1984 (7) TMI 163 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of the ITO for redoing assessments under section 8 of the Surtax Act.
2. Treatment of Quarry Land Amortisation Reserve as a reserve or provision.
3. Treatment of development rebate reserve withdrawn after the statutory period.

Analysis:

Issue 1:
The first issue pertains to the jurisdiction of the Income Tax Officer (ITO) for redoing assessments under section 8 of the Surtax Act. The grounds related to this issue were not pressed during the hearing and were consequently dismissed.

Issue 2:
The primary concern in this case was the treatment of Quarry Land Amortisation Reserve shown in the balance sheet as a reserve or provision. The contention revolved around whether this reserve should be considered part of the capital base or as a provision, as argued by the ITO. The Explanation to rule 1 of Schedule II of the Surtax Act was crucial in determining the treatment of reserves. The appellate authority supported the ITO's view that the reserve should be treated as a sinking fund due to the nature of the asset being a wasting asset. However, the appellate tribunal disagreed and held that the amount represented by Quarry Land Amortisation Reserve should be treated as a reserve, not a sinking fund. The tribunal emphasized the need for intention and conduct on the part of the directors to determine the nature of the appropriation.

Issue 3:
The final issue addressed the treatment of the development rebate reserve withdrawn after the statutory period of eight years for the assessment years 1976-77 and 1977-78. The tribunal, following the decisions of the Andhra Pradesh High Court, held that the benefit of treatment as a reserve cannot be denied on the amounts standing as part of the development rebate reserve after the expiration of the 8-year period. The ITO was directed to give effect to the High Court's view, and the appeal on this point was treated as allowed.

In conclusion, the tribunal allowed the appeals in favor of the assessee on both the treatment of Quarry Land Amortisation Reserve and the development rebate reserve withdrawn after the statutory period, highlighting the importance of proper classification and treatment of reserves in accordance with the relevant legal provisions and guidelines.