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TMI Blog1972 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ing director of a private limited company called Sri Karthikeya Spinning and Weaving Mills Private Ltd., Coimbatore. During the year ending December 31, 1961, which is the accounting year of the company, the assessee had drawn a sum of Rs. 71,792. These drawings were conceded to be the loans or advances from the company. The balance-sheet of the company on December 31, 1961, disclosed a sum of Rs. 3,35,462.50 under the heading "Development Rebate Reserve" as per the last balance-sheet and a sum of Rs. 1,41,035 as provision made in that account during the year. There was a sum of Rs. 29,265.27 under the heading "Balance in the profit and loss account". The development rebate reserve at the beginning of the year was in excess of the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m depreciation. There can be no restriction in the use of such a reserve. Under the Indian Income-tax Act, a reserve of 75% of the rebate actually to be allowed has to be made and this could not be used by the assessee. It can be said that only to this extent that the reserve is tied up. It is seen from the computation given by the departmental representative that the provision of Rs. 3,35,462 is in excess of this statutory provision by Rs. 98,827. There is also a balance of Rs. 29,265 to the credit of the profit and loss account. We, therefore, consider that the sum of Rs. 71,792 is fully covered by the accumulated profits and is to be treated as dividend as defined under section 2(22)(e)." In this reference, the learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing this case. It will thus be seen that there is no ban on distribution of this reserve by way of dividends or profits, but if the reserve is distributed then the assessment for the year for which the rebate was granted is liable to be amended under section 155(5) as if the development rebate originally allowed was wrongly done. Even the limitation placed against distribution of the reserve as dividend was only operative for a period of eight years from the year in which the rebate was created. It may also be mentioned that if dividend was declared from the said reserve such declaration was not invalid-the only consequence being the assessment is liable to be amended. Even the limitations placed in sections 34(3) and 155(5) are against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 2(6A) of the Income-tax Act in Commissioner of Income-tax v. Bibhuli Busan Dutt. Whether it is accumulated profit or not depends normally on the question whether it was a transfer of the profits. Unless the profit is capitalised in some form or other, mere transfer of the profits to any reserve account will not take away from profits the character of accumulated profits--vide the decision in Commissioner of Income-tax v. K. Srinivasan. We have, therefore, no doubt that accumulated profits referred to in section 2(22)(e) includes the amounts in the development rebate reserve. The learned counsel for the assessee is well-founded in his contention that the artificial breaking up of the development rebate reserve into 75% of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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