PERIA KARMALAI TEA AND PRODUCE COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Peria Karamalai Tea & Produce Co. Ltd. is a private limited company. It was assessed under the Companies (Profits) Surtax Act, 1964, for the assessment years 1965-66, 1966-67 and 1967-68. For 1965-66 and 1966-67 the assessment was completed on February 17, 1967, and for 1967-68, on February 14, 1968. For the three relevant assessment years the assessee had created development rebate reserve in excess of what had to be statutorily created. In the three original assessments such excess had been included in the computation of capital under the Second Schedule to the Companies (Profits)' Surtax Act, 1964, Later on, the ITO being of the opinion that on account of the inclusion of the excess development rebate reserve in the capital chargeable profits had escaped assessment, reopened these assessments. After hearing the objections of the assessee, the three assessments were remade on March 23, 1974, after excluding from the amount of capital such excess development rebate reserve.

(2.) ON appeal by the assessee, the AAC held that the excess development rebate reserve is includible in the capital. ON January 11, 1971, the CBDT had issued Circular No. 53 F. No. 7/2/68-TPL* bringing to the notice of the I.T. authorities that development rebate in excess of the statutory limit is includible in the capital. The AAC followed the circular and directed the ITO to include the capital. The department appealed to the Tribunal. The Tribunal took the view that the question was covered by the decision of the Kerala High Court in Travancore Rayon's case, viz., I.T.R. Nos. 110 & 131 of 1971 (unreported). Following that judgment, the Tribunal held against the assessee. ON the question as to whether the assessee was entitled to the benefit of the circular, the Tribunal held that as the circular was issued only in 1971, it will not apply to assessments in respect of the years 1965-66, 1966-67 and 1967-68 made and completed when the circular was not in existence. It was also pointed out by the departmental representative that on September 9, 1974, the Commissioner of Income-tax, Kerala, had issued the direction to the assessing officers that the circular is not applicable to the Kerala charge. The assessee then pointed out that on November 2, 1974, in another letter, the Commissioner had stated that the instruction of September 9, 1974, will apply only to pending assessments. As these two instructions of the Commissioner were after the date of reassessments, the Tribunal did not refer to these letters. It allowed the department's appeal and restored the assessments of the ITO. At the instance of the assessee, the following question of law has been referred, viz.:

(3.) THE observation of the Division Bench of this court extracted above, which was followed by the Tribunal, was in respect of the above provision.