Decided on October 01,1982



B.V. Venkataramaiah, Accountant Member - (1.) THIS appeal was disposed of by the Tribunal on 18-4-1981. The subject-matter of the appeal was withdrawal of development rebate of Rs. 1,30,386 under Section 155(5) of the Income-tax Act, 1961 ('the Act'), for the assessment year 1967-68. The previous year for the assessment year 1967-68 ended on 12-11-1966. The assessee created development rebate reserve of Rs. 98,200 in its books of account for the relevant previous year, namely, samvat year 2022 and obtained development rebate of Rs. 1,30,386. On 13-11-1974, that is, on the last day of the previous year relevant to the assessment year 1975-76, the assessee closed the development rebate reserve account and transferred the balance to the partners' capital accounts. We are here concerned with the reversal of the entry of Rs. 98,200 which was the reserve created in the previous year relevant to the assessment year 1967-68. The reversal of the entry regarding reserve of Rs. 6,286 created in samvat year 202J is not in dispute. The ITO held that by crediting the development rebate reserve to the partners' account, the firm violated the provisions of Section 34(3)(a), of the Act. Accordingly, he invoked Section 155(5) and withdrew the rebate. The Commissioner (Appeals), however, held that the assessee had committed only a technical error and as it reversed the entries re-crediting the development rebate reserve account with effect from the last day of the accounting year, the assessee did not deserve to be penalised by withdrawal of the rebate.
(2.) The revenue appealed and the Tribunal held that as the development rebate reserve had been utilised by the partners, the ITO was justified in withdrawing the development rebate under Section 155(5). The assessee then filed a Miscellaneous Application No. 9 (Nag.) of 1981 [IT Appeal No. 265 (Nag.) of 1980]. In that application it was urged that an argument had been advanced on behalf of the assessee that the development rebate reserve had to be kept intact for eight calendar years and not eight previous years as interpreted by the revenue and this argument had not been considered and disposed of by the Tribunal. It was requested that our order should be recalled and the matter disposed of. There was another contention that the crediting of the partners' account would not amount to distribution of profit and was thus not hit by Section 155. The Tribunal rejected the later contention, but posted the case for hearing to dispose of the contention raised by the assessee not considered by it in the earlier order. The learned counsel for the assessee submitted that Section 34(3)(a) prohibited the assessee from utilising the development rebate reserve for distribution by way of dividends or profits or for remittance outside India or for the creation of any asset outside India in a period of eight years next following the end of the previous year in which the reserve was created. He urged that the words 'eight years' have to be given the natural meaning, that is, the calendar year. In the present case, the assessee created the reserve in the year ending on 12-11-1966. Eight calendar years ended on 12-11-1974. On 13-11-1974, the assessee transferred the reserve to the partners' capital accounts, that is, the transfer took place after the completion of eight calendar years referred to. It was, thus, pleaded that the requirements of Section 34(3) had been fulfilled and the ITO should not have invoked the provisions of Section 155(5). Reliance was also placed on the decision of the Gujarat High Court in Vikram Mills Ltd. v. ITO [1976] 105 ITR 423 to the effect that the assessee should not be penalised for technical breach of the provisions.
(3.) THE learned departmental representative, on the other hand, stated that the words used in Section 34(3) do not leave any doubt as regards the meaning of the word 'year'. THE reserve was to be credited in the previous year in which the machinery was installed. It had to be kept intact for eight more years which would obviously mean eight succeeding previous years. He submkted that this interpretation would follow from the principle of ejusdem generis.;

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