9911796707
TMI Blog1993 (12) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... id order contained mistakes apparent from the record on the following two counts : (a) On the last day of the accounting year ended 31st March, 1980, the assessee had written back a sum of Rs. 2 crores out of the development rebate reserve to the profit and loss appropriation account and this sum was utilised to increase general reserve during the year. Inasmuch as development rebate reserve has been allowed in the earlier years as a deduction, the amount of reserve written back should be excluded from the computation of capital in terms of rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act. (b) Excess of income-tax depreciation over book depreciation (Rs. 1,41,82,782) was omitted to be deducted from the capital ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the first appellate authority to the effect that the Assessing Officer was not justified in reducing the capital base by a sum of Rs. 2 crores, being the development rebate reserve written back by the assessee. 8. The facts necessary for the resolution of this issue may be stated briefly. The assessment year is 1981-82, the relevant previous year being the nine-month period ending on 31-12-1980. Thus the capital computation date is 1-4-1980. This would mean, our focus should be on the assessee's balance sheet as on 31-3-1980. (It may here be mentioned that during the relevant time the assessee had changed its year of accounting from the year ending on March 31st every year to calendar year). 9. The following are the relevant figures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r into computation of capital base for purposes of surtax. And, in the original assessment made on 30-11-1981 the said sum of Rs. 4.78 crores was rightly taken into reckoning for purposes of computing the assessee's capital base. Yet, the Assessing Officer thought that the assessee's capital base must be reduced by the sum of Rs. 2 crores, which was written back from the development rebate reserve to the general reserve, inasmuch as development rebate reserve has been allowed in the earlier years as a deduction, the amount of reserve written back should be excluded from the computation of capital in terms of Rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act. 11. As we see it, neither on facts nor on law is there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Income-tax Act stipulates is that the development rebate reserve should be kept intact for a stipulated period. The Act does not lay down any modality in respect of the treatment of the said reserve after the expiry of the stipulated period. Suppose the assessee had kept the development rebate reserve intact even after the expiry of the stipulated period, then by virtue of Rule 1 (ii) of the Second Schedule to the Companies (Profits) Surtax Act the amount standing to the credit of the reserve would have formed part of the capital base for the purposes of surtax. We fail to see how simply because the assessee transferred the amount standing to the credit of the development rebate reserve to general reserve through the medium of Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Rule 1 (ii) will be nullified. 12. In view of the foregoing, therefore, we hold that the Assessing Officer clearly erred in invoking the provisions of Rule 1(iii) to make the impugned adjustment. 13. It could possibly be argued that the reference to Rule 1(iii) is an incorrect reference and that the Impugned adjustment could well be supported by the provisions of Rule 4 of the said Schedule. Such an argument must also fail. The Assessing Officer has not made any pro tanto reduction in the capital base as contemplated by the said Rule. Nor has she shown that any development rebate was allowed in the income-tax assessment for the assessment year 1981-82. In any event, the sub-rule cannot at all be invoked to effect a pro tanto re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the capital base represented by such income should be left out of reckoning for purposes of computing the statutory deduction. 16. Now, the question that arises for consideration is whether development rebate/investment allowance granted to the assessee could be treated as "income, profits and gains not includible in the total income". As we see it, neither in law nor in logic is there any warrant for treating the said allowance as income not includible in the total income of the assessee. 17. The scheme of the I.T. Act in this regard is very clear and that is that development rebate/investment allowance is a deduction allowed in the process of computing the total income of the assessee. Two significant points may here be made. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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