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TMI Blog1994 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as "returnable packages". They were accounted by the appellant-company as its capital assets but no allowance for depreciation thereon was claimed or allowed in any of its assessments up to the year 1961-62. The said cylinders were used to be filled with gas by the refinery. The refinery later on offered to purchase the cylinders owned by the appellant-company. The sale of cylinders took place in 1961 for a total sum of Rs. 82,19,947 as against their original cost of Rs. 1,09,63,754. There was thus a shortfall of Rs. 27,43,807 which the appellant-company claimed as a deduction in the assessment year 1962-63. By an assessment order, the Income-tax Officer, Central Circle V, disallowed the said claim. The Income-tax Officer rejected the contention of the appellant-company that the loss on the sale of cylinders should be allowed as loss on "returnable packages" by observing that under rule 5, the cost of returnable packages was to be allowed as revenue expenditure when "actually used up" and the same implied that the packages must have been rendered unusable by wear and tear and must have been consumed. The Income-tax Officer held that the said rule had no application where packag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted as depreciation under section 32(1)(iii) of the Income-tax Act, 1961. The appellant-company, therefore, submitted that if the Tribunal decided to make the reference, the question should be in terms suggested by it. After hearing the parties, the Tribunal finalised the statement of the case and referred the following questions for the opinion of the High Court of Calcutta (at page 896 of 115 ITR): " (1) Whether, on the facts and in the circumstances of the case, the loss of Rs. 27,43,807 arising on the sale of gas cylinders was allowable as a revenue expenditure as provided for in the remarks against 'returnable packages' under the classification 'Mineral oil concerns' in item M(2)(2)(d) under the heading '(iii) special rates to be applied to other machinery and plant' in Part I of Appendix I to rule 5 of the Income-tax Rules, 1962, or under section 32(1)(iii) of the Act ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the shortfall in the statutory provision for development rebate reserve created by the company for the year under consideration could be made up by the excess provision for devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 33 of the Income-tax Act, 1961, may be allowed in any year the amount credited to the reserve account in past years in excess of the requirement prescribed by section 34(3)(a) may be taken into account? " Mr. S. Rajappa, learned counsel appearing for the appellant-company, contended that section 32(1)(iii) of the Income-tax Act, 1961, applies to machinery and plant specially listed in Part I of the Appendix to the Income-tax Rules, 1962, and the High Court had gone wrong in holding that the said general provision of section 32(1)(iii) of Income-tax Act, 1961, was not applicable in the facts and circumstances of the case. It has been contended by Mr. Rajappa that admittedly the cost of cylinders was Rs. 1,09,63,754 and as no depreciation was allowable on those returnable packages, the written down value of the cylinders must be held to be Rs. 1,09,63,754. Since the cylinders were sold for Rs. 82,19,847, the deficiency of Rs. 27,43,807 is allowable under section 32(1)(iii). Such contention was also raised before the High Court but the same was rejected by the High Court by indicating that the quantum of the written down value being a pure question of fact and in the absen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by crediting it to the development rebate reserve account can make up the shortfall of the accounting year in which the development rebate is actually claimed or allowed ; and (c) except in those cases in which the Central Board of Revenue or the Central Board of Direct Taxes have relaxed the provisions of section 34(3)(a), it must be complied with in order to earn the development rebate claimed in a particular year. The High Court has held that the appellant-company did not transfer the excess amounts of the earlier years in the accounting year for the purpose of making up the corresponding reserve and it is an admitted fact that the appellant-company did not comply with the provisions of section 34(3)(a) of the Act. Mr. Rajappa has next urged that so far as the appellant-company is concerned, the said cylinders must be held to be "actually used up". The question as to whether or not the packages are "actually used up" needs to be determined not in abstract terms but with reference to the actual usefulness to the assessee. Mr. Rajappa has also contended that the expression "actually used up" in item M(2)(2)(d)(i) of Part I of the Depreciation Schedule Appendix I of rule 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found on consideration of relevant materials. The Tribunal has not dealt with this issue and the question therefore did not arise for consideration. Mr. Ramamurti has also submitted that, in any event, as rightly pointed out by the High Court, the assessee is not entitled to claim any benefit under section 32(1)(iii) as the assessee has not written off the deficiency in its books of account. Such writing down is a condition which is required to be satisfied. Mr. Ramamurti in this connection has referred to a decision of the Madras High Court in S. Rajagopala Vandayar v. CIT [1990] 184 ITR 450, which according to Mr. Ramamurti has taken into consideration earlier decisions including the decision of this court in CIT v. National Syndicate [1961] 41 ITR 225 and the Board's circulars. Mr. Ramamurti has also submitted that the amendment of section 34(3)(a) regarding development rebate reserve being effective from April 1, 1962, the assessee's claim for such rebate was not at all entertainable. He has, therefore, submitted that there is no occasion to interfere with the decision of the High Court and the appeal should be dismissed. After giving our careful consideration to the matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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