TMI Blog1977 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... inst their original cost of Rs. 1,09,63,754. The refinery continued to supply gas in those very cylinders to the company and the company, in its turn, distributed gas in those cylinders to the consumers. The company claimed before the ITO that those cylinders were " returnable packages " within the meaning of that expression used in item M(2)(2)(d)(1) of Pt. I of the Depreciation Schedule, App. I of r. 5 of the I.T. Rules, 1962. It also claimed that it had incurred a loss of Rs. 27,43,807 on the sale of those cylinders and that this loss should be allowed as deduction either under the aforesaid item or under s. 32(1)(iii) of the I.T. Act, 1961. The ITO did not allow the aforesaid claim for the reasons recorded in the assessment order. There were some excess amounts in the development rebate reserve account created by the company in the earlier years. In the accounting year, the company claimed development rebate of Rs. 24,15,622. The reserve to be created at the statutory rate of 75% in respect of this claim was Rs. 18,11,715 against which the actual reserve created by the company in its account was Rs. 18,03,531. Thus, there was a shortfall in that reserve account in the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full amount of development rebate of Rs. 24,15,622 could be allowed in that year on the basis of such adjustment ? " Mr. Ajit Sengupta, learned counsel for the revenue, argues that the Tribunal had no power to refer the second part of question No. 1 either suo motu or at the instance of the company on the Commissioner's application for reference, because it was not raised by the Commissioner in his aforesaid application under s. 256(1) of the Act. In this behalf, he cites the case of CIT v. A. K. Das [1970] 77 ITR 31 (Cal) in which a Division Bench of this court, by following the decision of the Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, has held that on the Commissioner's application for reference the Tribunal has no power to refer any question of law suo motu or at the instance of the assessee. In substance, the Madras High Court has also taken the same view in the cases of CIT v. S. K. Srinivasan [1970] 75 ITR 93, CIT v. Ramdas Pharmacy [1970] 77 ITR 276 and CIT v. Inden Biselers [1973] 91 ITR 427. Therefore, it is submitted that this reference on the second part of question No. 1 is incompetent and this court, in any event, shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal must be deemed to have decided the question " of law under s. 32(1)(iii) of the Act against the company in view of the decision of the Supreme Court in the case of Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 at page 610 of the report. Though the question of law under s. 32(1)(iii) arises out of the order of the Tribunal, the Commissioner was not aggrieved by it and did not apply for a reference on it. The company raised that question in its reply. The Tribunal reframed it and then referred it as the second part of question No. 1. Even if it is held that this part of question No. 1 has not been referred at the instance of the company, the only conclusion that can be reached is that the Tribunal has referred it suo motu. Therefore, we reject his contentions. Mr. Ray then argues as follows : (i) the real controversy between the company and the department before the Tribunal was whether the loss of Rs. 27,43,807 was deductible in the computation of the business income of the company ; (ii) on that controversy, the parties made arguments on r. 5 read with the aforesaid item M(2) (2)(d)(1) and also on s. 32(1)(iii) of the Act ; (iii) these two provisions of law are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al " and we cannot, by reframing the question as suggested by Mr. Ray, reopen this closed chapter in view of the decision of the Supreme Court in the case of CIT v. Anusuya Devi [1968] 68 ITR 750. Further, we have no power to entertain a new or an independent question of law which the Commissioner in his application for reference has not called upon the Tribunal to refer to this court : vide Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 at pages 609-10 of the report. Therefore, the submissions of Mr. Ray must fail. Though Mr. Ray is not entitled to argue on the second part of this question, nevertheless we have heard him on its merits and will deal with this part of question No. 1 after disposing of its first part. The first part of question No. 1 has not been properly framed by the Tribunal as rightly agreed between the learned counsel for both the parties, because r. 5 of the I. T. Rules, 1962, and the aforesaid item M(2) (2)(d)(1) do not deal with any loss arising out of a sale of returnable packages. Item M(2) deals with " mineral oil concerns ". In item M(2) (2)(d) under the heading " Distribution ", item (1) is " returnable packages ". No depreciation is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Ray then argues that the expression " actually used up " includes both total and partial use up and that whether these packages were " actually used up " or not should be determined with reference to the company and their actual usefulness to the company at the time of the aforesaid sale and not with reference to their subsequent user by the " refinery " and the company. He also argues that, as due to some administrative difficulties the company had sold the cylinders to the refinery, it should be hold that they were " actually used up " and thus the aforesaid amount is allowable as a revenue expenditure under the aforesaid item. The expression " used up " means " exhausted by use, rendered unserviceable " : We are, however, concerned with a stronger term, namely, " actually used up ". The adverb " actually " in our opinion rules out the inclusion of any partial use up of the returnable packages. The words " actually used up " read in their context mean that the packages are actually rendered unserviceable or can no longer be used as packages. The words " actually used up " qualify the word " packages ". Therefore, the contentions of Mr. Ray that whether these packages were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argues that as the cost of these packages was Rs. 1,09,63,754 and as no depreciation is allowable on the returnable packages, their written down value is Rs. 1,09,63,754 and that as these packages were sold for Rs. 82,19,947, the deficiency under s. 32(1)(iii) of the Act is Rs. 27,43,807 and, therefore, this deficiency is allowable under this section. Assuming that Rs. 1,09,63,754 is the written down value of the cylinders and Rs. 27,43,807 is the amount of such deficiency, the company's claim must be held to be hit by prov. to s. 32(1)(iii) of the Act, because the company has not written off Rs. 27,43,807 in its books as enjoined by the proviso. In the premises, we answer the second part of question No. 1 in the negative and in favour of the revenue. Other arguments on the second part of question No. 1 and the cases cited at the Bar may now be noted without expressing our opinions on them. Mr. Pal argues that, as s. 32(1)(iii) is subject to s. 34(2) of the Act, the company's claim cannot be allowed because the company did not furnish the prescribed particulars relating to depreciation on the cylinders. Mr. Ray argues that the prescribed particulars, though not furnished b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we will now take up question No. 2. The learned counsel for both the parties submit that this question has not been properly framed by the Tribunal and as suggested by them we reframe it as follows : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the development rebate of Rs. 24,15,622 although there was a shortfall of Rs. 34,827 in the development rebate reserve account created by the assessee in the accounting year ? " Briefly speaking, development rebate is allowable under s. 33 of the Act subject to the provisions of s. 34(3)(a) of the Act which reads as follows : " The deduction referred to in section 33 shall not be allowed unless an amount equal to 75% 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 : ........... There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar from the terms of the proviso that the transfer to the reserve fund should be made at the time of making up the profit and loss account ". Development rebate reserve account was not created in the aforesaid case and their Lordships of the Supreme Court were directly concerned with prov. (b) to s. 10(2)(vib) of the Indian I.T. Act, 1922, which is in pari materia with s. 34(3)(a) of the I.T. Act, 1961. Therefore, no development rebate under s. 33 of the Act can be allowed unless in terms of s. 34(3)(a) an amount equal to 75% of the development rebate to be actually allowed is in fact credited to the reserve account by debiting it to the profit and loss account of the relevant accounting year. Further, in the aforesaid case of West Laikdihi Coal Co. Ltd. [1973] 87 ITR 501 (Cal), at page 510 of the report, our court says thus : " The position, therefore, is that cl. (b) of the first prov. to s. 10(2)(vib) imposes two conditions. The first condition is that the assessee must debit his profit and loss account of the relevant year by an amount equivalent to 75% of the development rebate to be actually allowed in that year and credit the same to a reserve account. The second condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the next year and whether depreciation will be allowed in proportion to the provision made : The law provides that no development rebate will be allowed in the case of plant and machinery installed on or after the 1st day of January, 1958, unless an amount equal to 75% of the development rebate to be actually allowed is credited to a reserve account by debit to the profit and loss account of the relevant year. As such, what is envisaged in the event of inadequate provision is total disentitlement of the development rebate, and not its abatement in proportion to the inadequacy of the reserve created. Where such shortfall is, therefore, intentional, there will be no question of permitting a carry forward of the difference, and the full amount of the development rebate which would otherwise be due will be liable to be disallowed. Cases where there is no deliberate contravention of this condition, and provision is actually made at the prescribed rate (75%) of the development rebate allowable according to the assessee's own bona fide computation, but the amount so provided is found by the ITO at the time of the assessment to fall short because the development rebate actually allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents made on behalf of the parties, we opine as follows : (1) An excess amount in the earlier year's development rebate reserve account is not frozen by s. 34(3)(a) of the Act in view of its clear language ; (2) The directors of a company are free to freeze the said excess amount and after doing so the company by debiting it in the profit and loss account and by crediting it to the development rebate reserve account can make up the shortfall of the accounting year in which the development rebate is actually claimed or allowed ; (3) Except in those cases in which the CBR or the CBDT have relaxed the provisions of s. 34(3)(a) of the Act, it must be followed in order to earn the development rebate claimed in a particular year. The shortfall in the development rebate reserve account created by the company in the accounting year was not made up by the company by creating an additional reserve or by debiting the excess amounts of the earlier years in the profit and loss account of the instant accounting year and by crediting the same in the development rebate reserve account of this instant year. It was not the case of the company before the authorities below that the said shortfall wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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