Development allowance under sec. 33A-Creation of reserve- Instruction regarding - Income Tax - 325/1982

Development allowance under sec. 33A-Creation of reserve- Instruction regarding Circular No. 325 Dated 3/2/1982 To All Commissioners of Income-tax. Sir, Subject: Development allowance under sec. 33A-Creation of reserve- Instruction regarding. Attention is invited to section 33A of the Income-tax Act, 1961, which provides for the grant of deduction by way of development allowance of a certain percentage of expenses incurred on planting of tea bushes on any land in India owned by an assessee who carries on the business of growing and manufacturing tea. Sub-section (3) of section 33A of the Income-tax Act stipulates certain conditions which must be fulfilled before the abovesaid deduction is allowed. One of the conditions is that a reserve of an amount equal to 75% of the development allowance to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during the period of eight years next following for the purpose of the business of the undertaking. 2. Clarifications have been sought from the Board regarding the manner in which the amount of reserve for claiming deduction on account of development allowance is to be calculated. In this connection, it is pointed out that the provisions of law require that the reserve should be equal to 75% of the "development allowance actually to be allowed". It is argued that since only 40% of the income of a tea company is chargeable to tax, the actual allowance on account of development allowance is only 40% of the amount calculated on the basis of specified percentage of the cost of planting tea bushes. 3. A similar question had been examined with regard to the quantum of reserve to be created for claiming deduction on account of development rebate in the cases of a tea companies. Vide Board's Circular letter F.No. 1(8)-58/TPL dated 1st November, 1958, it was clarified that in the case of tea companies it would be sufficient compliance if the reserve created is equal to 75% of the amount actually allowed as development rebate. Since the conditions regarding the creation of reserve for the grant of development allowance under section 33A are identical to those prescribed with regard to the creation of reserve for claiming deduction on account of development rebate, it is clarified that the reserve required to be created for claiming development allowance should be calculated @ 75% of the amount which is actually allowed by way of development allowance, i.e., 75% of 40% of the amount calculated on the basis of specified percentage of the cost of planting tea bushes. 4. The above clarification may please be brought to the notice of all the officers working in your charge. Yours faithfully, (Sd.) P. Saxena, Secretary, Central Board of Direct Taxes.