This appeal is preferred by assessee. At time of hearing, learned counsel for assessee did not press ground Nos. 4 and 6 and rightly conceded ground No. 5 in view of judgment of Supreme Court in case of Lohia Machines Ltd. v. Union of India (1985) 152 ITR 308. Therefore, only ground Nos. 2 and 3 survive for consideration. This appeal is directed against order of Commissioner (Appeals) dated 16-4-1984 wherein following reasons given in his order for assessment years 1976-77 and 1979-80, he held that excess provision of Rs. 96,53,305 for Income-tax could not be considered as reserve, and, therefore, could not be deducted from chargeable profits under rule 1(xi) (b) of First Schedule of Companies (Profits) Surtax Act, 1964 ('the Act'). Consistent with this view, he also held that amount could not be considered as reserve for purpose of computation of capital under rule 1(ii) of Second Schedule to Act. In grounds, assessee claims that excess amount of provision for Income-tax and above actual liability is reserve in light of ration of Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. v. CIT (1981) 132 ITR 559 and that amount have not been allowed as deduction in Income-tax assessment for year 1979-80 should have been deducted from chargeable profits as well as included in capital computation for assessment year 1980-81. 2. In assessment for assessment year 1980-81, assessee claimed, inter alia, in revised return that excess provision for income-tax of Rs. 96,53,305 should be deducted from chargeable profits. According to ITO, tax payable for current year 1978 relevant for assessment year 1979-80 as per modification order dated 4-1-1983 was Rs. 3,29,37,695 of which assessee paid Rs. 2,33,00,051 and balance of Rs. 96,37,644 was payable. Therefore, he concluded that claim of excess provision for calendar year 1978 could not be accepted. In this view of matter, ITO held that amount could not be deducted from chargeable profits under rule 1(xi) (b) of First Schedule. However, there was no adjudication of claim of Rs. 96,37,644 being treated as capital as on 1-1-1979 for purpose of rule 1(ii) of Second Schedule. In fact ITO did not at all consider same as t h e assessment order is quite silent on this matter. Aggrieved over assessment assessee preferred appeal before Commissioner (Appeals). 3. Based on reasons given by him in his orders dated 30-1-1984 for assessment year 1979-80 and order dated 16-4-1984 for assessment year 1976-77, Commissioner (Appeals) held that amount of Rs. 1,21,27,000 being amount transferred to reserve for bad and doubtful debts' account should be deducted for purpose of rule 1(xi) (b) of First Schedule and this matter became final inasmuch as revenue is not in appeal before us. However, for reasons given by him in paragraph 4 of his appellate order dated 30-1-1984 of assessment year 1979-80, he held that excess provision for tax of Rs. 96,53,305 though was disallowed for purpose of computation of total income nonetheless it could not be considered as reserve and, therefore, could not be deducted under rule 1(xi) (b) of First Schedule. At this juncture, it is essential to note reasons given by Commissioner (Appeals) for drawing this conclusion. It could appear from paragraph 4 of Tribunal order for assessment year 1979-80 dated 30-4-1985, Commissioner (Appeals) stoutly mentioned that only in context of appropriation of gratuity reserve, Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra) held that if sum so appropriated was shown to be excess of sum required to meet estimated gratuity liability, it was only excess that would be regarded as reserve. Therefore, his thesis was that Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra), nowhere extended analogy to case of excess provision made towards Income- tax but on contrary it specifically held in very case that amount set apart by board of directors of company for liability to taxation in respect of profits which had been earned during year would be regarded as provision for known and existing liability quantification whereof has to be done late on. 4. As corollary to his decision, namely, excess provision for tax was not reserve for purpose of rule 1(xi) (b) of First Schedule, he consequently held that it could not be included for purpose of computation of capital under rule 1(ii) of Second Schedule. Hence, appeal by assessee. 5. learned representative of assessee besides reiterating grounds which survived for consideration maintained that rule 1(xi) (b) of First Schedule permits deduction from chargeable profits any sum transferred to reserve which sum is attributable to income chargeable to tax but is not allowed as deduction. According to him, assessee made provision of Rs. 4,25,91,000 for tax for 1979-80 but actual was Rs. 3,29,37,695 resulting in excess, provision of Rs. 96,53,305 as on 1-1-1979 which is first day of accounting year relevant to assessment year 1980-81. This excess, he maintained, of course, relying upon decision of Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra) constituted 'reserve' and as such became eligible for deduction from chargeable profits under rule 1(xi) (b) of First Schedule. For this proposition, he relied on order of tribunal in assessee's own case for earlier assessment year 1979-80 in ST Appeal Nos. 12 and 13 (Hyd.) of 1984 dated 30-4-1985 copy of which was filed for our reference. Drawing our attention to relevant portion of aforesaid order, he pointed out that Tribunal specifically addressed itself to question whether excess proviso for tax of Rs. 96,53,305 constituted 'reserve' in light of ratio laid down by Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra) and after elaborate discussion came to conclusion that it constituted 'reserve' and he contended that reading and understanding of ratio of Supreme Court on part of Commissioner (Appeals) was not correct. Further, he submitted that in view of finding given by Tribunal in assessment year 1979-80 regarding application of ratio of supreme court to issue in appeal, he contended that issue was concluded by order of Tribunal and, consequently, such amount should be deducted from chargeable profits. 6. As regards claim that excess provision for tax should also be included in capital computation in terms of rule 1(ii) of Second Schedule, he submitted that issue was consequential to finding of fact given by Tribunal regarding issue whether excess provision for tax was 'reserve' for purpose of rule 1(xi) (b) of First Schedule. comparative chart showing various items of reserves for assessment year 1980-81 and earlier three years and details of reserves as on 1-1-1979 was filed before us. 7. learned departmental representative has been heard at great length. On his part, he vehemently supported finding given by Commissioner (Appeals) regarding non-application of ratio of Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra) to issue in case of assessee. He pointed out that in case of Vazir Sultan Tobacco Co. Ltd. (supra), plea regarding provision for tax was not allowed to be raised and, therefore, there was no ratio or obiter or passing observation by Supreme Court regarding treatment of excess provision for tax as reserve. Therefore, he maintained that question of treating excess provision for tax as reserve for purpose of computing chargeable profits and including in capital computation did not arise at all. Factually, ITO had demonstrated that there was no case of excess provision but, on other hand, assessee was to pay balance of Rs. 96,37,644 to department towards tax. In view of these circumstances, he pointed out that issue assumed greater significance and it was essential to go into question whether in fact there was excess provision at all or not in assessment year 1979-80 and whether excess provision would constitute reserve for purpose of computation of chargeable profits n d capital computation. Relying on findings given by ITO and Commissioner (Appeals) in this regard, he urged that there was no excess provision at all. Even if there was excess provision, assessee was bound to get benefit only for Rs. 14,70,021 which pertains to assessment year 1980-81 and not Rs. 96,53,305. Regarding assessee's claim for including excess provision for tax in capital computation, he referred to rule 1A of Second Schedule to act and pointed out that in case of any shortfall in provision of taxes or proposed dividends, such shortfall is to be deducted from capital computed under rule 1 of Second Schedule. On contrary, there is no provision for increasing capital computed under rule 1 by excess provision made for tax. Referring to relevant provision of Companies Act, 1956, he contended that only excess provision over and above what is considered as reasonable by directors constituted 'reserve' and if directors had not considered so there could be no case of excess provision being treated as 'reserve'. Drawing our attention to section 205A (3) of Companies Act, he pointed out that dividends out of accumulated profits could not be declared except in accordance with rules made by Central Government and where declaration was not in accordance with such rules, such declaration should not be made without previous approval of Central Government. Whereas in case of excess provision for tax, it was always possible for assessee to plough back excess provision for declaration of dividends and thereby defeating purpose of creation of reserve. Referring to Explanation to rule 1 of Second Schedule, he contended that any surplus out of profit and loss account, proposed additions to reserves and sinking fund under heading 'Reserves and surplus' or any item under heading 'Current liabilities and provisions' in column related to liabilities in form of balance sheet given in Part I of Schedule VI of Companies Act, should not be regarded as 'reserve' for purpose of computation of capital. 8. In reply, learned representative for assessee maintained that actual assessee made excess provision in accounts and relied on order of Tribunal in assessee's own case for 1979-80 regarding application of ratio of Supreme Court's decision in case of Vazir Sultan Tobacco Co. Ltd. (supra) to issue under consideration. 9. We have duly heard parties and given consideration to their contentions. In our view, it is not necessary for us to enter into any elaborate discussion about fact whether there was excess provision in assessment year 1979-80 or not and also whether excess provision constituted 'reserve' for purpose of rule 1(xi) (b) of First Schedule and rule 1(ii) of Second Schedule inasmuch as question cropped up for consideration of Tribunal in assessee's appeal for assessment year 1979-80 and Tribunal did consider issue in extension with reference to applicability of ration of Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra) to excess provision for tax and came to conclusion that in light of ratio of Supreme Court, it constituted 'reserve'. On our part, we adopt reasons and conclusions drawn by Tribunal in paragraphs 4 to 9 of its order in assessment year 1979-80 for this year also, inasmuch as similar contentions were also raised on behalf of department in that year. However, we wish to observe that issue is highly dialectical in nature. While assessee claimed excess provision for tax was in nature of secret reserve, revenue opposed claim stating that such provision was not transferred to 'reserve'. Thus, there is thesis and antethesis, and therefore, issue is to be resolved by synthesis. In our view ratio of Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra) in so far as it is applicable to excess provision for tax made in account by assessee partakes nature of reserve or secret reserve as styled by assessee and, therefore, it should be treated as 'reserve' for purpose of rule 1(xi) (b) of First Schedule and also, consequently, for purpose of rule 1(ii) of Second Schedule. Regard should be given to substance of transaction instead of raising controversy over word 'reserve'. Coming to question of such excess provision being admissible for deduction from chargeable profits it is to be stated that sub-clause (b) of clause (xi) of rule 1 of First Schedule contains two limbs, namely, if any sums transferred in previous year to any reserve including secret reserve and aggregate of such sums not exceeding highest of aggregate of such sums if any transferred during any one of three previous years prior to previous year which is higher. Applying above provision, it is seen that although assessee made excess provision for tax of Rs. 14,70,021 during previous year 1979 relevant for assessment year 1980-81 which alone, according to learned departmental representative, is admissible as deduction. Nonetheless such provision as on 1-1-1979 on first day of accounting year alone is relevant which stood at Rs. 96,53,305. chart filed by learned representative of assessee shows that there was no such excess provision for tax for assessment year 1977-78 and 1978-79 and, therefore, such provision made for 1978-79 alone required for consideration. In this connection, it is to be pointed out that ITO had allowed aggregate of reserves in respect of six items while Commissioner (Appeals) had allowed reserve relating to bad and doubtful debts and in absence of any appeal by revenue, his decision thereon had become final. Therefore, for purpose of second limb of rule 1(xi) (b) of First Schedule, only excess provision of tax alone required to be considered. Thus, both under first limb and second limb of aforesaid clause sum of Rs. 96,53,305 requires to be deducted from chargeable profits under rule 1(xi) (b) of First Schedule. For same reasons, such amount is required to be included in capital computation under rule 1(ii) of Second Schedule in light of Supreme Court in case of Vazir Sultan Tobacco Co. Ltd. (supra), which was held to be applicable to case of excess provision also for tax made in assessment year 1979-80. Although under rule 1A of Second Schedule there is provision for deducting for any shortfall in provision for tax and there is no specific provision for including excess provision in capital computation, nonetheless by reading both rule 1A of Second Schedule and Explanation together, such excess provision could be added to capital computed under rule 1(ii) of Second Schedule, inasmuch as, Explanation gives clear indication that in respect of proposed dividend, reasonable amount is specified to be amount of dividend declared or made by company of or after first day of previous year relevant to assessment year for previous year immediately proceeding first mentioned privies year and there is provision regarding what is considered to be reasonable amount of provision for taxation in terms of rule 1A of Second Schedule. Thus, on facts and in circumstances of case, there are merits in grounds taken by assessee and, therefore, we are inclined to accept them. In this view of matter, therefore, we reserve orders of authorities on these points only and direct ITO to allow claims of assessee. 10. In result, appeal succeeds partly. *** STATE BANK OF HYDERABAD v. SURTAX OFFICER