1975 (12) TMI 64 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to development rebate based on the timing of entries in the books of account.
2. Compliance with statutory conditions for claiming development rebate.
3. Interpretation of judicial precedents regarding development rebate reserve requirements.

Detailed Analysis:

1. Entitlement to Development Rebate Based on the Timing of Entries in the Books of Account:
The primary issue was whether the assessee-firm was entitled to a development rebate for the assessment year 1964-65, despite making entries for development rebate and development rebate reserve after the closure of accounts on March 31, 1964. The Income-tax Officer disallowed the claim, stating that the development rebate was not provided for in the books of account when they were initially closed. The Appellate Assistant Commissioner upheld this view, asserting that reopening of closed books of account to create a development rebate reserve was not permissible under Indian law.

2. Compliance with Statutory Conditions for Claiming Development Rebate:
The Tribunal re-examined the claim based on statutory provisions and judicial precedents. It concluded that the income-tax law does not prohibit reopening accounts to correct accidental errors. The Tribunal noted that the assessee had created a specific reserve for development rebate at a later date, satisfying all legal requirements. Thus, the Tribunal directed the Income-tax Officer to allow the development rebate as claimed by the assessee.

3. Interpretation of Judicial Precedents Regarding Development Rebate Reserve Requirements:
The revenue relied on the Supreme Court's decision in Indian Overseas Bank Ltd. v. Commissioner of Income-tax and the Gujarat High Court's decision in Surat Textile Mills Ltd. v. Commissioner of Income-tax. In the Indian Overseas Bank case, the Supreme Court emphasized that the creation of a reserve is a condition precedent for obtaining a development rebate. The reserve must be created at the time of making up the profit and loss account. Similarly, the Gujarat High Court in Surat Textile Mills held that the development rebate reserve must be debited before the profit and loss account is made up.

However, the assessee argued, relying on decisions from the Andhra Pradesh, Rajasthan, Allahabad, Bombay, and Punjab and Haryana High Courts, that the Supreme Court had not explicitly ruled that the development rebate reserve must be created in the same accounting year or that the Income-tax Officer could not permit the assessee to rectify bona fide mistakes in subsequent years. The Bombay High Court, in Tata Iron and Steel Co. Ltd. v. N.C. Upadhyaya, observed that the Supreme Court's decision did not address the timing of creating the development rebate reserve, and it was permissible to amend the profit and loss account subsequently.

The Orissa High Court agreed with the Bombay High Court's interpretation, stating that there is no upper time limit fixed under the Act for claiming the benefit of development rebate. Since the revised return was accepted and dealt with by the Income-tax Officer, and the requisite provision for development rebate was made by the time the revised return was filed, the assessee was entitled to the development rebate.

Conclusion:
On the facts and in the circumstances of the case, and on a true interpretation of clause (a) of sub-section (3) of section 34 of the Income-tax Act, 1961, the Appellate Tribunal was correct in holding that the assessee-firm was entitled to the development rebate for the assessment year 1964-65. The court ruled in favor of the assessee and awarded costs of rupees one hundred.

DAS J. concurred with the judgment.