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TMI Blog1972 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee was entitled to the benefit of section 10(2)(vib). During the assessment proceedings before the Income-tax Officer the assessee also claimed the deduction of a sum of Rs. 3,000 paid to a lawyer for drafting a special resolution and suggesting amendments to the articles of association. The Income-tax Officer held that the expenditure was capital in nature inasmuch as it brought into existence an enduring benefit to the assessee. The same view was ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts 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 that the account could be reopened for the purpose of making necessary adjustments which had been inadvertently left out. It held that as the adjustments were carried out before the claim for development rebate was taken up for consideration by the Income-tax Officer, the assessee should be considered to have fully complied with the requirements for allowing the claim. During the last few years a number of cases have come up before the courts involving the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessment proceedings, the assessee made the relevant entries debiting the profit and loss account and crediting the development reserve account. The Income-tax Officer disallowed the claim, and his decision was affirmed thereafter by the Appellate Assistant Commissioner and the Tribunal. According to the view taken by those authorities, the entries should have been made before the close of the accounting year. The learned judges of the Andhra Pradesh High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged 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 specify any period of time within which the relevant entries must be made. It is obvious that they cannot be made before the close of the account year. They can be made only after the account year has concluded when it is possible to know the extent of the profits available for the purpose of creating a reserve. It is clear that the profit and loss account is not in the nature of a day-to-day account of the business. It is an account prepared for ascertaining the net pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose 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 High Court appears to have taken the view that compliance with proviso (b) to section 10(2)(vib) cannot be effected after the profit and loss account has once been made up and that subsequent entries debiting the profit and loss account and crediting the development reserve can be of no avail. With great respect to the learned judges who delivered that judgment, we are unable to agree with the view taken by them. The learned judges have supported their decision by referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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