Law:

Section:

Section 33 of the Income-tax Act, 1961 - Development rebate - Allowance/Rate of - Assessment year 1968-69 - Whether where development rebate reserve was not created when profit and loss account was prepared but was created subsequently by drawing up a general profit and loss account, it could not be said that conditions for allowing development rebate were fulfilled - Held, yes - Whether, therefore, assessee-firm in such a situation, was not entitled to get benefit of development rebate - Held, yes FACTS During the relevant assessment year, the assessee-firm had installed certain machinery. When the profit and loss account of the firm was first prepared, no provision for development rebate reserve was made nor was a reserve created at that time. But, some time prior to the filing of the return, such reserve was created by drawing up what was referred to by the assessee as the general profit and loss account. When the profit and loss account was first prepared, the net profit was distributed amongst the five partners by making the necessary havala entries in the books of account. At the time when so called general profit and loss account was drawn up some time before the return was filed, entries were made and the amount of reserve was proportionately debited to the accounts of the partners and was credited to the development rebate reserve account. At the time of assessment the Income-tax Officer held that the reserve was not created before the books of account were closed and hence he disallowed the claim. On appeal, the Appellate Assistant Commissioner reversed the decision of the Income-tax Officer. On further appeal, by revenue, the Tribunal held that the requirements of the law were that the reserve contemplated must be debited before the profit and loss account was made up and the transfer had to be made at the time of making up the profit and loss account and since this was not done in the instant case, the conditions required for allowance of development rebate were not fulfilled. The Tribunal, thus, allowed the appeal of the revenue. On reference: HELD Although it is not required by law that the profit and loss account should in physical fact be made…

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