2004 (8) TMI 646 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of claim under section 33AC of the Income-tax Act, 1961.
2. Allowability of claim under section 80M of the Income-tax Act, 1961.

Detailed Analysis:

1. Allowability of Claim under Section 33AC of the Income-tax Act, 1961:

The first issue pertains to the allowability of the claim under section 33AC of the Income-tax Act, 1961. The assessee, a public company formed and registered in India with the main object of carrying on the business of operation of ships, computed its total income and claimed a deduction under section 33AC to the extent of Rs. 3,15,22,393, reflecting the taxable income at Nil. The Assessing Officer allowed a deduction of only Rs. 66,26,930, denying the benefit to the extent of Rs. 2,48,95,463 on the ground of insufficiency of profits. This decision was confirmed by the Commissioner of Income-tax (Appeals).

The assessee's counsel relied on the Supreme Court decision in Shri Shubhlaxmi Mills Ltd. v. Addl. CIT, which held that the existence of sufficient profits is not necessary to avail of the benefit of section 33(1) of the Act and that mere book entries suffice to meet the requirement of the statute. Conversely, the Departmental Representative cited the Supreme Court decision in Vazir Sultan Tobacco Co. Ltd. v. CIT, distinguishing between 'provision' and 'reserve' and emphasizing that sufficiency of profit is essential for creating a reserve.

The Tribunal examined the statutory provisions and precedents, noting that section 33AC allows a deduction of an amount not exceeding the total income, provided it is debited to the profit and loss account and credited to a reserve account to be utilized as specified. The Tribunal found that the assessee complied with these statutory requirements, referencing the Supreme Court's interpretation in Shri Shubhlaxmi Mills Ltd., which clarified that mere book entries are sufficient for creating a reserve fund.

The Tribunal concluded that the issue is covered by the Supreme Court decision in Shri Shubhlaxmi Mills Ltd., and decided in favor of the assessee, allowing the claim under section 33AC.

2. Allowability of Claim under Section 80M of the Income-tax Act, 1961:

The second issue concerns the allowability of the claim under section 80M of the Income-tax Act, 1961. The assessee credited Rs. 2,99,017 as dividend received during the accounting year and had declared a dividend of Rs. 27,75,685 for the assessment year 1993-94, which was distributed on August 25, 1993. The assessee claimed the deduction under section 80M for the dividend distributed within the relevant assessment year.

The Tribunal found that since the distribution was made within the same accounting year, the claim under section 80M is allowable. However, since the Tribunal had already decided the first issue in favor of the assessee, resulting in a gross total income of nil, the issue under section 80M became infructuous.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee, deciding the first issue under section 33AC in favor of the assessee and rendering the second issue under section 80M infructuous due to the nil gross total income.