Law: Income Tax Act, 1922

Section: 10(2)(vib)

Section 33 of the Income-tax Act, 1961 [Corresponding to section 10(2)(vib) of the Indian Income-tax Act, 1922] - Development rebate- Assessment year 1959-60 - Whether object of legislature is allowing a development rebate out of reserve fund and assessee is obliged to credit reserve fund for specific purpose - Held, yes - Whether unless reserve is created reserve, it cannot claim development rebate - Held, yes - Whether where reserve is not created by way of particular appropriation and moneys had been spent otherwise, assessee cannot be allowed to readjust account by way of recounting books making requisite entries - Held, yes FACTS The assessee HUF had business in cement and fertilizers. The family had also a business in bus transport and lorry service besides, it owned to rice mills. For the assessment year 1959-60. The assessee claimed a development rebate at 25 per cent on a new lorry and a new bus which were purchased subsequent to 31-12-1957, but during the year of account. But the assessee had not in his accounts debited 75 per cent of that amount to the profit and loss account. Consequently, that part of the rebate claimed had not also been credited to the reserve account as required by section 10(2)(vib). The ITO refused to allow the development rebate on the ground that neither the bus nor the lorry could be regarded as a plant or machinery within the meaning of that provision. However, on second appeal the Tribunal allowed the assessees claim. On reference : HELD It will be apparent from the terms of the proviso that the object of the legislature is allowing a development of the assessee's business from out of the reserve fund. The entries in the account books required by the proviso are not an idle formality. The assessee being obliged to credit the reserve fund for a specific purpose, he cannot draw upon the same for purposes other than those of the business, and if the assessee were a company for exemption, that amount could not be distributed by way of dividend. It is also clear from the terms of the proviso that the reserve should be made at the time of making up the profit and loss account. The Tribunal was clearly in error when it held that…

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