Law:

Section:

Section 10(2)(vib), proviso (b), of the Indian Income-tax Act, 1922 [corresponding to section 34 of the Income-tax Act, 1961] - Development rebate - Allowance of - Whether in view of Circular No. 189, dated 30-1-1976, Explanation (a) to circular dated 4-10-1965 with regard to position for creation of statutory reserve for allowance of development rebate stood suppressed and Explanations (b) and (c) of said circular still hold good and applies both to 1922 as well as 1961 Acts - Held, yes FACTS According to the Board's Circular dated 4-10-1965 which stood reproduced in Circular No. 189, dated 30-1-1976, the Board's explanation with regard to the position for creation of statutory reserve for allowance of development rebate was in these terms: (a) In the case of certain industrial undertakings, particularly those in which there is Government participation either by way of capital, loan or guarantee, and where there are certain obligations by law or agreement about the maintenance of reserve for development purposes, the development rebate reserve may be treated as included in the said reserve though not specifically created as a development rebate reserve, (b) in a case where the total income computed before allowing the development rebate is a loss there was no legal obligation to create any statutory reserve in that year as no development rebate would actually be allowed in that year, (c) where there was no deliberate contravention of the provisions, the ITO may condone genuine deficiencies subject to the same being made good by the assessee through creation of adequate additional reserve in the current year's books in which the assessment is framed. In CIT v. Veeraswami Nainar [1965]55 ITR 35, the Madras High Court took the view that development rebate reserve should be made at the time of making up the profits and loss account. This view was affirmed by the Supreme Court in Indian Overseas Bank Ltd. v. CIT [1970] 77 ITR 512 . This led to a spate of litigation, pressing the Indian Overseas Bank Ltd.'s case (supra) some taxing authorities in some cases took revisional and rectificatory actions. These reached various High Courts. The Gujarat High Court in Surat…

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