Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME TAX, DELHI CENTRAL
Vs.
RESPONDENT:
MODI SPINNING AND WEAVING MILLS CO. LTD.
DATE OF JUDGMENT26/10/1990
BENCH:
PUNCHHI, M.M.
BENCH:
PUNCHHI, M.M.
AGRAWAL, S.C. (J)
CITATION:
1991 AIR 2033 1990 SCC Supl. (2) 461
JT 1991 (1) 29
ACT:
Income Tax Act, 1922--Section 10(2)(vib), Proviso (b)
and CBDT Circular dated October 14, 1965 Explanations (a),
(b) and (c) Allowance of development rebate on plant and
machinery--Entitlement to by assessee.
HEADNOTE:
In Commissioner of Income Tax, Madras v. Veeraswami
Nainar & 9rs., 55 ITR 35, the Madras High Court took the
view that the development rebate reserved should be made at
the time of making up the Profits and Loss Account, and this
was affirmed by this Court in Indian Overseas Bank’s Ltd. v.
Commissioner of Income Tax, 77 ITR 512. A distinction was
drawn between development rebate reserve and other reserves
createable under the Companies Act and the Income Tax Act
and it was required to be separately created.
Consequent to this decision it was noticed that an
important circuit of the Central Board of Direct Taxes dated
October, 4, 1965 was unwittingly mowed down. This circular
gave the Board’s Explanation three paragraphs (a), (b) and
(c) regarding the position for creation statutory reserve
for allowance of development rebate.
A spate of litigation ensued and some of the taxing
authorities, relying on the Indian Overseas Bank’s case in
some cases, took revitional and rectificatory actions, and
these reached various High Courts.
The Gujarat High Court in Surat Textiles Mills Ltd. v.
Commissioner of Income-tax Gujarat, 80 I.T.R. 1 opted for
the narrow view in assuming that all the 3 Explanations
contained in the 1965 Circular stood wiped out by Indian
Overseas Bank’s case.
The Central Board of Direct Taxes, therefore, took the
step of withdrawing in the year 1972 the Circular dated
October 14, 1965 to the extent it stood superseded by deci-
sion in Indian Overseas Bank’s case. Other High Courts,
however, took a broader view to the effect that Explanation
contained in para (a) only was done away with by this
Court’s decision in Indian Overseas Bank’s case and that
contained in paras (b) and (c) were still alive.
462
On account of the aforesaid difference of opinion, it
was represented to the Board that the earlier instructions
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dated October 14, 1965 represented the correct position of
law and that the withdrawal to the extent it was presumed to
be overruled by the decision in Indian Overseas Bank’s case
had created unnecessary hardships to the assessees.
In the instant appeal the question, whether the respond-
entassessee was entitled to allowance rebate on the plant
and machinery after 1.1.1958, after due compliance with the
provisions of proviso (b) to section 10(2)(vib) of the
Income Tax Act, 1922 was answered by the Division Bench of
the Allahabad High Court in favour of the assessee and
against the Revenue.
The Revenue appealed to this Court.
Dismissing the appeal, this Court,
HELD: 1. The Board itself had clarified the matter by
Circular No. 189 dated 30th January, 1986. It states to have
re-examined the issue involved coming to the view that
except the clarification contained in Explanation para (a)
which stood superseded by the decision of this Court in
Indian Overseas Bank’s case, the clarification given in
paragraphs (b) and (c) hold good. [465D]
2. The Board itself has opted for the broader view
expressed in the matter in the,Tata Iron and Steel Compa-
nies’ case and other cases. There is, therefore, no reason
to do the exercise of taking any side of the two views.
[465E]
3. It is undisputed that the Board’s view is not only
valid under the new Income Tax Act of 1961, but to the
Indian income-Tax Act, 1922 as well. [465F]
Commissioner of Income Tax, Madras v. Veeraswami Nainar
and Ors., 55 I.T.R. 35, affirmed.
Indian Overseas Bank Ltd. v. Commissioner of Income Tax,
77 I.T.R. 512, followed.
Surat Textile Mills Ltd. v. Commissioner of Income-Tax
Gujarat, 80 I.T.R. 1, overruled.
Veerabhadra Iron Foundary & Anr. v. Commissioner of Income
463
Tax, 69 I.T.R. 425; Tata Iron and Steel Co. Ltd. v.N. C
Upadhyaya, 96 I.T.R. 1 and The Commissioner of Income Tax v.
Sardar Singh, 86ITR 387, approved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 330 of
1976.
From the Judgment and Order dated 13.3.1972 of the
Allahabad High Court in ITR No. 457 of 1968.
V. Gauri Shankar, S. Rajappa and Ms. A. Subhashini for
the petitioner.
Harish N. Salve, A.T. Patra, Ms. Bina Gupta, Ms. Monika
Mohil, Rajiv Shakhdhar and Praveen Kumar for the Respondent.
The following Order of the Court was delivered:
This appeal is directed against the Judgment dated
13.3.1972 made by a Division Bench of the Allahabad High
Court in Income Tax Reference No. 457 of 1968 deciding the
following question of law in favour of the assessee and
against the Revenue.
"Whether on the facts and in the circumstances of the case
the assessee can be said to have complied with the provi-
sions of proviso (b) to section 10(2)(vib) of the Income Tax
Act, 1922 and was, therefore, entitled to allowance of
development rebate on the plant and machinery installed
after 1.1. 1958."
It would be unnecessary to detail out facts which led to
the framing of the question and the answer given. The dis-
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pute centered around the timing of the creation of the
reserve known as the development rebate reserve. In Commis-
sioner of Income Tax, Madras v. Veeraswami Nainar & Ors., 55
ITR p. 35, the Madras High Court took the view that develop-
ment rebate reserve should be made at the time of making up
the Profits and Loss Account. This view was affirmed by this
Court in Indian Overseas Bank’s Ltd. v. Commissioner of
Income Tax, 77 ITR 5 12.. Both cases arose under the Indian
Income Tax Act, 1922. Distinction was drawn between develop-
ment rebate reserve and other reserves creatable under the
Companies Act and the Income Tax Act and it was required to
be separately created. On appearance of the Indian Overseas
Bank’s case on the scene it appears that an
464
important circular of the Central Board of Direct Taxes was
unwittingly mowed down. That circular was of October 4, 1965
and stands reproduced in circular No. 189 dated 30th Janu-
ary, 1976 at page 90 in 102 Income Tax Reports (Statutes).
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 participa-
tion 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 devel-
opment 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 Income-tax Officer may condone genuine
deficiencies subject to the same being made good by the
assessee though operation of adequate additional reserve in
the current year books in which the assessment is framed.
This led to a spate of litigation, pressing the Indian
Overseas Bank’s case some taxing authorities in some cases
took revisional and rectificatory actions. These reached
various High Courts. The Gujarat High Court in Surat Textile
Mills Ltd. v. Commissioner of Income-tax Gujarat, 80
I.T.R.P. 1 opted for what may be called a narrow view in
assuming that besides Explanation (a) reproduced above
explanations (b) and (c) as well too stood wiped out by
Indian Overseas Bank’s case.. In these circumstances the
Central Board of Direct Taxes took the step of withdrawing
in the year 1972 the Circular dated October 14, 1965 to the
extent it stood superseded by decision in Indian Overseas
Bank’s case and the judgment of the Gujarat High Court in
Surat Textile Mills Ltd. v. Commissioner of Income Tax.
Other High Courts took what may be called a broader
view. The trend of reasoning in those cases was that expla-
nation (a) only was done away with by this Court in Indian
Overseas Bank’s case but explanations (b) and (c) were still
alive. In this connection Veerabha-
465
dra Iron Foundary & Anr. v. Commissioner of Income Tax, 69
I.T.R. 425; Tata Iron and Steel Co. Ltd. v.N.C. Upadhyaya,
96 I.T.R.p. 1 and The Commissioner of Income Tax v. Sardar
Singh, 86 ITR 387 (Punjab) may be seen.
In the face of such difference of opinion, it was repre-
sented to the Board that earlier instructions dated October
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14, 1965 represented the correct position of law and that
the withdrawal to the extent it was presumed to be overruled
by this Court in Indian Overseas Bank’s case had created
unnecessary hardship to the assessees.
It appears that the instant case, out of which this
appeal has arisen, was decided by the Allahabad High Court
taking the broader view, Special leave was sought by the
Revenue from this Court on the question of resolving the
conflict between the two views. Leave was granted at a time
when the Board itself had clarified the matter vide Circular
No. 189 dated 30th January, 1986 of which hint has been left
earlier. The Board states to have re-examined the issue
involved coming to the view that except the clarification
given in paragraph (a) above, which stood superseded by the
decision of this Court in Indian Overseas Bank’s case, the
clarifications given in paragraphs (b) and (c) quoted above
hold good. It can thus legitimately be stated that the Board
has itself opted for the view expressed in Tara Iron and
Steel Companies’ case and other cases of the kind taking the
broader view in the matter. When the Board has itself opted
for that view and that view is being followed by Income Tax
authorities concerned, we see no reason to do the exercise
of taking any side of the two views and leave the matter at
that. It is undisputed that the Board’s view is not only
valid under the new Income Tax Act of 1961 but to the Indian
Income Tax Act, 1922 as well.
For the foregoing discussions this appeal fails and the
judgment of the High Court is left untouched. In the circum-
stances of the case there will be no order as to costs.
V.P.R. Appeal dis-
missed.
466