Shubhlaxmi Mills Limited v. Additional Commissioner Of Income-Tax, Gujarat

.SHUBHLAXMI MILLS LIMITED v. ADDITIONAL COMMISSIONER OF INCOME-TAX, GUJARAT MARCH 28, 1989 B [R.S. PATHAK, CJ AND RANGANATH MISRA, J.] Income Tax Act, 1961-S. 33(1) read with S. 34(3)(a) and Exp/a-nation thereto-Creation of a reserve fund in the relevant previous year is a condition precedent for claiming deduction on account of 'develop-ment rebate'. Sub-s. (1) of S. 33 of the Income Tax Act, 1961 provides that subject to the provisions of s. 34 thereof development rebate may be claimed as a deduction in respect of a new machinery or plant. Clause (a) of sub-s. (3) of s. 34 stipulates that the said deduction shall not be D allowed unless an amount equal to 75 per cent of the development rebate is debited to the profit and Joss account of the relevant previous year and credited to a reserve account; and the Explanation thereto provides that the deduction shall not be denied by reason only that the amount so credited to the reserve account exceeded the amount of the profit of such previous year. The appellant-assessee which had a textile mill claimed a sum as development rebate for the assessment year 1962-63. The Income Tax Officer rejected the claim on the ground that the assessee had not created a reserve as contemplated by sub-s. (3) of s. 34 and his order, on appeal, was upheld by the Assistant Commissioner. In second appeal, the claim by the assessee found favour with the Appellate Tribunal; but on a reference made by it at the instance of the Revenue, the High Court held that the assessee had failed to comply with the conditions of sub-s. (3) of s. 34. The appellant contended that the view taken by the High Court was erroneous and that it was not necessary that a reserve should have been created in the previous year. Dismissing the appeal, HELD: In order to claim the deduction on account of develop-ment rebate under sub-s. (1) of s. 33 it is obligatory that the debit entries in the profit and loss account and the credit entry in a reserve account should be made in the relevant previous year in which the machinery or plant is installed or first put to use. The development rebate contemplated by snb-s. (I) of s. 33 cannot be allowed as a deduc-tion unless a reserve account bas been created in the previous year in which the installation or first use occurs. Any doubt in so reading the provisions because of a want or insufficiency of profit in such previous year has been removed by the Explanation to clause (a) of sub-s. (3) of s. 34. [91D-E] What is contemplated is the creation of a Reserve Fund in the relevant previous year irrespective of the result of the profit and loss account disclosed by the books of the assessee. Mere book entries will suffice for creating such a Reserve Fund. The debit entries and the entries relating to the Reserve Fund have to be made before the profit ·~ ·and loss account is finally drawn up. That is a condition for securing the · benefit of development rebate. [89E-F] West Laikdihi Coal Co. Ltd., Calcutta v. Commissioner of Income-tax, West Bengal II,. [1973] 87 ITR 501; Commissioner of Income-tax, Delhi Central v. Modi Spinning & Weaving Mills Co. Ltd., [1973] 89 ITR 304 and Indian Overs.eas Bank Ltd. v. Commissioner of Income-tax, Madras, [1970] 77 ITR 512, distinguished. _.\.-· Additional Commissioner of Income-tax v. Vishnu Industrial Enterprises, [1980] 122 ITR 919 and Commissioner of Income-tax v. U.P. Hotel and Restaurants Ltd., [1984] 145 ITR 598, overruled. Dodballapur Spinning Mills Ltd. v. Commissioner of Income· tax, Karnataka-2 and Anr., [1980] 121ITR94 and Indian Oil Corpora-• tion Ltd. v. S. Rajagopalan, Income Tax Officer, Companies Circle ~ 11( 1) Bombay and Others, [1973] 92 ITR 241, referred to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 47 (NT) of 1975. From the Judgment and Order dated 3.10.1974 of the Gujarat High Court in I.T. Reference No. 30 of 1973. 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