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Commissioner of Income-tax Vs. M.P. State Electricity Board - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Civil Case No. 364 of 1975
Judge
Reported in[1987]166ITR26(MP)
ActsIncome Tax Act, 1961 - Sections 33 and 34(3)
AppellantCommissioner of Income-tax
RespondentM.P. State Electricity Board
Appellant AdvocateB.K. Rawat, Adv.
Respondent AdvocateB.L. Nema, Adv.
Cases ReferredIndian Oil Corporation Ltd. v. S. Rajagopalan
Excerpt:
- .....circumstances of the case, the appellate tribunal was right in law in allowing the claim of the assessee-electricity board to the allowance of development rebate amounting to rs. 7,60,11,975 as admissible under section 33(1)(b)(b)(iv) read with section 34(3)(a) of the income-tax act, 1961, in the computation of its loss for the assessment year 1970-71 ?'' 2. the relevant assessment year is 1970-71. the assessee, the m.p. electricity board, is constituted under the electricity (supply) act, 1948. the income-tax officer determined the net loss of the assessee at rs. 2,07,02,920. in computing the said loss, the income-tax officer disallowed the assessee's claim to deduction of development rebate on new machinery and plant amounting to rs. 7,60,11,975. the income-tax officer held that the.....
Judgment:

G.P. Singh, C.J.

1. The questions of law which we are required to answer in this reference under Section 256(1) of the Income-tax Act, 1961, are as follows:

' (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in their conclusion that the M.P. State Electricity Board, the assessee herein, is ' a company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 ', specified in the proviso to Section 34(3)(a) of the Income-tax Act, 1961, and that the assessee is exempt from providing and maintaining a development rebate reserve as required under Section 34(3)(a) of the Income-tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the claim of the assessee-Electricity Board to the allowance of development rebate amounting to Rs. 7,60,11,975 as admissible under Section 33(1)(b)(B)(iv) read with Section 34(3)(a) of the Income-tax Act, 1961, in the computation of its loss for the assessment year 1970-71 ?''

2. The relevant assessment year is 1970-71. The assessee, the M.P. Electricity Board, is constituted under the Electricity (Supply) Act, 1948. The Income-tax Officer determined the net loss of the assessee at Rs. 2,07,02,920. In computing the said loss, the Income-tax Officer disallowed the assessee's claim to deduction of development rebate on new machinery and plant amounting to Rs. 7,60,11,975. The Income-tax Officer held that the assessee was not entitled to the deduction as it had not created a development rebate reserve as required by Section 34(3)(a) of the Income-tax Act. It was contended by the assessee that it was a licensee within the meaning of the Electricity (Supply) Act, and, therefore, itwas not required to create a development rebate reserve, but this contention was negatived. The same view was taken in appeal by the Appellate Assistant Commissioner. In further appeal to the Tribunal, the assesses contention, that Section 34(3)(a) of the Act was inapplicable to it for the reason that it was a licensee within the meaning of the Electricity (Supply) Act, was accepted. The Tribunal further held in favour of the assessee that the requirement of creation of development rebate reserve was not applicable for the year in which the assessee made no profit and incurred loss. For these reasons, the Tribunal allowed the claim of the assessee for deduction of development rebate amounting to Rs. 7,60,11,975.

3. The relief by way of development rebate is allowed under Section 33 of the Income-tax Act. The conditions under which the deduction is allowed are contained in Section 34. We are here concerned with Section 34(3)(a) and the first proviso to it which read as follows:

'34. (3)(a) The deduction referred to in Section 33 shall not be allowed unless an amount equal to seventy-five per cent. 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 a 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 :

Provided that this clause shall not apply where the assessee is a company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 (LIV of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958. '

4. 'Licensee' as defined in Section 2(6) of the Electricity (Supply) Act, means a person licensed under Part II of the Indian Electricity Act, 1910, to supply energy or a person who has obtained sanction under Section 28 of that Act to engage in the business of supplying energy but, the provisions of Section 26 of this Act notwithstanding, does not include the ' Board' i.e., a State Electricity Board. Section 26 says that 'subject to the provisions of this Act, the Board shall, in respect of the whole State, have all the powers and obligations of a licensee under the Indian Electricity Act, 1910, and this Act shall be deemed to be the licence of the Board for the purposes of that Act'. The next relevant Section is Section 80 which provides that 'for the purposes of the Indian Income-tax Act, 1922, the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income-tax and super-tax accordingly on its income, profits and gains '. Reference to the 1922 Act in Section 80 must now be read as reference to the 1961 Act in view of Section 8 of the General Clauses Act, 1897.

5. The assessee's contention that it is not required to create development rebate reserve is based on the proviso to Section 34(3)(a) of the Income-tax Act. The assessee argues that it is 'a company being a licensee within the meaning of the Electricity (Supply Act)' and, therefore, it falls within the proviso and is exempt from the condition of creating a development rebate reserve. There can be no doubt that the assessee is a company for the purposes of the proviso, for Section 80 of the Electricity (Supply) Act in clear terms declares that the Board shall be deemed to be a company for purposes of the Income-tax Act. The question then is whether the Board is ' a licensee within the meaning of the Electricity (Supply) Act.' The Board is certainly not a licensee within the definition as contained in Section 2(6) of the Electricity (Supply) Act but the words in the proviso to Section 34(3)(a) of the Income-tax Act do not limit us to the definition of 'licensee' as contained in Section 2(6). The proviso requires us to consider whether the Board is a licensee within the meaning of the Electricity (Supply) Act. The words 'within the meaning of the Electricity (Supply) Act' are much wider than the words in the definition as contained in Section 2(6) and it is open to us to consider all the provisions of the Electricity (Supply) Act for holding whether the Board is a licensee within the meaning of that Act. We have already referred to Section 26 of the Electricity (Supply) Act which declares that the Board shall have all the powers and obligations of a licensee under the Indian Electricity Act and this Act, meaning thereby the Indian Electricity (Supply) Act, shall be deemed to be the licence of the Board for the purposes of that Act. Now, when the Electricity (Supply) Act itself is deemed to be the licence of the Board, it is difficult to hold that the Board is not a licensee within the meaning of the said Act. In our opinion, the Tribunal was right in holding that the Board was covered by the first proviso to Section 34(3)(a) of the Income-tax Act being a licensee within the meaning of the Electricity (Supply) Act. The view that we have taken is fully supported by a decision of the Punjab High Court in CIT v. Punjab State Electricity Board . The Board was thus not required to create a development rebate reserve for claiming development rebate under Section 33.

6. Learned counsel for the assessee also argued that the Tribunal was right in its view that when an assessee suffers loss, the condition of creation of a development rebate reserve under Section 34(3)(a) of the Income-tax Act does not apply. Learned counsel referred us to the following cases : Radhika Mills Ltd. v. CIT : [1969]74ITR661(Mad) , West Laikdihi Coal Co. Ltd. v. CIT : [1973]87ITR501(Cal) , Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO : [1973]92ITR241(Bom) , CIT v. Orissa Flour Mills (P.) Ltd. : [1976]104ITR682(Orissa) and Addl. CIT v. Vishnu Industrial Enterprises (P.) Ltd. : [1980]122ITR919(All) , in support of the view taken by the Tribunal. Learned counsel also very fairly brought to our notice the decision of the Gujarat High Court in Addl. CIT v. Subhlaxmi Mills Ltd. [1975] 100 ITR 188, in which a contrary view has been taken. On the finding reached by us that the Board was covered by the proviso to Section 34(3)(a) and was, therefore, not required to create a development rebate reserve, it is not necessary for us to go into the question whether when an assessee suffers loss, the condition of creation of reserve has to be complied with or not.

7. For the reasons given above, we answer the questions as follows :

' (1) The Tribunal was right in holding that the assessee was covered by the first proviso to Section 34(3)(a) and, therefore, exempt from providing and maintaining a development rebate reserve.

(2) The Tribunal was right in allowing the claim of the assessee to the allowance of development rebate amounting to Rs. 7,60,11,975.'

8. The assessee will get the costs of this reference from the Department. Counsel's fee Rs. 100, if certified.


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