone Industries Ltd., Bangalore, and the relevant assessment years are 1966-67, 1967-68 and 1968-69. THE common questions in these cases which are referred to us by the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore, under s. 18 of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as "the Act"), read with s. 256(1) of the I.T. Act, 1961, are these :

(2.) IT is convenient to answer to second question first. The question is whether the amount shown as "reserve for bad and doubtful debts" in the balance-sheet of a company can be considered as a "reserve" within the meaning of r. 1(iii) of the Second Schedule to the Act. IT is seen from the order of the Tribunal that the amounts which have been set apart during the relevant years by the assessee under the head "Reserve for bad and doubtful debts" were not set apart to meet any known liability or contingency on the dates of the balance-sheets. The main contention urged by the departmental representative before the Tribunal on the above question was that such "reserves" could not be taken into consideration for purposes of computing the capital base for determining the statutory deduction during the relevant years as they were in the nature of "provisions" and not "reserves". Since the sums set apart as "reserve for bad and doubtful debts" were not in regard to any known liability on the dates of the balance-sheets, we do not find any substance in the contention urged on behalf of the department. The second question has, therefore, to be answered against the department. IT is answered accordingly.

(3.) THE Tribunal has held that the amounts in question which had been shown as "reserves" came within r. 1 (iii) of the Second Schedule and directed the inclusion of the said amounts in the capital base for purposes of levy of surtax. Aggrieved by the said finding of the Tribunal, the department requested it to refer the first question for the opinion of this court. That is how the above question arises for consideration in all these three cases.