1976 (7) TMI 34

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....purposes of the Act ? (2) Whether, on the facts and in the circumstances of the case, the amounts in the dividend reserve account were includible in the computation of the capital of the company for the purposes of the Act ? " So far as the first question is concerned, the admitted facts are that the assessee-company followed a systematic method of transferring an ad hoc amount to the doubtful debt reserve account each year. The amount transferred to the said account was not computed on the basis of the debts which were expected to become bad during the year or even in the future. It did not consider the soundness of every debt individually and did not ascertain which of the debts were likely to become bad in the near future; in other....

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....e tests which have been laid down by the Supreme Court in Commissioner of Income-tax v. Century Spinning and Manufacturing Co. Ltd. [1953] 24 ITR 499 (SC). Reliance was also placed upon the Supreme Court decision in Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53 ; 39 Comp Cas 410 (SC), where a distinction between provision and reserve had been clearly pointed out by the Supreme Court. The Tribunal took the view that the amounts transferred to the doubtful debt reserve account had no relation to the debts which had become bad or which were likely to become had, that when the debts actually became bad they were directly debited to the profit and loss account, that the amount accumulated in this account was ultimately transf....