TMI Blog1984 (7) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the sum of Rs. 2,76,140 by creating reserve of Rs. 1,24,908. The ITO, Ahmedabad, allowed development rebate of Rs. 1,66,285 only. The petitioner company, therefore, carried the matter in appeal before the AAC. In the course of hearing of the appeal, the petitioner company claimed that it was entitled to claim development rebate at the rate of 25% and, therefore, it be permitted to create appropriate reserve accordingly which would have required it to constitute additional reserve of Rs. 82,197. The AAC by his order of December 27, 1973, remanded the matter for recomputation according to the correct principles. The Department, therefore, went in appeal to the Appellate Tribunal. By the time the appeal to the Tribunal reached hearing, the Central Board of Direct Taxes issued Circular bearing No. F. No. 10/49/65/II(AI) of October 14, 1965, explaining, inter alia, the position regarding the creation of statutory reserve for allowance of development rebate. Shortly stated, the position explained by the Circular was (a) that in cases of certain industrial undertakings having Government participation in equity capital, or enjoying the facility of loan or guarantee furnished by the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Bombay High Court where rectificatory action taken by the Department in the light of the 1972 circular presuming that the position specified in paras. (b) and (c) was also affected by the aforesaid decisions of the Supreme Court and this court (See Tata Iron and Steel Co. Ltd. v. N.C. Upadhyaya [1974] 96 ITR 1 (Bom) and Indian Oil Corporation v. S. Rajagopalan [1973] 92 ITR 241 (Bom) and explained the correct legal position. The Calcutta and Madras High Courts also followed the line of decision as rendered by the Bombay High Court in the aforesaid two decisions. In view of this conflicting legal position emerging as a result of the decisions of the Bombay, Calcutta and Madras High Courts on the one hand and the Gujarat High Court on the other, and in the light of the representations received by the Board from time to time on hardships caused by a misunderstanding of the partial super-session of the Board's earlier instructions of 1965, the whole issue was referred to the Solicitor-General of India for his advice and in the light of the opinion of the Solicitor-General, the Board issued certain directions as contained in the said circular of December 31, 1975. Shortly stated, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment rebate of Rs. 56,548 in the assessment year 1968-69 at 20% on machinery valued at Rs. 2,82,739. It appears that before the assessment could be finalised, the petitioner company advanced a claim for development rebate at a higher rate of 35% since it claimed itself to be a priority industry. The ITO disallowed this claim since appropriate reserve was not provided for. The assessee company, therefore, carried the matter before the AAC, who by his order of July 29, 1972, held that if the assessee provided the reserve in the current year's books, i.e., accounting year 1971-72, development rebate should be granted at the rate of 35%. The Department, being aggrieved by this order of the AAC went in appeal to the Appellate Tribunal, which reversed the order of the AAC, by its order of March 28, 1974, following the decision of this court in Surat Textile Mills' case [1971] 80 ITR 1. The petitioner company, some three years thereafter by their application of September 4, 1977, approached the Central Board of Direct Taxes for directions to the ITO to grant rebate according to the correct principles. The Board by its letter of March 14, 1978, informed the petitioner company that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the Government of India in the matter of grant of development rebate. Before we address ourselves to the question raised in these petitions, it would be profitable to briefly advert to the settled legal position in the matter of beneficial circulars and the directions issued by the Central Board of Direct Taxes in exercise of its statutory power under s. 119 of the I.T. Act, 1961. In Navnit Lal C. Javeri v. K. K. Sen AAC, [1965] 56 ITR 198 (SC), question arose about the binding effect of circulars issued by the Central Board of Revenue in the context of the deeming provision treating the loans taken by shareholders from a company in which public is not substantially interested as dividends under s. 2(6A)(e) of the 1922 Act. The majority court, speaking through Gajendragadkar C.J. (as he then was), held that the circulars issued by the Central Board of Revenue would be binding on all officers and persons employed in the execution of the I.T. Act under s. 5(8) of the 1922 Act. In Navnit Lal C. Javeri's case [1965] 56 ITR 198 (SC), it should be recalled that the Central Board of Revenue was required to issue a circular in pursuance of an assurance given by the Minister for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employed in the execution of the W.T. Act, 1957, even if the circulars deviate from the legal position. In Laxmichand Hirjibhai v. CIT [1981] 128 ITR 747 (Guj), the very same Division Bench has held that benevolent circulars issued by the Central Board of Direct Taxes, even if they deviate from the legal position, are required to be followed by the ITO since the circulars would go to the assistance of the assessee. In Chokshi Metal Refinery v. CIT [1977] 107 ITR 63, another Division Bench of this court consisting of B. J. Diwan C.J. and myself held in the context of relief under s. 84 or s. 80J that having regard to the circular of the Central Board of Revenue issued in June, 1955, and the decision of the Supreme Court in Navnit Lal C. Javeri's case [1965] 56 ITR 198 (SC), although at the time of the original assessments, the assessee-firm itself did not claim relief under s. 84/80J and though the responsibility for claiming refund and reliefs rested with the assessee, the ITO should have drawn the attention of the assessees to this relief under section 84/80J to which the assessee appeared to be clearly entitled but which the assessee had omitted to claim. It is in the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss of revenue were to be dropped. Thirdly, the Revenue was to concede the right of the assessee to claim development rebate in appeal carried from reassessment orders, and fourthly, in pending assessments, the matter is to be regulated as if the circular of 1965 was effective for all intents and purposes. On the other hand, on behalf of the Revenue, the learned counsel contended that so far as the reliefs in Special Civil Application No. 1959 of 1979 are concerned, the ITO could not have rectified the assessment order which he has already made under s. 154 in the light of the decision of the Tribunal. In any case, the application before the ITO was misconceived inasmuch as the order of assessment of the ITO had merged into the Tribunal's order. He also objected to this court exercising the jurisdiction since there was inordinate delay on the part of the petitioners to move this court for seeking the reliefs as prayed for, inasmuch as the petitioners have failed to invoke the jurisdiction of this court immediately after December, 1975, or for that matter July, 1979, circulars of the Central Board of Direct Taxes. We are of the opinion that both these petitions should be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssments only by reopening them either under s. 147 or s. 154 or s. 263. It is in the light of this circular, therefore, that the petitioner-company in Special Civil Application No. 1959 of 1979 made an application on February 9, 1978, to the ITO claiming necessary relief in the matter of seeking rectification of the final order of assessment which the ITO has passed on July 25, 1975, adjusting the assessment according to the order of the Tribunal dated May 31, 1975, allowing the appeal of the Revenue. It is axiomatic to say that the real nature of the proceedings for rectification of assessment to tax are in effect and substance proceedings for assessment (Sankappa v. ITO [1968] 68 ITR 760(SC)).If, therefore, the ITO was moved as was done by the petitioner of Spl. Civil Appln. No. 1959 of l979 by its application of February 9, 1978, to rectify the assessment proceedings, the ITO could not have refused to do so since the circular of July, 1979, issued by the Board in exercise of its statutory power under s. 119 was binding upon him and he was under a duty and obligation to frame assessment according to the directions contained in the said circular read with the earlier circular of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular of 1965 on the point of grant of development rebate has not been superseded and to condone the genuine deficiency subject to the same being made good by the assessee through creation of adequate additional reserve in any of the later years as directed by the Board in the relevant circulars, particularly of December, 1975. Rule is made accordingly absolute in this Special Civil Application No. 1959 of 1979. For the very same reasons in Special Civil Application No. 3637 of 1979, the Commissioner of Income-tax, was moved by the petitioner company in this special civil application, by its application of July 3, 1979, to grant development rebate according to the correct principles. The Central Board of Direct Taxes issued the last circular, as stated above, on the subject on July 25, 1979. This circular was addressed to all the Commissioners asking them, inter alia, to issue necessary instructions to the ITO to complete the pending assessments on the lines indicated in the said circular. The Commissioners have also been directed that the past assessments should also be reviewed and appropriate stand be taken in the pending appeals conceding the right of the assessees to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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