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TMI Blog2011 (5) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act. The said "reserve" was reflected in the books of account as "Export Profit Reserve Account". It was created for the assessment years 1986-87, 1987-88 and 1988-89 respectively for Rs. 10,50,000, Rs. 11,55,000 and Rs. 19,60,000 as per the terms of the provisions of section 80HHC(1) of the Act. It was informed that no ear-marked investment was prescribed in the Statute and it was to be utilized for the purpose of the business of the assessee. It has also been informed that CBDT has issued a Circular No. 463, dated 11-7-1986 and issued the instruction that the "reserve" so created could be utilized for the purposes of distribution of dividend and there would be no infringement if dividend is distributed out of such "reserve". It has also been informed that there was a change in the partnership, hence it was decided to distribute the said "reserve" amongst ex-partners in their profit sharing ratio. However, the Assessing Officer was not convinced and commented that a new partner, viz., Monica Niraj Wadhwa having 10 per cent share admitted to the partnership-firm and the "reserve" was distributed to all partners, hence that distribution was not a use for the benefit of the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distributed among partners. Dividend is also distribution of profits among shareholders. Consequently distribution of reserves to partners, which in any case was a profit, already considered for assessment, would also be treated as utilization of reserve for the business of the assessee. On the other hand, the ratio of the Supreme Court's judgment in the case of Ajax Products Ltd. (supra), as quoted by the Authorised Representative, is as much applicable. To tax an item, there should be a statutory mandate to do so; more so when it had already been part of the computation of the assessed income in earlier years. There is no sound logic in taxing the redistribution of surplus lying in form of reserve as income of year in the hands of the firm. 2.3.3 Therefore, considering all aspects of the case in my view, there was no justification of taxing the amount of Rs. 41,70,000. Hence the same is deleted. The Assessing Officer may, however, look into its consequences in individual partners' hands." 3.1 The Revenue has challenged the verdict of the ld. CIT(A). 4. From the side of the Revenue Mr. G.M. Chauhan, Sr. D.R. and from the side of the assessee Mr. Mukesh M. Patel appeared and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate about the creation of the "reserve" but there was no mandate about its utilization. There was also no mandate about the period for which the "reserve" was required to remain existed as such in the books of account without any utilization. The second plank of argument was that in the absence of any specific provision or mandate about it's utilization in the Statute, the utilization of the created "reserve" could be governed by a Circular of CBDT bearing No. 463 dated 11-7-1986. As far as the first plank of argument was concerned, it is correct that the Statute was silent about its utilization. The Statute was also silent about the period for which it was required to remain untouched in the books of account. The Statute has simply prescribed that the "reserve" so created was to be utilized for the business of the assessee. Analyzing the said situation, the CBDT has issued a Circular No. 463 (supra), which covers the second plank of argument. The relevant portion of the Circular is reproduced for ready reference :- "CIRCULAR NO. 463 Provisions of section 80HHC of the Income-tax Act, 1961 - Clarification regarding 11-7-1986 Deductions - Section 80HHC Section 80HHC, as amended b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we hereby negate the finding of the Assessing Officer in this regard and affirm that of CIT(A). 6.3 As far as the purpose of creation of "export reserve" was concerned, the requirement was to utilize for the purposes of the business of the assessee. Undisputedly, the "reserve" was created way back in the years 1986-87, 1987-88 and 1988-89 and it was distributed amongst partners in the assessment year 2006-07, the year under appeal. Which means that the said "reserve" remained with the firm approximately for 18 to 20 years, hence, it was in fact remained under utilization for the purposes of the business of the assessee for a substantial long period. Due to this reason also, the condition as prescribed by the said Statute was accomplished by this assessee. 6.4 The ld. Counsel Mr. Mukesh M. Patel has cited a decision of Hon'ble Supreme Court pronounced in the case of CIT v. Ajax Products Ltd. [1965] 55 ITR 741 for the legal proposition that there must be strict interpretation of the charging provisions and an amount should not be taxed unless the charging provision clearly imposes the obligation. There is no two opinion if the words of a Statute are precise and unambiguous, they m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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