COMMISSIONER OF INCOME TAX Vs. CALCUTTA TRAMWAYS CO LTD
HIGH COURT OF CALCUTTA
COMMISSIONER OF INCOME TAX
CALCUTTA TRAMWAYS CO LTD
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MASUD, J. -
(1.)THE short point to be decided in this reference under Section 256(1) of the Income -tax Act, 1961, is whether, on the facts of thiscase, the assessee is entitled to development rebate under Section 34(3)read with Section 33 - of the said Act. The following question of law hasbeen raised : 'Whether, on the facts and in the circumstances of the case, the entries in the balance -sheet as on 31st December, 1961, regarding the sum of 9,473 constituted a 'reserve' as contemplated by Section 34(3) of the Income -tax Act, 1961, so as to justify allowance of development rebate under Section 33 of that Act ?'
(2.)BEFORE the relevant portions of the balance -sheet are set out, it is necessary to discuss the material provisions of Section 34 of the said Act.
'34. Conditions for depreciation allowance and development rebate. - -(1) The deductions referred to in Sub -section (1) of Section 32 shall be allowed only if the prescribed particulars have been furnished; and the deductions referred in Section 33 shall be allowed only if the particulars prescribed for the purpose of Clause (i) and Clause (ii) of Sub -section (1) of Section 32 have been furnished by the assessee in respect of the ship or machinery or plant.........
(3)(a) The deduction referred to in Section 33 shall not be allowed unless 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 the assessee during a period of eight years next following for the purposes of the business of the 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;......... '
Deduction referred to in the said Section 34(3)(a) is allowed to a company as development rebate for the purpose of giving incentive to carry on, or to continue to carry on, business in respect of new ship acquired or new machinery or plant installed which is owned by the assessee and is wholly used for the purpose of the business carried on by the latter. It is obvious from Section 34(3)(a) that such allowance is not permissible unless a sum 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 for purposes other than the exceptions. The balance -sheet of the assessee, the Calcutta Tramways Company Ltd., has referred to the development rebate reserve in the following manner :
'SPECIAL ACCOUNTS (in accordance with the agreement dated 30th August, 1951, between the Government ofthe State of West Bengal and the company) :
Shareholders' Account Balance as at August 31, 1951... 2,71,456Less amount transferred to Dev. Rebate Reserve to conform with the Indian Finance Act, 1958... 9,473
Add Reserve created in respect of above transfer 9,473... 2,71,456Special Reserve... 98,017 3,69,473
(3.)MR . Balai Pal, counsel for the revenue, has contended that the conditions set out in the said Section 34(3)(a) have not been complied with in view of the fact that development rebate reserve has been deducted from the shareholders' account and added back to the identical account and that no special reserve has been set apart as contemplated under the said subsection. Reliance has been placed by him on Indian Overseas Bank v. Commissioner of Income -tax : 77ITR512(SC) .
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