G.P. Singh, C.J.
1. The following question of law has been referred by the Tribunal:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction on account of development rebate even though the reserve was created after the accounts were completed but before the assessee filed revised return and in any event before the assessment was completed ?'
2. The relevant assessment year is 1966-67. The assessee filed the return of income on February 17, 1967, declaring income of Rs. 30,506, The assessee did not file a copy of the profit and loss account or balance-sheet along with the return. The assessee also did not claim any particular amount as deduction by way of development rebate. The assessee, however, added a note making a request that development rebate as may be allowable may be given as a deduction. The development rebate to which this note referred related to installation of machinery in Nirmal Talkies, owned by the assessee. The machinery installed in the talkies was purchased for Rs. 71,386. The development rebate which is admissible at 25 per cent. of the cost works out to Rs. 14,277. The assessee filed a revised return on August 30, 1967. The assessee filed along with the return, profit and loss account and the balance-sheet. The profit and loss account for the talkies showed that a sure of Rs. 10,708 had been adjusted towards development rebate reserve. The ITO did not allow the claim for deduction of development rebate on the ground that the statutory reserve had not been created at the time of filing of the return. The AAC and the Tribunal, however, allowed the claim of the assessee. The Tribunal's view was that as the reserve had been created at the time of the filing of the revised return and before the assessment, the assessee is entitled to claim the development rebate.
3. The relevant statutory provisions are contained in Sections 33(1) and 34(3)(a). The deduction allowed under Section 33 as development rebate is subject to the conditions laid down in Section 34. Section 34(3)(a) specifically provided that the deduction referred to in Section 33 shall not be allowed unless an amount equal to 75 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 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 is no doubt that the assessee must comply with the requirement contained in Section 34(3)(a) before he can be held to be entitled to claim development rebate. In. other words, 75 per cent. of the development rebate to be actually allowed must be debited to the profit and loss account of the relevant previous year and credited to a reserve account as mentioned in Section 34(3)(a) for claiming the rebate. The question, however, is, whether if no reserve account is created at the time of filing of the return, can the assessee correct his accounts and create a reserve beforethe assessment for claiming the rebate. In Indian Overseas Bank Ltd. v. CIT : 77ITR512(SC) , the Supreme Court dealt with the corresponding provisions of the 1922 Act, and held that a creation of the reserve is a condition precedent for obtaining the allowance of development rebate. The Supreme Court also observed that the transfer to the reserve fund should be made at the time of making up the profit and loss account. These observations have led to a sharp difference of opinion amongst the High Courts. One of the views taken is that the assessee cannot create a reserve account for the purpose of claiming development rebate after the filing of the return. The other view is that there is no bar in law for amending the accounts and for creating the reserve after filing of the return and before the assessment. The decision of the Madras High Court in R. Venkatasubramaniam v. CIT : 91ITR220(Mad) may be referred to as representing the former view and the decision of the Allahabad High Court in CIT v. Modi Spg. & Wvg. Mills Co. Ltd. : 89ITR304(All) may be cited as representing the opposite view. The cases of the other High Courts are all referred in Sundaram's Law of Income-tax in India, 11th Edition, Vol.-I, p. 1077. Having given our anxious consideration to the question, we are inclined to agree with the view taken by the Allahabad High Court. The decision of the Supreme Court in Indian Overseas Bank's case : 77ITR512(SC) does not lay down that the accounts cannot be amended after the filing of the return. Indeed, in that case, no reserve fund, as required by the proviso to Section 10(2)(vib) of the 1922 Act, was ever created. The question in the form presented before us did not arise for decision in that case. As expressed by the Allahabad High Court, there is no statutory bar that a profit and loss account once prepared cannot be later amended. It is, therefore, open to the assessee to amend the profit and loss account and to create a reserve account as required by Section 34(3)(a) before the assessment for claiming the rebate. This view is further supported by Section 139(5) which permits an assessee to file a revised return in case he discovers any omission or any wrong statement in the return originally filed by him. In our opinion, the Tribunal was right in deciding in favour of the assessee that he was entitled to claim the rebate.
4. For the reasons given above, we answer the question in the affirmative in favour of the assessee and against the Department. There will be no order as to costs.
5. We must also record our appreciation for Shri B.L. Nema, advocate, who appeared as amicus curiae to assist us.