1994 (4) TMI 1 - SC - Income Tax

Assessee distributes liquid petroleum gas - Cylinders in question did not satisfy a case of returnable packages actually used up . It also appears to us that the High Court has held, for good reasons, that the assessee could not claim any deduction under section 32(1)(iii) of the Act and a claim on account of development reserve under section 34(3)(a) of the Act was also inadmissible for the reasons indicated by the High Court

Summary

Issues Involved:
1. Allowability of loss on sale of gas cylinders as revenue expenditure under rule 5 of the Income-tax Rules, 1962, or under section 32(1)(iii) of the Income-tax Act, 1961.
2. Allowability of development rebate despite shortfall in the development rebate reserve account.

Issue-wise Detailed Analysis:

1. Allowability of Loss on Sale of Gas Cylinders:
The appellant-company, engaged in distributing liquid petroleum gas, sold iron cylinders used as "returnable packages" at a loss. The Income-tax Officer disallowed the claim for deduction of the loss, stating that the cost of returnable packages could only be allowed as revenue expenditure when "actually used up," implying the packages must be unusable by wear and tear. The Tribunal allowed the appeal, considering the loss as revenue expenditure under rule 5. The High Court, however, reframed the question and answered it in the negative, stating that the loss was not allowable as revenue expenditure. The High Court held that the expression "actually used up" means "exhausted by use, rendered unserviceable," and since the cylinders were sold in good condition, the claim was inadmissible. The Supreme Court upheld this view, agreeing that the cylinders were not "actually used up" and thus, the loss could not be claimed as revenue expenditure under rule 5 or section 32(1)(iii).

2. Allowability of Development Rebate:
The appellant-company claimed a development rebate of Rs. 24,15,622, despite a shortfall in the statutory reserve. The High Court held that section 34(3)(a) of the Income-tax Act, 1961, was not inflexible but required compliance. The appellant-company did not transfer excess amounts from earlier years to make up the shortfall in the accounting year. The High Court referred to the decision in Indian Overseas Bank Ltd. v. CIT, emphasizing that development rebate is a concession subject to certain requirements, and non-compliance with section 34(3)(a) disqualified the claim. The Supreme Court agreed with the High Court's reasoning, stating that the appellant-company did not fulfil the statutory requirements and thus, the development rebate claim was inadmissible.

Conclusion:
The Supreme Court dismissed the appeal, affirming the High Court's decision that the loss on the sale of cylinders was not allowable as revenue expenditure and that the development rebate claim was inadmissible due to non-compliance with statutory requirements. The judgment emphasized the necessity of fulfilling specific conditions to claim deductions and rebates under the Income-tax Act, 1961.