Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no part of the amount credited to the development rebate reserve account could be said to have been utilised by the assessee for distribution by way of dividend or profit ?"
(2.) This reference relates to the assessment year 1962-63. The facts found by the ITO were as follows :
(3.) The assessee had been allowed development rebate for this assessment year amounting to Rs. 17,07,973 for which it had also created the necessary reserve. However, on March 31, 1963, the assessee transferred a sum of Rs. 6,01,000 from the development rebate reserve to its general reserve and, thereafter, it transferred a sum of Rs. 3,00,000 from the general reserve to the profit and loss appropriation account for the declaration of dividends. The ITO took the transfer of Rs. 6,01,000 from the development rebate reserve to the general reserve and the diversion thereafter of Rs. 3,00,000, from the general reserve for the purpose of declaration of dividends, as an infringement of Section 34(3) of the I.T. Act to justify the withdrawal of the development rebate already granted. He, hence, initiated proceedings under Section 155(5) read with Section 154 of the I.T. Act, 1961. The assessee explained that the development rebate was, in fact, utilised for the purpose of business, namely, for the purpose of plant and machinery and repayment of loans taken from the National Industrial Development Corporation. It was submitted that the general reserve already had an old balance of Rs. 76,50,000 and the amount transferred to the profit and loss appropriation account was from that balance. The ITO did not accept either of these contentions. According to him, the proper thing to be done in the matter was to apportion the total sum of Rs. 12,21,303 declared as dividends over Rs. 3,00,000 transferred for the purpose and the old balance in the general reserve account. The ITO arrived at the conclusion that the sum of Rs. 47,520 as what had to be deemed to come of Rs; 3,00,000 transferred and on that basis he found the amount of development rebate to be withdrawn as Rs. 63,336.;