TMI Blog1993 (2) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... 196 and thus the profits liable for surtax was determined at Rs. 6,26,621 which was subject to surtax, by an order dated 31-3-1977. Later on, the Surtax Officer rectified the surtax assessment order under section 13 of the Companies (Profits) Surtax Act, 1964 on 21-6-1977 on the ground that in Schedule 1 the chargeable profit was computed after deducting tax free income of Rs. 854 being the interest on tax free securities whereas the total income adopted as a basis as per Income-tax assessment at Rs. 43,38,640 was net figure after excluding the tax free income of Rs. 854. In other words, there was double deduction given in respect of the tax free income which is a mistake apparent from record. Further in Schedule I the tax deducted from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee contended that there was no mistake apparent from the record. The gratuity reserve fund amounted to reserve and not provision as held by the Surtax Officer. Reliance was placed on the judgment of the Supreme Court in the case of CIT v. Saran Engg. Co. Ltd. [1986] 161 ITR 741 wherein it has been held by the Supreme Court that gratuity reserve is includible for computation of capital. Accepting the proposition, the CST(A) directed the Surtax Officer to include the amount in respect of gratuity fund reserve in the computation of capital. 4. Coming to the bad and doubtful debt fund claimed as reserve by the assessee, but treated as provision by the Surtax Officer, the CST(A) found as a fact that the above fund was not created by debitin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taway to the extent the debts had become bad. At the same time, the Board of Directors felt it expedient to make a reserve to cover debts becoming bad or doubtful of recovery at a future date. Therefore, they have authorised the setting apart of sums to meet the future contingencies of bad and doubtful debts which are set apart not against any known or existing liability, but represented ad hoc reserve created for the purpose of meeting future requirements. In this background, it was held by the Andhra Pradesh High Court that the sums set apart in an ad hoc fashion amounted to " other reserves " under the Second Schedule to the Surtax Act. The learned counsel for the assessee also urged that the issues involved in the rectificatory order we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fund account shows that ad hoc amounts were transferred to this fund account by debiting discount (income account) and crediting the reserve account and this reserve is a secret reserve. Keeping in view the nature of the banking business carried on by the assessee and the assessee is entitled to create secret reserve as per Banking Regulation Act and keeping in view the judgments of the Bombay High Court and Andhra Pradesh High Court cited, the claim made by the assessee to treat the bad and doubtful fund account as reserve is quite justifled in law. Accordingly, the order of the CST(A) on this point is reversed and the Surtax Officer is directed to treat the aforesaid amount as reserve. 9. In view of the clear position of law, there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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