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TMI Blog1994 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in the business of distributing liquid petroleum gas manufactured by the Burmah Shell Refineries Limited (hereinafter referred to as "the Refinery"). For the purpose of such distribution, the appellant-company had from the year 1955 to the beginning of 1961, which was its previous year for the assessment year 1962-63, acquired iron cylinders at a total cost of Rs. 1,09,63,754. Those cylinders were used as "returnable packages". They were accounted by the appellant-company as its capital assets but no allowance for depreciation thereon was claimed or allowed in any of its assessments up to the year 1961-62. The said cylinders were used to be filled with gas by the refinery. The refinery later on offered to purchase the cylinders owned by the appellant-company. The sale of cylinders took place in 1961 for a total sum of Rs. 82,19,947 as against their original cost of Rs. 1,09,63,754. There was thus a shortfall of Rs. 27,43,807 which the appellant-company claimed as a deduction in the assessment year 1962-63. By an assessment order, the Income-tax Officer, Central Circle V, disallowed the said claim. The Income-tax Officer rejected the contention of the appellant-company that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reserve required to be made in any subsequent year and in allowing the full development rebate of Rs. 24,15,622 although the actual reserve fell short of the statutory requirements ?" The appellant-company opposed the said application and in reply it was pointed out that at the hearing of the appeal by the Tribunal, it had alternatively been argued that the claim for the allowance of Rs. 27,43,807 should be admitted as depreciation under section 32(1)(iii) of the Income-tax Act, 1961. The appellant-company, therefore, submitted that if the Tribunal decided to make the reference, the question should be in terms suggested by it. After hearing the parties, the Tribunal finalised the statement of the case and referred the following questions for the opinion of the High Court of Calcutta (at page 896 of 115 ITR): " (1) Whether, on the facts and in the circumstances of the case, the loss of Rs. 27,43,807 arising on the sale of gas cylinders was allowable as a revenue expenditure as provided for in the remarks against 'returnable packages' under the classification 'Mineral oil concerns' in item M(2)(2)(d) under the heading '(iii) special rates to be applied to other machinery and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Rules, 1962 ? (b) Whether there can be any written down value of returnable packages specified in item M(2)(2)(d)(i) in the said section of the said statement ? (c) Whether the interpretation by the learned judges of the expression 'cost of packages' and 'actually used up' appearing in the remarks against the said item is correct ? (d) Whether in deciding the question whether the deduction referred to in section 33 of the Income-tax Act, 1961, may be allowed in any year the amount credited to the reserve account in past years in excess of the requirement prescribed by section 34(3)(a) may be taken into account? " Mr. S. Rajappa, learned counsel appearing for the appellant-company, contended that section 32(1)(iii) of the Income-tax Act, 1961, applies to machinery and plant specially listed in Part I of the Appendix to the Income-tax Rules, 1962, and the High Court had gone wrong in holding that the said general provision of section 32(1)(iii) of Income-tax Act, 1961, was not applicable in the facts and circumstances of the case. It has been contended by Mr. Rajappa that admittedly the cost of cylinders was Rs. 1,09,63,754 and as no depreciation was allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act, 1922, which is in pari materia with section 34(3)(a) of the Income-tax Act, 1961. The High Court has held that (a) an excess amount in the earlier year's development rebate reserve account is not frozen by section 34(3)(a) of the Act in view of its clear language ; (b) the directors of a company are entitled to free the excess amount and after doing so, the company by debiting it in the profit and loss account and by crediting it to the development rebate reserve account can make up the shortfall of the accounting year in which the development rebate is actually claimed or allowed ; and (c) except in those cases in which the Central Board of Revenue or the Central Board of Direct Taxes have relaxed the provisions of section 34(3)(a), it must be complied with in order to earn the development rebate claimed in a particular year. The High Court has held that the appellant-company did not transfer the excess amounts of the earlier years in the accounting year for the purpose of making up the corresponding reserve and it is an admitted fact that the appellant-company did not comply with the provisions of section 34(3)(a) of the Act. Mr. Rajappa has next urged that so far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up" for reasons indicated by the High Court, the assessee was not entitled to any benefit of this entry. Mr. Ramamurti has also urged that where entry M(2)(2)(d)(i) of Appendix I to the Rules is applicable, section 32(1)(iii) of the Income-tax Act does not apply. Even assuming that section 32(1)(iii) applies, the Tribunal has not found any fact relating to written down value. Written down value being a question of fact must be found on consideration of relevant materials. The Tribunal has not dealt with this issue and the question therefore did not arise for consideration. Mr. Ramamurti has also submitted that, in any event, as rightly pointed out by the High Court, the assessee is not entitled to claim any benefit under section 32(1)(iii) as the assessee has not written off the deficiency in its books of account. Such writing down is a condition which is required to be satisfied. Mr. Ramamurti in this connection has referred to a decision of the Madras High Court in S. Rajagopala Vandayar v. CIT [1990] 184 ITR 450, which according to Mr. Ramamurti has taken into consideration earlier decisions including the decision of this court in CIT v. National Syndicate [1961] 41 ITR 225 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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