1982 (10) TMI 113 - AT - Income Tax

Summary

Issues:
Withdrawal of development rebate under section 155(5) of the Income-tax Act, 1961 for the assessment year 1967-68, violation of section 34(3)(a) by crediting the development rebate reserve to partners' account, interpretation of 'eight years' in section 34(3)(a) as calendar years, application of the principle of ejusdem generis in interpreting the relevant provisions.

Analysis:
The Tribunal initially disposed of the appeal concerning the withdrawal of development rebate for the assessment year 1967-68 due to the reversal of the entry of the reserve created in the previous year. The ITO withdrew the rebate, citing a violation of section 34(3)(a) by crediting the reserve to partners' accounts. However, the Commissioner (Appeals) viewed it as a technical error and reversed the entries, leading to the appeal by the revenue. The Tribunal upheld the withdrawal, prompting the assessee to file a Miscellaneous Application raising arguments regarding the interpretation of 'eight years' and the impact of crediting partners' accounts on profit distribution.

The assessee argued that 'eight years' in section 34(3)(a) should be interpreted as calendar years, fulfilling the requirement by transferring the reserve after November 12, 1974. Citing a precedent, the assessee contended against penalizing for technical breaches. Conversely, the departmental representative asserted that 'year' in section 34(3) referred to eight succeeding previous years, based on the principle of ejusdem generis. The Tribunal analyzed the relevant provisions, emphasizing the creation and maintenance of the reserve and the timing of debiting the profit and loss account.

Interpreting 'year' as 'calendar year' based on precedents, the Tribunal rejected the revenue's interpretation and the application of ejusdem generis. It reasoned that the literal construction should prevail, avoiding absurdity or inconvenience in the interpretation of 'eight years.' Upholding the assessee's argument, the Tribunal concluded that the ITO erred in withdrawing the development rebate reserve under section 155(5), allowing the assessee's appeal. The reference application by the assessee was dismissed as infructuous in light of the decision.

In summary, the Tribunal's detailed analysis focused on interpreting the statutory provisions, especially regarding the timeline for creating and maintaining the development rebate reserve, ultimately ruling in favor of the assessee based on the interpretation of 'eight years' as calendar years and rejecting the revenue's contentions.