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Barar Lion Buttons (P.) Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 15 of 1970
Judge
Reported in[1973]87ITR44(P& H)
ActsIncome Tax Act, 1961 - Sections 34(3)
AppellantBarar Lion Buttons (P.) Ltd.
RespondentCommissioner of Income-tax
Appellant Advocate D.D. Verma and; R.N. Narula, Advs.
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases ReferredIndian Overseas Bank Ltd. v. Commissioner of Income
Excerpt:
- sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply..........the provisions of section 34(3) of the income-tax act, 1961, inasmuch as no credit was made to a reserve account to be utilised by the assessee during the period of ten years next from the date on which the reserve was created. what the assessee did was, it debited the costs of the moulds to the profit and loss account and nothing more. on the basis of this debit entry, it claimed that it was entitled to the development rebate under section 33 of the act. this contention has failed right up to the tribunal. while dealing with this matter, the tribunal observed as follows : ' looking to the facts of the instant case, debiting the cost of the moulds to the profit and loss account only meant that the profit to that extent had been depleted. it did not mean that an amount equal to the.....
Judgment:

1. The Income-tax Appellate Tribunal, Delhi Bench ' C ', has referred the following question of law for our opinion:

'Whether, on the facts and circumstances of the case, the assessee was entitled to a development rebate on the costs of the moulds installed by the assessee during the accounting years relevant to the assessment years 1962-63 and 1963-64?'

2. The assessee is a private limited company engaged in the business of manufacturing glass buttons. The assessee installed new moulds for the manufacture of buttons in the assessment years 1962-63 and 1963-64. The total amount spent for this purpose in the first year was Rs. 30,641 and in the second year Rs. 12,238. Consequently, the assessee claimed development rebate on the costs of moulds at Rs. 7,660 and Rs. 3,060 respectively. However, the assessee did not comply with the provisions of Section 34(3) of the Income-tax Act, 1961, inasmuch as no credit was made to a reserve account to be utilised by the assessee during the period of ten years next from the date on which the reserve was created. What the assessee did was, it debited the costs of the moulds to the profit and loss account and nothing more. On the basis of this debit entry, it claimed that it was entitled to the development rebate under Section 33 of the Act. This contention has failed right up to the Tribunal. While dealing with this matter, the Tribunal observed as follows :

' Looking to the facts of the instant case, debiting the cost of the moulds to the profit and loss account only meant that the profit to that extent had been depleted. It did not mean that an amount equal to the debit was available for future utilisation towards business purposes. The debit indicated that the amount had gone out of the assessee's hands and was no more available. What the provisions of Section 34(3)(a) require is that after carving out a portion of the profit, such profit should be taken to a reserve account so that such amount may be available for future utilisation for business purposes. Unless, therefore, an amount equal to 75% of the development rebate to be actually allowed is carved out of the profit and taken to a reserve account it cannot be said that any amount was available for future utilisation for the purposes of the business of the undertaking. In our view, therefore, the departmental authorities were justified in holding that no reserve account had been created as required under the law and consequently, development rebate could not be allowed.'

3. The assessee then applied to the Tribunal for statement of certain questions of law, but only the question, to which we have made a reference, has been referred for our opinion.

4. The learned counsel for the assessee contends that by merely making the debit entry regarding the cost of the moulds, it is entitled to adevelopment rebate. This contention cannot be accepted in view of the decision of the Supreme Court in Indian Overseas Bank Ltd. v. Commissioner of Income-tax, [1970] 77 I.T.R. 512, 513-14 (S.C.).. Their Lordships, at page 513 of the report, observed as follows :

'The rebate under proviso (b) of Section 10(2)(vib) is a concession granted but that concession is made subject to fulfilment of certain requirements. The grant of this allowance is made subject to the conditions prescribed in proviso (b) to Explanation (2) to Section 10(2)(vib). The relevant portion of that proviso reads:

'. . . . 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 him during a period of ten years next following for the purposes: of the business of the undertaking, except ' The creation of the reserve contemplated by this provision is a condition precedent for obtaining the allowance of development rebate.'

5. The reason for the creation of the reserve is stated by the Madras High Court in Commissioner oj Income-tax v. Veeraswami Nainar, [1965] 55 I.T.R. 35, 39 (Mad.)

6. The observations quoted below from that judgment were also 'approved by their Lordships of the Supreme Court in the Indian Overseas Bank's case:

'The object of the legislature in allowing a development of the assessee's business from out of the reserve fund is apparent from the terms of the proviso. The entries in the account books required by the proviso are not an idle formality. The assessee being obliged to credit the reserve fund for a specific purpose, he cannot draw upon the same for purposes other than those of the business and that amount cannot be distributed by way of dividend.'

7. Faced with this situation, the learned counsel for the assessee switched on to another argument, namely, that the amount spent on the moulds was a revenue expenditure and could not be treated as a capital expenditure. This question has not been referred for our opinion. It also does not arise out of the Tribunal's order and, therefore, we cannot pronounce upon its validity in the present proceedings.

8. For the reasons recorded above, the question referred to us is answered in the negative, that is, against the assessee and in favour of the department. The revenue would be entitled to costs which are assessed atRs. 150.


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