1981 (10) TMI 2 - HC - Income Tax

Summary

Issues:
1. Whether the assessee, a State Electricity Board, is exempt from creating a development rebate reserve under section 34(3)(a) of the Income-tax Act, 1961, as it falls under the proviso for being a licensee under the Electricity (Supply) Act, 1948?
2. Whether the Appellate Tribunal was correct in allowing the claim of the assessee for a development rebate amounting to Rs. 7,60,11,975 under section 33(1)(b)(B)(iv) read with section 34(3)(a) of the Income-tax Act, 1961, for the assessment year 1970-71?

Analysis:

Issue 1:
The High Court addressed whether the State Electricity Board, the assessee, was required to create a development rebate reserve under section 34(3)(a) of the Income-tax Act, 1961. The Board contended that it was exempt from this requirement as it was a licensee under the Electricity (Supply) Act, 1948. The Income-tax Officer disallowed the deduction of development rebate claimed by the assessee, leading to a series of appeals. The Tribunal ultimately accepted the assessee's argument that it was exempt from creating the reserve due to being a licensee under the Electricity (Supply) Act. The Court examined the definition of "licensee" under the Electricity (Supply) Act and concluded that the Board, although not fitting the definition in section 2(6) of the Act, was considered a licensee within the broader scope of the proviso to section 34(3)(a) of the Income-tax Act. The Court's decision was supported by a previous judgment of the Punjab High Court.

Issue 2:
Regarding the second issue, the Court considered whether the Tribunal was correct in allowing the claim of the assessee for a development rebate amounting to Rs. 7,60,11,975. The Tribunal had ruled in favor of the assessee, stating that the requirement of creating a development rebate reserve did not apply in a year when the assessee incurred a loss. The Court referenced various case laws to support this view, highlighting that when an assessee suffers a loss, the condition of creating a reserve may not be applicable. Given the finding that the Board was exempt from creating the reserve, the Court did not delve into the question of whether the creation of a reserve was necessary in case of a loss. Consequently, the Court upheld the Tribunal's decision to allow the development rebate claim of the assessee.

In conclusion, the High Court ruled in favor of the assessee on both issues, stating that the assessee was exempt from maintaining a development rebate reserve and that the Tribunal was correct in allowing the development rebate claim. The Court awarded costs to the assessee and clarified the fee for the counsel.