TMI Blog1998 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the interest, guarantee commission and commitment charges kept in suspense account cannot be treated as the assessee's income liable to tax ?" There is no dispute that the question raised at the instance of the Department is concluded in favour of the Department by recent decisions of the court in CIT v. Tamil Nadu Industrial Investment Corporation Ltd. (No. 1) [1996] 218 ITR 616 and CIT v. Tamil Nadu Industrial Investment Corporation Ltd. (No. 2) [1996] 218 ITR 620 wherein this court held that the interest, guarantee commission avid commitment charges kept in suspense account should be treated as the assessee's income and the assessee is liable to tax. We fully agree with the reasoning contained in both the decisions and followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal by the Department, the Tribunal took the view that in view of the provisions of section 36(1)(viii) of the Act, the assessee was entitled to claim deduction of only of Rs. 17,75,000 created as a special reserve during the assessment year under reference and the balance of the amount from the total sum of Rs. 19,49,820 represented the surplus reserve created by the assessee during the earlier assessment years, viz., 1973-74 and 1974-75, and on such surplus reserve carried forward by the assessee from the earlier assessment years, the claim of the assessee is not permissible under the law. It is against this order, the assessee has come forward with this reference The question referred at the instance of the assessee relates to an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I-A of the Act. The words "computed before making any deduction" also establish that the reserve must be created out of the total income of the concerned year. Therefore, it is imperative to claim deduction that the creation of the reserve should be out of the total income of the relevant previous year from which deduction is claimed, and not from the total income of the earlier year. If it is held otherwise, the statutory percentage of the reserve created from the total income and carried to the reserve will have no meaning. If the assessee points out to earlier years surplus and says that the reserve was created, such a reserve cannot refer to a reserve created out of the total income of the relevant previous year. The section contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of reserve out of the excess of the earlier year and the Explanation reads as under : "Explanation.---For the removal of doubts, it is hereby declared that in the case of a financial corporation to which sub-clause (a.) applies, if the amount carried to the reserve account referred to in this clause in the accounts of the previous year relevant to the assessment year commencing on the 1st day of April, 1966, falls short of twenty-five per cent. of the total income and the amount transferred to such reserve account in the accounts of the immediately succeeding previous year exceeds the amount in respect of which the corporation is entitled to the deduction under this clause for the assessment year commencing on the 1st day of April, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g year, and it is impermissible for the assessee to resurrect the Explanation. In CIT v. Aruna Sugars Ltd. [1980] 123 ITR 619 this court has taken a view that under the Explanation to section 34(3) of the Act, the deduction of development rebate should 'not be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the reserve account exceeded the amount of such profit of the previous year as arrived at without making the debit account. This court further held that the Explanation makes it clear that the creation of a reserve of requisite amount must come out of the profit of the relevant previous year. It was emphasised by this court that the creation of a reserve must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the joint financial corporation and the deduction is granted out of the total income before making any deduction under Chapter VIA of the Act. The section provides for a higher deduction and the section also enjoins that the amount must be carried to a special reserve account and once a special reserve was created and the amount was carried to the special reserve account, it is not open to the assessee to draw from such special reserve and make up the deficiency in the succeeding assessment years. If such a contention of the assessee is accepted the whole purpose behind the creation of the reserve in strengthening the financial position would be defeated. The Tribunal, in our opinion, has come to the correct conclusion in holding the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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