Pathak, J. - (1.) THE following questions have been referred by the Income-tax Appellate Tribunal: " 1. Whether, on the facts and in the circumstances of the case, the assessee can be said to have complied with the provisions of proviso (b) to Section 10(2)(vib) of the Indian Income-tax Act, 1922, and was, therefore, entitled to allowance of development rebate on the plant and machinery installed after January 1, 1958 ? 2. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 3,000 towards the fees of a lawyer for drafting a special resolution and making amendments to the articles of association was an admissible expenditure within the meaning of Section 10(2)(xv) of the Indian Income-tax Act, 1922 ? "
(2.) THE assessee is a public limited company. During the assessment proceedings for the assessment year 1959-60, for which the relevant previous year ended on April 30, 1958, the assessee claimed development rebate under Section 10(2)(vib)of the Indian Income-tax Ac, 1922, on plant and machinery worth Rs. 7,62,609. THE plant and machinery was purchased and installed after January 1, 1958, and before the close of the accounting year. THE claim was rejected by the Income-tax Officer on the ground that the assessee had not debited its profit and loss account and created a reserve as required by proviso (b) to Section 10(2)(vib) at the close of the accounting period. THE Appellate Assistant Commissioner upheld the rejection of the claim. In second appeal by the assessee, the Income-tax Appellate Tribunal allowed the claim holding that' the assessee was entitled to the benefit of Section 10(2)(vib). During the assessment proceedings before the Income-tax Officer the assessee also claimed the deduction of a sum of Rs. 3,000 paid to a lawyer for drafting a special resolution and suggesting amendments to the articles of association. The Income-tax Officer held that the expenditure was capital in nature inasmuch as it brought into existence an enduring benefit to the assessee. The same view was taken by the Appellate Assistant Commissioner, and affirmed by the Tribunal. In regard to the first question referred, the facts are these. The plant and machinery were purchased and installed between January 1, 1958, and April 30, 1958, but when the accounts were closed and the profit and loss account was drawn up at the end of the accounting year the assessee did not debit in the profit and loss account a sum equal to 75% of the development rebate to be actually allowed and did not credit that sum to a reserve account for being utilised by the assessee for the purposes of the business of the undertaking for the period of ten years next following. In other words, there was no attempt at that time to fulfil the conditions set out in proviso (b) to Section 10(2)(vib), compliance of which was necessary before the development rebate could be allowed. Subsequently, on February 27j 1960, the assessee passed the following resolution in a general meeting; " Resolved that in order to enable the company to secure exemption from income-tax on Rs. 2,00,000, being the amount of development rebate ' allowable to it on installation of the new plant and machinery during the period from January 1,1958, to April 30, 1958, development rebate reserve be created as required by law to the tune of Rs. 1,50,000 by debit to the profit and loss account and that a sum of Rs. 4,50,000 be transferred from the general reserve to the profit and loss account instead of a sum of Rs. 3,00,000 as in the balance-sheet as on the 30.th April, 1958. Consequent on this, the director's report, the profit and loss account and the balance-sheet, for that year as approved by the company in its general meeting held on January 28, 1959, be amended so as to read as per annexure ' A' to this resolution. "
(3.) APPROPRIATE entries were made in the books of account in accordance with the resolution. When pressing the claim for development rebate before the Income-tax Officer, the assessee relied upon the amendments now effected pursuant to the resolution, but the Income-tax Officer took the view that as the books of the company had already been closed on April 30, 1958, the retrospective amendments sought to be made could not be considered valid. The Appellate Assistant Commissioner pointed out that the debit to the profit and loss account and the corresponding credit to a reserve account -were made after the accounts had been passed in the annual general meeting held on January 28, 1959, and even after the return of income had been filed by the assessee on October 27, 1959. He held that the amendments made subsequently could have no legal effect, When the matter came before the Tribunal, it was urged on behalf of the assessee that even though the conditions of the statute had been belatedly fulfilled the assessee was entitled to have the claim allowed inasmuch as the statutory requirement had been fulfilled before the assessment was taken up. The Tribunal accepted the contention. While declaring that the accounts of a business generally assume finality when the profit and loss account was drawn up and a balance-sheet prepared, it observed that the account could be reopened for the purpose of making necessary adjustments which had been inadvertently left out. It held that as the adjustments were carried out before the claim for development rebate was taken up for consideration by the Income-tax Officer, the assessee should be considered to have fully complied with the requirements for allowing the claim.;