TMI Blog1972 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... lled after January 1, 1958 ? 2. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 3,000 towards the fees of a lawyer for drafting a special resolution and making amendments to the articles of association was an admissible expenditure within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922 ? " The assessee is a public limited company. During the assessment proceedings for the assessment year 1959-60, for which the relevant previous year ended on April 30, 1958, the assessee claimed development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922, on plant and machinery worth Rs. 7,62,609. The plant and machinery was purchased and installed after January 1, 1958, and before the close of the accounting year. The claim was rejected by the Income-tax Officer on the ground that the assessee had not debited its profit and loss account and created a reserve as required by proviso (b) to section 10(2)(vib) at the close of the accounting period. The Appellate Assistant Commissioner upheld the rejection of the claim. In second appeal by the assessee, the Income-tax Appellate Tribunal allowed the claim holding that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Officer, the assessee relied upon the amendments now effected pursuant to the resolution, but the Income-tax Officer took the view that as the books of the company had already been closed on April 30, 1958, the retrospective amendments sought to be made could not be considered valid. The Appellate Assistant Commissioner pointed out that the debit to the profit and loss account and the corresponding credit to a reserve account were made after the accounts had been passed in the annual general meeting held on January 28, 1959, and even after the return of had been filed by the assessee on October 27, 1959. He held that the amendments made subsequently could have no legal effect. When the matter came before the Tribunal, it was urged on behalf of the assessee that even though the conditions of the statute had been belatedly fulfilled the assessee was entitled to have the claim allowed inasmuch as the statutory requirement had been fulfilled before the assessment was taken up. The Tribunal accepted the contention. While declaring that the accounts of a business generally assume finality when the profit and loss account was drawn up and a balance-sheet prepared, it observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claimed that because it had set apart for the accounting year as reserve fund, a sum larger than what was required under the Banking Companies Act and the excess was sufficient to cover the proportionate development reserve contemplated by section 10(2)(vib), it was entitled to the deduction. The claim was repelled by the Madras High Court on the ground that the directors had not specified the purpose for which the money had been set apart. They did not say that the reserve set apart was for the purpose of complying with the provisions of the Banking Companies Act and of section 10(2)(vib) of the Indian Income-tax Act, 1922. The case, it is clear, was decided on the basis that the entries did not expressly establish compliance with proviso (b) to section 10(2)(vib). The question before us was discussed at some length by the Andhra Pradesh High Court in Veerabhadra Iron Foundry v. Commissioner of Income-tax. The assessee there claimed a deduction on account of development rebate, but at the time of making the claim he had not credited any sum to a reserve fund as required by the provisions of the Act. When the omission was pointed out by the Income-tax Officer in the course of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso. The entries in the account books required by the proviso are not an idle formality. The assessee being obliged to credit the reserve fund for a specific purpose, he cannot draw upon the same for purposes other than those of the business and that amount cannot be distributed by way of dividend. It is also clear from the terms of the proviso that the transfer to the reserve fund should be made at the time of making up the profit and loss account. " It is urged that the Supreme Court took the view that the entries must be made at the time when the profit and loss account is made up originally and that they cannot be made later. That is how, it is pointed out, those observations were construed by the Gujarat High Court in Surat Textile Mills Ltd. v. Commissioner of Income-tax. It seems to us that what the statute contemplates is merely that an amount equal to 75% of the development rebate to be actually allowed should be debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of ten years next following for the purposes of the business of the undertaking. The statute does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as to the period during which the entries required by proviso (b) to section 10(2)(vib) must be made, no statutory provision prescribing such period has been placed before us. All that the law requires is that a development reserve be created in compliance with proviso (b), and there is nothing in the object for which the reserve is created from which a definite period for such compliance can be inferred. In our opinion a company may make the necessary entries for the purpose of complying with proviso (b) to section 10(2)(vib) at any time before the return of income is filed under the Income-tax Act. Even if the entries are made thereafter, during the pendency of the assessment proceedings, the Income-tax Officer may take them into consideration. As regards the observations of the Supreme Court in Indian Overseas Bank Ltd. we are unable to infer from them that the profit and loss account originally prepared and passed by a company cannot be subsequently amended by it, and that the Income-tax Officer has no power to allow development rebate if the entries are made after the filing of the original return of income. The revenue relies upon Surat Textile Mills Ltd. where the Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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