Law:

Section:

Section 34(3), read with section 155(5), of the Income-tax Act, 1961-Development rebate-Withdrawal of-Assessee transferred certain amount from development rebate reserve to general reserve and then from general reserve to profit and loss appropriation account for declaration of dividend-General reserve sufficient for payment of dividends even without transfer from development rebate reserve-Whether it could be said that development rebate reserve was utilised for distribution of dividends so as to justify withdrawal of development rebate-Held, on facts, no Facts For the assessment year 1962-63, the assessee was allowed development rebate for which it had also created the necessary reserve. However, on 31-3-1963, the assessee transferred a certain amount from the development rebate reserve to its general reserve and, thereafter, it transferred a sum from the general reserve to the profit and loss appropriation account for declaration of dividend. The ITO considered the aforesaid transfers as an infringement of section 34(3) and initiated proceedings under section 155(5) for the withdrawal of development rebate already granted. Thereupon, the assessee submitted, inter alia, that the general reserve already had sufficient balance of its own for the declaration of dividends, even without any transfer from the development rebate reserve. The ITO, however, rejected this contention and withdrew the development rebate corresponding to the amount transferred from the development rebate reserve to general reserve. On appeal, the AAC set aside the ITO's order. On further appeal, the Tribunal having found that there was admittedly a substantial amount in the general reserve and even without any transfer of amount from the development rebate reserve, the sum declared as dividends could well have been taken from the general reserve, observed that merely because a sum from the development rebate was added to the general reserve, it could not be said that the said transferred amount was also utilised for declaration of dividends. It, therefore, held that there was no transfer from the development rebate reserve to the general reserve for distribution of dividends, nor there…

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