ACROPOLYMERS P LIMITED Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, has referred to this court for opinion the following question of law :

(2.) THE assessee, at whose instance the aforesaid question was referred, is a private limited company. It derived income from manufacture and sale of polyester and resins which are used in the manufacture of paints. The accounting year relevant to the assessment year 1972-73 ended on June 30, 1971. The assessee-company had, during the "previous year" relevant to the assessment year 1971-72, installed and put to use new machinery worth Rs. 1,65,521 entitling it, in terms of Section 33 (1) (a) of the I. T. Act, 1961, to a development rebate of Rs. 33,904 at the rate of 20 per cent. During the same " previous year", the assessee-company had installed and put to use additional new machinery worth Rs. 20,042 in respect of which it was entitled to a development rebate of Rs. 3,006 at the rate of 15 per cent. In the assessment year under reference, the assessee claimed a total development rebate of Rs. 36,910 representing the two amounts of development rebate as aforesaid. The reason advanced by the assessee was that, as the profit and loss account for the assessment year 1971-72 showed a loss, it had not created any statutory reserve in respect of the development rebate. The ITO took the view that, since the assessee had not created any reserve for the assessment year 1971-72, and even had not laid a claim for development rebate in the said year, there was no case for the assessee to claim such rebate in respect of the machinery of Rs. 1,65,521, installed. The assessee's appeal against the order of the ITO met with success before the AAC, who, relying on a decision of the Bombay High Court in Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO [1973] 92 ITR 241, directed the ITO to go into the claim regarding the development rebate of machinery of Rs. 1,65,521 installed in the accounting period relevant to the assessment year 1971-72, and further directed the ITO to allow the claim for the assessment year 1972-73, if necessary reserve had been created. The Revenue's appeal against the said order was allowed by the Tribunal primarily on the premises that the new machinery had not been installed in the year relevant to the assessment year 1972-73, and, since the assessee had not obtained an order regarding carrying forward under Section 33 (2) of the I. T. Act, its claim for development rebate deserved rejection. It is, therefore, that the question of law, as posed at the outset, is said to have arisen.

(3.) ALLOWANCE of development rebate under the I. T. Act under Sections 33 (1) (a) and 33 (2) read with Section 34 (3) (a) and the Explanation appended thereto, has been a precedent-embroiled question. We would have gone on to steer the way but it has been brought to our notice that the Central Board of Direct Taxes has, in Circular No. 189 dated January 30, 1976, published in [1976] 102 ITR 90 (Statutes Section), clarified the matter and put to rest the controversy. Pithily put, the matter has been summarized to mean that in case, where the total income had been computed before allowing the development rebate, there is a loss, there was no legal obligation to create any statutory reserve in that year, as no development rebate could actually be allowed in that year. That was the view of the Board even earlier as reflected in its Circular No. F-1049/65-ITA (I), dated October 14, 1965. However, the aforesaid circular of 1965 pertaining to a different aspect in a different context, rubbed against the decision of the Supreme Court in Indian Overseas Bank Ltd. v. CIT [1970] 77 ITR 512. Taking note of the decision in Indian Overseas Bank Ltd. 's case, the Board, in 1972, withdrew the circular order of October 14, 1965, to the extent it was superseded by the aforesaid Supreme Court case [1970] 77 ITR 512 and the judgment of the Gujarat High Court in Surat Textile Mills Ltd. v. CIT [1971] 80 ITR 1. Somehow, the field officers interpreted the partial withdrawal in the order of 1972 of the Board as if the entire circular dated October 14, 1965, stood withdrawn. This necessitated clarification at the hands of the Board in reiterating that the position with regard to the claiming of development rebate and creation of any statutory reserve in a year in which there was loss, remained the same as before. In so many words, the Board bowed down to the dictum in Indian Oil Corporation's case [1973] 92 ITR 241 (Bom ). Thus, the position was and is that in case, where the total income had been computed before allowing the development rebate, there is a loss, there was no legal obligation to create any statutory reserve in that year, as no development rebate is actually to be allowed in that year.