TMI Blog1998 (3) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) felt that though the assessee was helpless to modify the completed accounts for the calendar year 1977, in view of the provisions of the Companies Act, there was no alternative to the disallowance in view of the fact that the statutory requirement was not satisfied. The assessee appealed to the Tribunal. It claimed that even the fact that the deficit was made good only in the later year need not stand in the way of the allowance, in view of the executive instructions contained in the circular given in [1976] 102 ITR (St.) 90. The instruction given in clause (c) of Paragraph 1 of Circular No. 189 dated January 30, 1976, reads as under : "(c) Where there was no deliberate contravention of the provisions, the Income-tax Officer may condone genuine deficiencies subject to the same being made good by the assessee through creation of adequate additional reserve in the current year's book in which the assessment is framed." The circular was found by the Tribunal to merely reiterate the earlier instruction issued in 1965. The Tribunal was of the view that the creation of the reserve in the accounts of the current year was, therefore, good enough and the claim of the assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment was over, can be taken into account for purposes of allowance of development rebate and investment allowance ?" The pivotal issue arising for consideration under the two questions of law, as stated above, is as to whether it is permissible for the assessee to claim the allowance of development rebate and investment allowance, even though the necessary and requisite reserve had not been created in the accounting year by way of amendment of the accounts after the regular assessment was over. There is no pale of controversy that necessary and requisite reserve for development rebate and investment allowance had not been made by the assessee in the accounting year 1977. There is also no dispute that the necessary and requisite reserve relatable to such claims were made subsequently after the assessments were over by way of amending the accounts relatable to the year 1977 by a resolution adopted in the general body meeting held on November 15, 1980. Mr. S. V. Subramaniam, learned senior counsel representing the Revenue, placing reliance on the decision in the case of Addl. CIT v. South India Carbonic Gas Industries Ltd. [1977] 109 ITR 700 (Mad), contended that in view of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b). Section 34(3)(a) of the Act provides : 'The deduction referred to in section 33 shall not be allowed unless 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 the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than--- (i) for distribution by way of dividends or profits ; or (ii) for remittance outside India as profits or for the creation of any asset outside India'. Thus, it is clear from the provisions contained in section 34(3)(a) of the Act that the creation of a reserve of an amount equal to seventy-five per cent. of the development rebate to be actually allowed is a condition precedent for the deduction to be allowed under section 33. Consequently, at the time when the Income-tax Officer considers the claim for development rebate made by an assessee, if it is not established before him that such a reserve has been created, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us and all that was contended before us was that the company at the subsequent annual general meeting held on April 26, 1969, had ratified the action taken by the board of directors on July 23, 1968, and that the effect of such ratification was that the company had amended its accounts from the very beginning, namely, when it originally adopted the accounts on April 29, 1968. We are unable to accept this argument, at any rate, for the purpose of the claim for development rebate. We are clearly of the opinion that having regard to the language of section 34(3)(a) of the Act, the necessary reserve as contemplated by the statute should have been created at least by the time when the Income-tax Officer considered claim of the assessee and disposed of the same. We are not considering any question as to at what anterior point of time such an amendment or change or such creation of reserve should have been made for the purpose of claiming the development rebate. Once the necessary reserve has not been created by the time the Income-tax Officer considers the claim of the assessee, the Income-tax Officer will have no power to grant the development rebate and his order rejecting the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he detailed facts, which led to the framing of the question and the answer given had not at all been narrated. The judgment of the Division Bench of the Allahabad High Court, Income-tax Reference No. 457 of 1968, had, however, been reported as CIT v. Modi Spinning and Weaving Mills Co. Ltd. [1973] 89 ITR 304, wherein the detailed facts relatable to the question raised had been referred to. In regard to the question so raised, the facts are these: "The plant and machinery were purchased and installed between January 1, 1958, and April 30, 1958, but when the accounts were closed and the profit and loss account was drawn up at the end of the accounting year the assessee did not debit in the profit and loss account a sum equal to 75 per cent. of the development rebate to be actually allowed and did not credit that sum to a reserve account for being utilised by the assessee for the purposes of the business of the undertaking for the period of ten years next following. In other words, there was no attempt at that time to fulfil the conditions set out in proviso (v) to section 10(2)(vib), compliance of which was necessary before the development rebate could be allowed. Subsequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 reference to the observations of the Madras High Court in Veeraswami Nainar [1965] 55 ITR 35 and Indian Overseas Bank Ltd. [1967] 63 ITR 733 as well as of the Supreme Court [1970] 77 ITR 512, in the appeal from the latter decision. But, we have been unable to read those observations in the same light. Apart from this we may point out that the learned judges of the Gujarat High Court found that the debit was made to the profit and loss account for the year 1961 instead of that for the year 1960 which was the appropriate year. Accordingly, we hold that the assessee must be taken to have complied with the provisions of proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922, and it was, therefore, entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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