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HIGH COURT OF CALCUTTA
Sankar Prasad Mitra, A. N. Sen
WEST LAIKDIHI COAL CO. LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Taxreference 96 Of 1969
Decided On : AUGUST 09, 1971
INCOME TAX - DEVELOPMENT REBATE - RESERVE FUND - CREATION - REQUIREMENT - NO TAXABLE INCOME IN RELEVANT YEARS - WHETHER CREATION OF RESERVE FUND NECESSARY - NO - SECTION 10(2)(VIB) OF THE INDIAN INCOME-TAX ACT, 1922.
Fact of the Case:
The assessee, a coal mining company, claimed development rebate under Section 10(2)(vib) of the Indian Income-tax Act, 1922, for additional machinery and plant installed in 1959 and 1960. However, no reserve fund was created as required by the proviso to Section 10(2)(vib), as the assessments for the relevant years ended in a loss.
Finding of the Court:
The court held that the assessee was not obliged to create a reserve account if there was no taxable income in the relevant years for the purpose of enabling the assessee to carry forward the development rebate to the following years as it could not be actually allowed in the years in question.
Issues: Whether the assessee was required to create a reserve fund under Section 10(2)(vib) of the Indian Income-tax Act, 1922, even if there was no taxable income in the relevant years.
Ratio Decidendi: The court interpreted the proviso to Section 10(2)(vib) and held that the requirement to create a reserve fund was linked to the actual allowance of development rebate in a particular year of assessment. The court reasoned that the purpose of the proviso was to ensure that the assessee would create a reserve fund out of the development rebate actually allowed to him in any particular year and not by incurring loans or otherwise, and utilize the reserve account for a period of ten years for the purpose of the business of the assessee's undertakings only.
Final Decision: The court answered the question referred to it in the negative, holding that the assessee was not required to create a reserve fund in the absence of taxable income in the relevant years.
( 1 ) THIS is a reference under Section 66 (1) of the Indian Income-tax Act, 1922. The question is whether the assessee, had to create a reserve fund out of its profits to be eligible for development rebate, under Section 10 (2) (vib) of the Indian Income-tax Act, 1922.
( 2 ) LET us, therefore, at the outset, set out the relevant provisions of the Act. These provisions are :" 10. Business.-- (1) The tax shall be payable by an assessee under the head ' Profits and gains of business, profession or vocation ' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely :- -. . . . . (vib) in respect of. . . . . new machinery or plant installed after the 31st day of March, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year. . . . . of the installation of the machinery or plant, equivalent to,- -. . . . . (ii) in the case of machinery or plant installed before the 1st day of April, 1961, twenty-five per cent. and in the case of machinery or plant ins'talled after the 31st day of March, 1961, twenty per cent. of the actual cost of the machinery or plant to the assessee ; explanation 1.--In the case of. . . . . machinery or plant installed after the 31st day of December, 1957, where the total income of the assessee for the year of. . . . installation (the total income for this purpose being computed without making any allowance under this clause) is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under this clause,-- (i) the sum to be allowed by way of development rebate for that year under this clause shall be only such amount as is sufficient to reduce the said total income to nil; and (ii) the amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following year, and the development rebate to be allowed for the following year shall be such amount as is sufficient to reduce the total income of the assessee for that year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following year and so on, so however, that no portion of the development rebate shall be carried forward for more than eight years. Explanation 2.-- Where in any year development rebate is to be allowed in accordance with the provisions of Explanation ) in respect of. . . . . . machinery or plant installed in more than one year, and the total income of the assessee for that year (the total income for this purpose being computed without making any allowance under this clause) is less than the aggregate of the amounts due to be allowed in respect of the assets aforesaid for that year, the following procedure shall be followed, namely :-- (i) the allowance under paragraph (ii) of Explanation 1 shall be made before any allowance under paragraph (i) of that Explanation is made ; and (ii) where an allowance has to be made under paragraph (ii) of Explanation 1 in respect of amounts carried forward for more than one year, the amount carried forward from an earlier year shall be allowed before any amount carried forward from a later year : provided that no allowance under this clause shall be made unless- (a) the particulars prescribed for the purpose of Clause (vi) have been furnished by the assessee in respect of the. . . . machinery or plant; and (b) except where the assessee is a company, being a licensee within the meaning of the Electricity (Supply) Act, 1948. . . . or the machinery or plant has been installed before the 1st day of January, 1958, an amount equal to seventy-five per cent. of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and cr
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