LEADER ENGINEERING WORKS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BRIEF facts giving rise to this reference are that the assessee, M/s. Leader Engineering Works, is a registered firm carrying on business in the manufacture of pipe fittings, etc. For the assessment year 1964-65, relevant to the accounting period ending 31st December, 1963, the assessee claimed development rebate amounting to Rs. 82,542. For this purpose, the assessee created a development rebate reserve of Rs. 61,906. The assessee's claim for development rebate was accepted in that assessment year.

(2.) LATER on, it came to the notice of the ITO that the development rebate reserve amounting to Rs. 61,906, which was created during the accounting period ending 31st December, 1963, was distributed by way of profits and credited to the capital accounts of the partners during the accounting period ending 31st December, 1971, i.e., before the expiry of 8 years. Consequently, the ITO came to the conclusion that the assessee infringed the provisions of Section 34(3)(a) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and hence the development rebate allowed to the assessee during the assessment year 1964-65 was to be withdrawn in view of the provisions of Section 34(3)(a) read with Section 155(5) of the Act. A requisite notice was issued for rectifying this mistake. The plea of the assessee that the development rebate reserve remained intact for 8 years was not accepted by the ITO. On appeal, the AAC upheld the finding of the ITO. Second appeal by the assessee before the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") was also dismissed. On a reference application, the Tribunal has referred the following question of law to this court for its opinion :