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TMI Blog1969 (5) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... y it by virtue of section 14(3) of the Act. But there was an amendment of section 14(3) of the Act in the year 1960 and the exemption was confined to so much of the profits and gains of business carried on by it that did not exceed Rs. 15,000. This amendment came into effect from the 1st of April, 1960, by the Finance Act of 1966, which received the assent of the President en 26th of April, 1960. Section 1(2) of that Act provided that the provisions of that Act were to income into force 1st April, 1960. Because of this amendment, assessment proceedings were taken against the assessee for the year 1961-62, the accounting year being from 1st July, 1959, to 30th June, 1960. The assessee claimed certain deductions on account of dead rent paid by it to the State of Rajasthan for that relevant year and also on account of development rebate which were disallowed. The assessee appealed to the Appellate Assistant Commissioner. There it raised one more point and that was that the business income of the assessee became taxable by the amendment of section 14(3) of the Act made by the Finance Act, 1960, and this amendment could not take away the vested right of the assessee exempting its busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year. Reference in this connection may be made to Rai Ramkrishna v. State of Bihar and Commissioner of Income-tax v. Isthmian Steamship Lines. Question No. 1 is thus answered in the affirmative. So far as the second question is concerned, payment of dead rent in this cases is a sort of minimum royalty payable under the deed of lease and it has been held by their Lordships of the Supreme Court in Gotan Lime Syndicate v. Commissioner of Income-tax, overuling the decision of the Rajasthan High Court in Commissioner of Income-tax v. Gotan Lime Syndicate, in the appeal from that case that rent and royalty should be deducted as revenue expenditure. This point is in a way conceded by learned counsel for the department. Question No. 2 is therefore answered in the affirmative. Coming to question No. 3, the relevant provisions of law are contained in section 10(1) and (2)(vib) which runs as follows : "10. Business.-(1) The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits and gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office appliances or road transport vehicles." The argument of Mr. Sumerchand Bhandari, on behalf of the department, is that under the first proviso to section 10(2)(vib), the assessee could not claim development rebate, as an amount equal to 75 per cent. of the development rebate to be actually allowed was not debited to the profit and loss account of the relevant previous year, that is, the year ending on 30th June, 1960, and credited to a reserve account till the time the assessee had submitted his return for assessment for the year 1960-61. He has gone even so far as to argue that the relevant debit and credit entries relating to the reserve should have been made before the close of the accounting year ending on 30th June, 1960. Now the profit and loss account of the year previous to the year of assessment is usually prepared only after the close of the previous year because before the close of the year, an assessee cannot say definitely the amount of profit and loss which has accrued to him during that year. The preparation of profit and loss account sometimes entails the valuation of the stock-in-trade in stock at the end of the year and it may take some time to make this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been created against development rebate as contemplated under section 10(2)(vib). He also observed that no amount at all had been debited to the profit and loss account on account of development rebate. He also observed that, in the earlier years, the assessee had created some general reserve and that the reserve of Rs. 8,000 had also been created as a general reserve. Under these circumstances, the Income-tax Officer held that the assessee's claim for grant of development rebate could not be entertained. In our view, before completing the assessment, the Income-tax Officer could have, had he thought it proper, treated the reserve of Rs. 8,000 as a reserve contemplated under section 10(2)(vib), proviso (b). We do not mean to say that he was bound to do so. But had he been persuaded to take a lenient view, he could have treated the reserve of Rs. 8,000 as a reserve mentioned in proviso (b)(i) under section 10(2)(vib). For, at that stage, the assessee had clearly manifested its intention to create a development reserve and had stated that Rs. 8,000, which were put as a general reserve, be treated as development reserve. The Appellate Assistant Commissioner took the same view, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its profit and loss position. The entry was to be made some time later on. Even according to the Madras High Court, it could have been done till the date of preparation of profit and loss account. In our humble opinion, the development rebate may be allowed even if the entry is made later on, before the completion of the assessment proceedings, because the proviso only says that the assessing authority is to see before allowing the development rebate that relevant entries as contemplated in the first proviso to section 10(2)(vib) of the Act are there before the rebate is allowed. In Indian Overseas Bank's case the assessee-company claimed development rebate with the contention that it had set apart a sum of Rs. 6 lakhs during the assessment year out of its net profits. It was held that, as the assessee has not expressed the purpose for doing so, the conditions prescribed by clause (b) to the proviso to section 10(2)(vib) were not complied with and development rebate was not allowable. We ourselves acknowledge that there must be relevant debit and credit entries in the profit and loss account and a creation of a development reserve fund, and unless these conditions are satisfied, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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