RAJENDRA, A.M. As common points are involved in these surtax appeals by Revenue, they were heard together and are disposed of by consolidated order. 2. Ground No. 1 first controversy common to asst. yrs. 1977-78 to 1980-81 is whether Debenture Redemption Reserve is reserve or provision for purpose of computing capital under Second Schedule to Companies (Profits) Sur tax Act, 1964. said reserves and debenture loan for different years as appearing in Balance Sheets were as under: 8.5 Debenture Debenture per cent Redemption redeemed Asst Accounting Transfer from Debentures Reserve Balance during yr. year.. year P&L A/c during. redeemable (in lakhs) ending (in yr. (in lakhs) 1976/84 (in lakhs) lakhs) . . Rs. Rs. Rs. Rs. 1 2 3 4 5 6 1977- 1-7-75-30- 1.50 7.50 30 Nil 78 6-76 1978- 1-7-76-30- 2 9.50 28 2 79 6-77 1979- 1-7-77-30- 2 11.50 26 2 80 6-78 1980- 1-7-78-30- 2 13.50 24 2 81 6-79 3 . Debenture Redemption Reserve in accounting year ending 31st June, 1975 was: . (in lakhs) . Rs. 4.5 Transfer from P. & L. A/c. Rs. 1.5 . Rs. 6.00 Debentures were redeemable at par in instalments commencing from 31st Dec., 1976 (as per Note 2 in Schedule to accounts appearing at page 19 of Annual Report for asst. yr. 1978-79. Assessee-company follows accounting year ending 30th June, For surtax, position as on first day of accounting year is t o be seen for which purpose figures for preceding day as on 30th June, are adopted. 4. Surtax Officer treated Debenture Redemption Reserve as provision as it was provided for meeting known liability. Commissioner of Surtax (Appeals) however, vide para 2.1 of his consolidated order for aforesaid four years followed para 3 of his consolidated order for asst. yrs. 1975-76 & 1976-77 where followingAddl. CIT vs. Bharat-Fritz Warner P. Ltd. (1979) 10 CTR (Kar) 48 : (1979) 118 ITR 25 (Kar)he held that said reserve was includible in capital. Karnataka High Court in said case were considering transfer of Rs. 1,50 lakhs and Rs. 2.50 lakhs in accounting year ending 31st July, 1964 and 31st July, 1965 to preference share capital redemption reserve account for redemption of redeemable cumulative preference shares of Rs. 6 lakhs redeemable on 31st Dec., 1970 or earlier at option of assessee. High Court held that said reserve was created under s. 80 of Companies Act and was, therefore, reserve under r. 1 of Second Schedule of Surtax Act, High Court did not consider question whether said reserve was provision to meet known liability. 5. However, Bombay High Court inCIT vs. National Rayon Corporation Ltd (1986) 52 CTR (Bom) 254 : (1986) 160 ITR 716 (Bom)had clearly held at page 721 that debenture redemption reserve must be regarded as provision made by company to enable it to redeem said debentures when they become due for redemption. Respectfully following aforesaid Bombay High Court decision, we vacate, order of Commr. of Surtax (A) and restore that of Surtax Officer for asst. yrs. 1977-78 to 1980-81 treating debenture redemption reserve as provision. 6. Ground No. 2 Following provisions for doubtful debts as on first day of accounting year were disallowed by Surtax Officer on ground that said amounts were set aside as provision to meet anticipated losses, and were therefore no reserves. Asst. year Provision for doubtful debts 1977-78 3.73 lakhs (30-6-1975/1-7-1975) 1978-79 4.09 lakhs (30-6-1976/1-7-1976) 1979-80 5.32 lakhs (30-6-1977/1-7-1977) 1980-81 4.31 lakhs (30-6-1978/1-7-1978) . (Rs. 1.01 lakhs written back to P&L A/c.) 7. Commr. of Surtax (Appeals) vide para 3.1 of his consolidated order for aforesaid four years followed para 4 of his consolidated order for asst. yrs. 1975-76 and 1976-77 where following Tribunal's order for asst. yr. 1974-75, he held that provision for doubtful debts was not in nature of provision but was in nature of reserve. Tribunal D' Bench vide order dt. 25th Nov., 1984 in asst. yrs. 1975-76 and 1976-77 followed its order for asst. yr. 1974-75 and upheld CIT(A)'s order for those years. In asst. yr. 1974-75 Tribunal's order has not been made available to us but Tribunal B' Bench Bombay's order in RA No.502/Bom/1972has been filed which shows that Bench had followedCIT vs. Golden Tobacco Co. Ltd. 1977 CTR (Bom) 126 : (1977) 108 ITR 453 (Bom)where transfer of ad hoc amounts to doubtful debts reserve account, year after year without considering soundness of debts was held to be reserve as said amounts were transferred to general reserve and bad debts were debited directly to profit & loss account and not to doubtful debts reserve account. 8. In years under consideration before us (asst. yrs. 1977-78 to 1980- 81) ld. counsel for assessee urges that we should follow earlier order of Bench and emphasised that following bad debts were written off directly to profit & loss account of relevant years. Asst. Year Bad debts Rs. 1977-78 11,185 1978-79 1,453 1979-80 708 1880-81 9,000 9. However, on perusal of balance sheet, we find that provision for doubtful debts has direct nexus with debts considered doubtful as detailed below: Debts Debts Provision Asst. considered considered for doubtful debts good doubtful Year . . . 1977- 6,78,674 3,73,208 3,73,000 78 1978- 6,14,665 4,09,334 4,09,000 79 1979- 5,50,928 5,32,434 5,32,000 80 1980- 7, 22 4,31,518 4,31,000 81 ,064 10. From perusal of above figure, it is quite clear that provision for doubtful debts has been made by rounding off unsecured sundry debtors which were considered doubtful. It is thus not case of ad hoc provision for doubtful debts and, therefore, aforesaid decision in CIT vs. Golden Tobacco Co. Ltd. (supra) does not help assessee. Bombay High Court inCIT vs. Hindusthan Lever Ltd. (1986) 52 CTR (Bom) 176 : (1986) 160 ITR 700 (Bom)while considering reserve for doubtful debts noted undisputed factual position that reserves were created to cover all debts over six months old and that no attempt was made to estimate which of these debts would really become bad debts. As against this factual position in case before us is that Company considered only portion of unsecured sundry debtors over six months old to be doubtful debts. Bombay High Court inNational Rayon Corporation Ltd.(supra) while dealing with gratuity reserve had observed that even when ad hoc sum is appropriated for meeting liability for payment of gratuity without resorting to any scientific basis, such appropriations would also be provision. Considering facts of case before us for four years under consideration, we hold that provision for doubtful debts has clear and direct nexus with debts considered doubtful by assessee company and, therefore, said provision cannot be considered to be reserve. We are strengthened in this view by fact that when assessee company found provision more than debts considered doubtful, it transferred excess of Rs. 1.01 lakhs to Profits & Loss Account in asst. yr. 1980-81. We, accordingly vacate Commr. of Surtax (Appeals) order on this point and restore that of Surtax Officer for aforesaid four years. 11. Ground No. 3 for asst. yrs.1979-80 & 1980-81 CST (Appeals) followingCIT vs. Ballarpur Industries Ltd. (1979) 116 ITR 528 (Bom)and number of other decisions cited in para 8 of his consolidated order held that under r. 4 of Second Schedule to Sur-tax Act part of income "not includible in total income as computed under IT Act did not refer to deductions under Chapter VIA of IT Act. Following aforesaid Bombay High Court decision we uphold Commr. of Surtax (Appeals) order on this point. 12. In result, Revenue's appeals for asst. yrs. 1977-78 to 1980-81 are partly allowed. *** INSPECTING ASSISTANT COMMISSIONER v. GARWARE PAINTS LTD.