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TMI Blog1976 (2) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ent rebate must be credited to a reserve account to be utilised by the assessee during the period of eight years next following for the purposes of the business of the undertaking other than those specified therein. It might be stated here that the period of eight years aforesaid expired in the present case on December 31, 1971. Some time in the middle of 1972, while making up the accounts for the calendar year 1971, the petitioner-company transferred to the general reserve an amount of Rs. 93,171, which was the total amount then standing to the credit of the development rebate reserve. The transfer was made effective from the last day of the calendar year 1971, that is, from December 31, 1971. Be it noted that some time in the middle of that is, prior to the merger of the development rebate reserve with the general reserve, the petitioner-company had declared dividend for the period January 1 to December 31, 1970, and an amount of Rs. 2,05,544 was drawn from the general reserve, which before the merger stood at Rs. 24,72,141, and it was utilised in the payment of dividend. On April 14, 1975, the respondent issued a notice, exhibit B, to the petitioner-company stating that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed as under : Rs. Total income as per order under section 154 9,34,577 Add : Development rebate withdrawn as discussed in the order. 49,354 -------------- 9,83,931" -------------- It is this order which is challenged in the present petition The order was assailed on behalf of the assessee on the ground that the respondent had no jurisdiction to amend the order of assessment in respect of the assessment year 1964-65 by exercising the powers of rectification because the conditions precedent for the exercise of such power were not satisfied in the present case. In this connection it was urged : (i) that the dividend in question was paid out of the general reserve in the middle of 1971, that is, much prior to the decision to merge the development rebate reserve with the general reserve was taken in the middle of 1972 and before the actual merger was made effective on and from December 31, 1971, and that, therefore, having regard to the sequence of events, no part of the amount credited in the development rebate reserve in the previous year relevant to the assessment year 1964-65 was in fact utilised by the assessee during the period of eight years next followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the development rebate 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 purposes of the business of the undertaking, other than-- (i) for distribution by way of dividends or profits ; or (ii) for remittance outside India as profits or for the creation of any asset outside India ; ..........." There are two provisos and one Explanation to clause (a) which are not relevant for the present case and they need not be set out. Section 154 confers power upon different authorities for rectification of mistake and it, inter alia, provides that with a view to rectifying any mistake apparent from the record, the Income-tax Officer may amend any order of assessment passed by him. Sub-section (7) of section 154 prescribes the period of limitation for the exercise of power under the said section and it provides that save as otherwise provided in section 155 or sub-section (4) of section 186 no amendment under the said section shall be made after the expiry of four years from the date of the order sought to be amended. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Indian Income-tax Act, 1922 (proviso (b) to Explanation 2 to section 10(2)(vib)) that "the creation of the reserve contemplated by this provision is a condition precedent for obtaining the allowance of development rebate" and that the reserve contemplated thereby is "an independent reserve" which cannot be drawn upon for purposes other than those of the business and the amount credited therein cannot be distributed by way of dividend for the specified period. What happens, however, if the amount credited in such special reserve is utilised by the assessee in the course of the succeeding eight years for purposes other than those of the business of the undertaking or for such purposes of business which are excluded by section 34(3)(a)? The answer is provided by section 155(5) which enacts that in such a case the development rebate originally allowed shall be deemed to have been wrongly allowed and the Income-tax Officer may recompute the total income of an assessee for the relevant previous year and make the necessary amendment in the assessment order of the corresponding assessment year. It has to be borne in mind, however, that unless any of the conditions laid down in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reserve account created under section 34(3)(a) for distribution by way of dividend within a period of eight years, and, therefore, the condition precedent for the exercise of power under section 154 read with section 155(5) was not satisfied and the respondent had no power, authority or jurisdiction to recompute the total income of the assessee for assessment year 1964-65 and to make necessary amendment in the assessment order of that year by adding back the amount of development rebate allowed in that assessment year. Mr. K. H. Kaji, learned advocate appearing on behalf of the revenue, however, sought to support the impugned order on a totally different ground. He urged that the requirement of law was that the separate development rebate reserve created under section 34(3)(a) was required to be kept intact for a period of eight years and that such reserve could not be merged with the general reserve at any time during the course of the specified period of eight years and that since that was not done in the present case and the said reserve was merged with the general reserve on the last day of the period of eight years, the respondent was authorised to act under section 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther reserve) so that the revenue authorities could easily follow the track of the amount credited therein and ascertain as to how it was utilised, we do not think that there has been in the instant case such a contravention of that statutory requirement, if any, as to permit an action under section 154 read with section 155(5). In the present case, the requisite percentage of the amount which was allowed as development rebate was in fact kept in a separate reserve until the expiry of the period of eight years and it is not found to have been utilised during that period for any of the prohibited purposes. After the expiry of the period of eight years, a decision was taken by the petitioner-company to merge the special reserve with the general reserve with effect from the last day of the completion of the period of eight years. Even if, therefore, there was any breach of the implied condition, if any, of section 34(3)(a), the breach was technical and venial. The express provisions of section 34(3)(a) were not contravened either in substance or in form because even after the amount was merged it was not utilised for any of the prohibited purposes. Under these circumstances, the power ..... X X X X Extracts X X X X X X X X Extracts X X X X
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