TMI Blog1970 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 was filed by the assessee, it had not claimed any development rebate in respect of the sum of Rs. 36,144, which worked out at 25% of the original cost of instalment. In its return the assessee had claimed initial depreciation in accordance with the law prevailing at the time when the cheese dyeing plant was purchased by the assessee. The assesee appears to have been informed that for the material assessment year, the assessee would be entitled to development rebate if the conditions required for the grant of the allowance were fulfilled. The assessee was also informed that the scheme of giving initial depreciation had been deleted as per the Income-tax Act and the company realized that the condition of creation of development reserve as required by law had not been satisfied by it so far as the profit and loss account of the year 1959 was concerned. Under these circumstances, by its letter, dated April 14, 1961, a representation was made by the assessee to the Central Board of Revenue, Ministry of Finance, Government of India, New Delhi, requesting the Board to direct the Income-tax Officer concerned to relax the condition for the purpose of assessment for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 35 of the old Act, calling upon the company to show-cause why the mistake in the assessment order regarding the allowance of the development rebate should not be rectified. After the explanation of the company was received, the following order was passed on August 13, 1964 : " In this case, at the time of original assessment, development rebate of Rs. 41,281 was granted. The company has made provision for Rs. 5,000 only which falls short of the statutory percentage. I, therefore, withdraw the development rebate granted previously by this order after giving full opportunity of being heard." The Income-tax Officer by this order withdrew not merely the development rebate on the cheese dyeing plant but also the rebate granted in respect of some other machinery. The assessee appealed against the order of rectification and the Appellate Assistant Commissioner partially allowed the appeal so far as the development rebate in respect of the other machinery was concerned but in regard to the development rebate in connection with the cheese dyeing plant, the Appellate Assistant Commissioner upheld the withdrawal of development rebate by the order of rectification. The matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talled in more than one year, and the total income of the assessee for that year (the total income for this purpose being computed without making any allowance under this clause) is less than the aggregate of the amounts due to be allowed in respect of the assets aforesaid for that year, the procedure laid down in Explanation 2 is to be followed. The proviso to clause (vib) provides : " Provided that no allowance under this clause shall be made unless-... (b) except where the assessee is a company being a licensee within the meaning of the Electricity (Supply) Act, 1948 (54 of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958, an amount equal to seventy-five per cent. of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by him during a period of ten years next following for the purpose of the business of the undertaking ......" The exceptions set out in clause (b) of the proviso are not material for the purposes of this judgment. It is, therefore, clear that in order to get the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalised by the Income-tax Officer, the assessee was entitled to the benefit of the rebate. The question which has arisen before us in the present proceedings was not in terms before the Andhra Pradesh High Court but the question was as to whether, after the closing of the accounts for the relevant previous year, the necessary entry can be permitted to be made in the accounts of that very year, which was the subject-matter of assessiment for the purpose of showing that the necessary reserve was credited as contemplated by clause (b) to the proviso to section 10(2)(vib). In Commissioner of Income-tax v. Mazdoor Kissan Sahkari Samiti again a similar question arose before the Rajasthan High Court, and the Rajasthan High Court also held that under the proviso to section 10(2)(vib) of the Indian Income-tax Act, 1922, an assessee shall be permitted allowance, in respect of development rebate only if he makes the debit and credit entries is mentioned therein, but, as no time limit is placed for making such entries in the account books, they may be made at any time till the assessment proceedings are completed and it is not correct to state that they should have been made before the close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year out of its net profits which not only satisfies the requirements of section 17 of the Banking Companies Act but also the requisites of section 10(2)(vib) of the Indian Income-tax Act, 1922. It was held by the Madras High Court that, as the assessee when setting apart a sum of Rs. 6 lakhs had 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 ; and it was further held that assuming that the reserve was created under the Banking Companies Act, till the reserve created under the Banking Companies Act equals the paid-up capital, it cannot be said to be available for any other purpose, i.e., any purpose other than that of the Banking Companies Act ; and on these facts the Madras High Court held as above. Quoting from Veeraswami's case at page 736 of the report, it was observed : " It will be apparent from the terms of the proviso that the object of the legislature is allowing a development of the assessee's business from out of the reserve fund. The entries in the account books required by the proviso are not an idle formality. The assessee being oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of this clear interpretation by the Supreme Court, it is obvious that the observations of the Andhra Pradesh High Court and the Rajasthan High Court regarding the scope of this proviso no lonaer hold the field. It is clear that what may be called the strict view adopted by the Madras High Court as compared to the more liberal view adopted by the Andhra Pradesh and Rajasthan High Courts has appealed to the Supreme Court. The result, therefore, is that we have to ask ourselves in the instant case as to, whether the necessary amount was debited to the reserve before the profit and loss account was made up and at the time of making up the profit and loss account. It is clear from the narration of facts set out at the commencement of this judgment that when the profit and loss account for the relevant previous year was made up, no such reserve fund was are dited ; nor was the amount for the reserve fund debited before the profit and loss account for the relevant year was made up. One further fact which goes against the assessee in the instant case is that far from debiting the profit and loss account for the relevant previous year 1960, the assessee in the instant case has debited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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