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Ugar Sugar Works Ltd. Vs. Commissioner of Income Tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberI.T. Ref. No. 16 of 1971
Judge
Reported in(1980)18CTR(Bom)194
ActsIncome Tax Act, 1961 - Sections 34(3)(a)
AppellantUgar Sugar Works Ltd.
RespondentCommissioner of Income Tax
Excerpt:
- .....the assessee credited the following amounts in respect of these two years to the development rebate reserve in the accounts of the assessee :as on 1-7-1963 rs. 9,75,952/-as on 1-7-1964 rs. 10,72,000/-in the computation of the assessee's business income, the rebate actually allowed to the assessee was rs. 8,83,388/- for the year ending 30th june 1963 and rs. 9,46,576/- for the year ending 30th june, 1964.2. under the provisions of s. 34(3)(a) of the it act, 1961, the amount equal to 75% of the development actually allowed came to rs. 6,62,541/- for the asst. yr. 1965-66 and rs. 7,09,932/- for the asst. yr. 1966-67. there was thus an excess in the development rebate reserve over the amount statutorily prescribed u/s. 34(3)(a).3. the ito for the purpose of capital u/r 1 of the second.....
Judgment:

Chandurkar, J.

1. The question raised on behalf of the assessee arises out of assessment proceedings for the asst. yrs. 1965-66 and 1966-67. The assessee credited the following amounts in respect of these two years to the development rebate reserve in the accounts of the assessee :

As on 1-7-1963 Rs. 9,75,952/-As on 1-7-1964 Rs. 10,72,000/-

In the computation of the assessee's business income, the rebate actually allowed to the assessee was Rs. 8,83,388/- for the year ending 30th June 1963 and Rs. 9,46,576/- for the year ending 30th June, 1964.

2. Under the provisions of s. 34(3)(a) of the IT Act, 1961, the amount equal to 75% of the development actually allowed came to Rs. 6,62,541/- for the asst. yr. 1965-66 and Rs. 7,09,932/- for the asst. yr. 1966-67. There was thus an excess in the development rebate reserve over the amount statutorily prescribed u/s. 34(3)(a).

3. The ITO for the purpose of capital u/r 1 of the Second Schedule of the Companies (Profits) Surtax Act, 1964, included the entire sum Rs. 9,75,952/- and Rs. 10,72,000/- in respect of the two years in question.

4. The CIT in the exercise of his revisional jurisdiction, however, took the view that amount equal to 75% of the rebate actually allowed could alone be taken into account u/cl. (ii) of r. 1 of the Second Schedule of the Surtax Act. With regard to the excess the Commissioner took the view that it could not be treated as a reserve for the purposes of the rules for computing the capital of a company for purposes of surtax.

5. This order of the Commissioner was confirmed by the Tribunal while dismissing the appeal filed by the assessee. The Tribunal in its order took the view that the excess could not be treated as 'other reserves.'

6. Arising out of this order of the Tribunal the two questions which have been referred to this Court u/s 256 (1) of the IT Act, 1961, are as follows :

'(1) Whether the entire sum standing to the credit of Development Rebate Reserve account in the accounts of the assessee company is includible in the capital computation of the assessee company u/r 1 of the Second Schedule to Companies (Profits) Surtax Act, 1964 ?

(2) Whether the excess of the Development Rebate Reserve over the development rebate actually, allowed in the computation of the assessee's income could be considered as 'other reserves' within the meaning of r. 1(ii) of the said Schedule ?'

7. Having regard to the real controversy involved in this case, it is agreed on behalf of the Revenue and the assessee that the controversy can form subject matter of only one question which is reframed as follows :-

'Whether the amounts in excess of 75% of the amounts taken to the development rebate reserve account by 30th June, 1963 and 30th June, 1964 from part of the capital of the assessee Company for the purpose of surtax as computed u/r 1 of the Second Schedule to the Companies (Profits) Surtax Aft 1964 ?'

8. We need not discuss the arguments advanced before us because the matter really stands concluded by the decision of this Court in CIT v. Otis Elevatar Co. (India) Ltd. in which it has been held that the excess development rebate reserve can be treated as 'other reserves' as contemplated by cl. (iii) of r. 1 of the Second Schedule to the Surtax Act, 1964. In that case, the balance sheet disclosed a development rebate reserve of Rs. 1,66,077.25 while the statutory reserves required u/s 34(3)(a) of the IT Act, 1961, amounted to Rs. 1,65,944/- . The ITO had held that the excess of the reserve over Rs. 1,65,944/- could not be considered by him as reserves u/s 34(3)(a). The Tribunal had held that the excess reserve, though forming part of the development rebate in the balance sheet, could not be said to have been allowed as a development rebate and, therefore, the entire excess reserve without being reduced by any amount would form part of the reserves and thus entitled to be aggregated with capital for surtax purposes. This court while dealing with an identical question as in the present case referred to a circular issued by the CBDT bearing No. 53(F. No. 7/2/68-TPL) dated 11th January 1971 and held that the assessee would be entitled to have the said excess included in the capital computation for the purpose of surtax. Accordingly, the question as reframed is answered in the affirmative and in favour of the assessee. The assessee to get the costs of this reference.


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