TMI Blog1982 (10) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purpose of the business carried on by him in accordance with and subject to the provisions of this section and of s. 34. The deduction referred to in s. 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) by distribution of profits ; or (ii) for remittances outside India as profits or the creation of any asset outside India. Though the assessee claimed a deduction of Rs. 22,341 by way of development rebate, it is an admitted position that during the accounting year concerned the assessee-company had not created such reserve. The ITO did not allow this claim for deduction. However, on appeal by the assessee, the AAC held that the assessee is entitled to the rebate. He found as a fact that in the prior accounting years 1965 to 1973, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittance outside India is profits or for the creation of any asset outside India : Provided that this clause shall not apply where the assessee is company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 (LIV of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958: Provided further that where a ship has been acquired after the 28th day of February, 1966, this clause shall have effect in respect of such ship as if for the words ' seventy-five ', the word 'fifty' had been substitute. Explanation.-For the removal of doubts, it is hereby declared that the deduction referred to in section 33 shall 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 aforesaid exceeds the amount of the profit of such previous year (as arrived at without making the debit aforesaid) in accordance with the profit and loss account." In looking into the meaning of the provision, one has to take note of the general principles Of construction of a taxing Act. Tax and equity are strangers and an equitable construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Banking Companies Act is sufficient compliance with the requirements of s. 10(2)(vib), prov. (b), of the Indian I.T. Act, 1922. The authorities under the Act as well as the High Court had answered the question in the negative. What happened in that case was that the appellant-company had transferred a sum of Rs. 6 lakhs from the profit and loss account to the reserve fund which sum was sufficient to meet the requirements of s. 17 of the Banking Companies Act, 1949, as well as of prov. (b) to s. 10(2)(vib) of the said Act. But, no separate reserve fund as required by prov. (b) to s. 10(2)(vib) has been created. The contention of the appellant was that as the transfer to the reserve was sufficient to meet the requirements of s. 17 of the Banking Companies Act, as well as of prov. (b) to s. 10(2)(vib) of the Act, in substance, it had complied with the requirements of law, and, therefore, it was entitled to the allowance of the rebate claimed. The relevant portion of the proviso considered there reads: "....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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question whether additional depreciation and development rebate should be allowed, pointed out that the duty of the court is to interpret the words that Parliament has used and it cannot supply the gap disclosed in an Act or make up the deficiencies. Lord Brougham's observations in Gwynne v. Burnell [1840] 7 Cl. F. 572 (HL), 696, was quoted with approval where the learned judge had said : " ' If we depart from the plain and obvious meaning on account of such views, we do not in truth construe the Act, but alter it. We add words to it, or vary the words in which its provisions are couched. We supply a defect which the Legislature could easily have supplied, and are making the law, not interpreting it. ' " In that view, the Supreme Court held that the assessee was not entitled to additional depreciation and development rebate. Another Bench of the Gujarat High Court consisting of Chief justice Divan and justice Mehta in Keshavlal Vithaldas v. CIT [1976] 105 ITR 601, had considered the requirement of development rebate reserve of the firm in a case where the reserve was not created when the profit and loss account was prepared and later the profit and loss account was revis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h what the Calcutta High Court said in CIT v. Calcutta Tramways Co. Ltd. (1978] 112 ITR 643, that on a proper construction of s. 34(3)(a) of the I.T. Act, there is no mandatory requirement for setting apart an amount equal to seventy-five per cent. of the development rebate to be actually allowed, under a separate or independent head. In the above decision it was said that the ratio of the Supreme Court judgment in India Overseas Bank Ltd.'s case [1970] 77 ITR 512(SC), cannot be applied to construction of s.34(3)(a) because that deals with the reserve under s. 17 of the Banking Companies Act. Under s. 17 the fund is to be set apart out of the net profits of each year whereas the development reserve account under the I.T. Act is to be maintained before the profit and loss account is made up or concluded and there is no scope for setting apart a reserve in the nature of one provided in s. 17 of the Banking Companies Act. Section 34(3)(a), as noted earlier, requires debiting of an amount equal to seventy-five per cent. of the development rebate to the profit and loss account of the relevant previous year and crediting it to reserve account to be utilised by the assessee during a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve in the current year's books in which the assessment is framed. 2. The Supreme Court, in the case of Indian Overseas Bank Ltd. v. Commissioner of Income-tax [1970] 77 ITR 512 (SC), had occasion to consider the validity of the position, as explained at (a) above. In that case, the bank had not created any development rebate as such, although the books of account disclosed a substantial reserve under section 17 of the Banking Companies Act of 1949. On the claim of the bank that reserve had been created for purposes of claiming development rebate, the Supreme Court held that the reserve contemplated under the Income-tax Act was altogether an independent reserve and since the taxpayer had not complied with the requirements for the creation of special development rebate reserve, it was not entitled to claim the allowance in question. The Supreme Court also observed that the entries in the account books were not idle formalities. Thus, the instructions of the Board set out above in so far as part (a) is concerned became inoperable. However, the position explained in parts (b) and (c) above were not specifically considered by the Supreme Court in that decision. Taking note of the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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