AIR 1996 SUPREME COURT 1525 ::1996 AIR SCW 1595 ::1996 TAX. L. R. 451 ::(1996) 5 ComLJ 1 ::(1996) BankJ 624 ::1996 (3) SCC 513 ::1996 (219) ITR 706 ::(1996) 3 SCR 359 (SC) ::(1996) 85 Taxman 416 ::1996 (131) Taxation 528 ::1996 (1) BankLJ 426 ::(1996) 1 BankCas 559 ::(1996) 3 JT 317 (SC)

Supreme Court Of India

(From : 1993 Tax LR 81 (Punj. and Har.)

Hon'ble Judge(s): B. P. Jeevan Reddy, K. S. Paripoornan , JJ

Reserves - Amounts set apart by bank in balance sheet for bad and doubtful debts - Are "reserves" - Qualifies for appropriate relief under R-1 (xi) (b) of First Schedule and R1 (iii) of Second Schedule.1993 Tax LR 81 (Punj. and Har.) Reversed. Companies (Profits) Surtax Act (7 of 1964) , Sch.I, R.1(xi)(b), Sch.II, R.1(iii)— If the transfer of amount is made ad-hoc, when there is no known or anticipated liability, such fund will only be treated as 'reserve'. In the instant case, substantial amounts were set apart by bank in balance sheet as reserves. No amount of bad debt was actually written off or adjusted against the amount claimed as reserves. No claim for any deduction by way of bad debts were made during the relevant assessment years. The assessee never appropriated any amount against any bad and doubtful debts. The amount throughout remained in the account of the assessee by way of capital and the assessee treated the said amounts as "reserves" and not as "provisions" designed to meet liability, contingency, commitment or diminution in the value of assets known to exist at the relevant dates of balance sheets. These facts have been found by the Tribunal. On the facts, the amount set apart as reserves cannot be said to be so earmarked, when any liability has actually arisen or was anticipated by the assessee. It cannot be said either, that the amounts s....