JUDGMENT

SABYASACHI MUKHARJI, J.:— In civil Appeal No. 1546 of 1974 the following items were involved : (a) Capital Reserve, (b) Stocks and stores reserves, (c) Bad and doubtful debts reserves, (d) Obsolesence reserve, (e) Loans and Insurance reserve, (f) Investment reserve and (g) Forfeited moneys reserves. The question was whether these were to be included in the computation of capital according to the provisions in the second schedule to the Super Profits Tax Act, 1963.

2. Under S. 4 of the Super Profits Tax Act, 1963, every company shall be charged for every assessment year commencing from 1st April, 1963 a tax as Super Profits Tax in respect of so much of its chargeable profits of the previous year as exceed the standard deductions at the rate or rates specified in the third schedule. Standard deduction had been defined in cl. (9) of S. 2 as follows :

"An amount equal to six per cent of the capital of the company as computed in accordance with the provisions of the second schedule; or an amount of Rs. 50,000-whichever is greater."

3. The second schedule contained rules for computation of capital of a company for the purpose of the said Act.

4. None of the reserves claimed by the assessee had been allowed as deductions in the computation of its profits under the relevant Income-tax Act. The question was whether these represented reserves.

5. The Tribunal has referred to this Court the following question :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that : (a) Capital Reserve, (b) Stocks and stores reserves, (c) Bad and Doubtful debts reserve, (d) Obsolescence reserves, (e) Loans and Insurance reserves, (f) Investment reserve and (g) Forfeited moneys reserves were to be included in the computation of capital according to the provisions in the second schedule to the Super Profits Tax Act, 1963?"

6. We must observe that so far as the capital reserves are concerned, in view of the findings recorded by the High Court that the amount represented reserve and it was not ear-marked for any existing liability for being utilised by the company, it must be held to be reserve.

7. The capital reserve which was a sum of Rs. 11,73,952 consisted of two amounts namely Rs. 12,212 and Rs. 11,61,770. The amount of Rs. 12,212 represented an insurance claim received by the assessee company on account of a fire which had destroyed some. assets of the assessee company. The said receipt of fire insurance claim has directly been credited to the capital account and the sum of Rs. 11,61,770 was credited by transfer from the Profit & Loss Account in the earlier years. This was not provided for against any existing or future liability. It was rightly treated as capital reserve.

8. The next item was Stocks and Stores Reserve. This was created in 1950 by transfer from the Profit and Loss Appropriation Account. This did not represent any existing provision for existing liability to meet any specific contingency for safeguarding against diminution of the value of the stocks and stores. It was in the nature of a reserve for safeguarding against any possible diminution of the value of stocks and stores on any future occasion. In our opinion, the Tribunal was right in treating it as reserve.

9. Bad and Doubtful Debts Reserves was created in 1956 through the Profit and Loss Appropriation Account. The amount involved was Rs. 5,00,000. It was submitted on behalf of the assessee by Shri Salve that this was created by transfer from the Appropriation Account and not a charge against profit. Furthermore, a separate provision was made for bad and doubtful debts which provision was reduced from the value of the assets. It was not the revenues case that the provision for bad and doubtful debts provided was less than the amount reasonably necessary, to be provided. If the amount as it appears to be is more than the amount reasonably necessary to e provided in respect of bad and doubtful debts then it constituted a reserve. It is