1977 Supreme(Cal) 190

High Court Of Calcutta
S. C. Deb, R. N. Pyne
COMMISSIONER OF INCOME-TAX (CENTRAL) - Appellant
Versus
BURMAH-SHELL OIL STORAGE AND DISTRIBUTION CO.OF INDIA LTD. - Respondent
Income-Tax Reference 336  Of  1970
Decided On : 06/08/1977

1. The cost of returnable packages actually used up is allowable as revenue expenditure under Rule 5 of the I. T. Rules, 1962, read with item M (2) (2) (d) (1) of Part 1 of Appendix 1 to the said Rules. 2. Section 32 (1) (iii) of the Income Tax Act, 1961 cannot apply to returnable packages which are governed by the special provision, namely, the aforesaid item M (2) (2) (d) (1). 3. Development rebate is allowable under Section 33 of the Act subject to the provisions of Section 34 (3) (a) of the Act.

Headnote:

INCOME TAX - Assessment year 1962-63 - Sale of returnable packages - Whether loss incurred by assessee on sale of gas cylinders was allowable as revenue expenditure under Rule 5 of I. T. Rules, 1962, read with item M (2) (2) (d) (1) of Part 1 of Appendix 1 to the said Rules - Whether shortfall in statutory provision for development rebate reserve created by assessee for year under consideration could be made up by excess provision for development rebate reserve created in earlier years and full amount of development rebate of Rs. 24,15,622 could be allowed in that year on basis of such adjustment.

Fact of the Case:

The assessee, a company, was a distributor of petroleum products including petroleum gas for cooking purposes. Petroleum gas was supplied to the company by a "refinery". In earlier years, the company purchased many specially made iron cylinders for the purposes of distributing gas to the consumers. The consumers returned the cylinders to the company after the gas was exhausted. They were refilled again and supplied to the consumers and were returned in the usual way. No revenue expenditure nor any depreciation on the cylinders was claimed or allowed in the past. The company sold the cylinders to the refinery in the accounting year for Rs. 82,19,947 against their original cost of Rs. 1,09,63,754. The refinery continued to supply gas in those very cylinders to the company and the company, in its turn, distributed gas in those cylinders to the consumers.

Finding of the Court:

1. The Tribunal held that the cylinders were "returnable packages" and the "loss of" Rs. 27,43,807 "incurred by the company In the disposal of the cylinders is a loss allowable as a revenue expenditure within the meaning of "Rule 5. 2. The Tribunal did not deal with the company's claim under Section 32 (1) (iii) of the Act, for, in its opinion, the company's "arguments" on that section "do not survive". 3. Though there was a shortfall in the development rebate reserve account and the company did not make up the said deficiency by debiting the aforesaid excess amounts of the earlier years in the profit and loss account of the instant accounting year and by crediting the same in the reserve account, the Tribunal allowed the full amount of the development rebate of Rs. 24,15,622 claimed by the company for the reasons stated in its order which need not be adverted to by us, because the allowability of this amount has been sought to be justified on different grounds before ua on behalf of the company.

Issues: 1. Whether, on the facts and in the circumstances of the case, the loss of Rs. 27,43,807 arising on the sale of gas cylinders was allowable as a revenue expenditure as provided for in the remarks against 'returnable packages' under the classification 'Mineral oil concerns' in item M (2) (2) (d) under the beading '(iii) Special rates to he applied to other machinery and plant' in Part I of Appendix 1 to Rule 5 of the I. T. Rules, 1962, or under Section 32 (1) (iii) of the Act. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the shortfall in the statutory provision for development rebate reserve created by the company for the year under consideration could be made up by the excess provision for development rebate reserve created in the earlier years and that the full amount of development rebate of Rs. 24,15,622 could be allowed in that year on the basis of such adjustment.

Ratio Decidendi: 1. The expression "actually used up" includes both total and partial use up and that whether these packages were "actually used up" or not should be determined with reference to the company and'their actual usefulness to the company at the time of the aforesaid saleand not with reference to their subsequent user by the "refinery" and the company. 2. The words "actually used up" qualify the word "packages". Therefore, the contentions of Mr. Ray that whether these packages were actually used up or not should be determined with reference to the company or on their usefulness to the company, must fail. 3. A sale of returnable packages for any reason whatsoever is wholly an irrelevant consideration under this item. Moreover, they were not sold as scrap. They were sold as cylinders and the "refinery" supplied gas in those very cylinders to the company and the company in its turn distributed gas to the consumers in those cylinders. In other words, those cylinders were actually used as cylinders in the trade both by the company and the "refinery" after the said sale. Therefore, it can never be said that the cylinders were "actually used up". 4. Section 32 (1) (iii) is a general provision in the sense that it applies to all classes of assets specified therein on fulfilment of the conditions stated therein, whereas the aforesaid item M (2) (2) (d) (1) is a special provision, forf it applies only to returnable packages. No depreciation is allowable on returnable packages under this item because their cost is allowed as revenue expenditure when they are actually used up. The finding of the Tribunal is that these cylinders are returnable packages. Therefore, Section 32 (1) (iii) cannot apply to these cylinders which are returnable packages because they are governed by the special provision, namely, the aforesaid item M (2) (2) (d) (1). 5. Moreover, there cannot be any written down value of returnable packages in view of the aforesaid item. Therefore, Section 32 (1) (iii) of the Act in terms cannot, in any event, apply to returnable packages. 6. Development rebate is allowable under Section 33 of the Act subject to the provisions of Section 34 (3) (a) of the Act which reads as follows: "The deduction referred to in Section 33 shall not be allowed unless an amount equal to 75% of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than-- (i) for distribution by way of dividends or profits ; or (ii) for remittance outside India as profits or for the creation of any asset outside India :. . . . . . . . . " 7. There was a shortfall in the development rebate reserve account in the accounting year. The: company did not debit the excess amount of the earlier years in the profit and loss account of the instant accounting year. It also did not credit the said excess amount to the development reserve account of this accounting year to make up the said deficiency.

Final Decision: 1. We answer the first part of question No. 1 as refrained by us in the negative and in favour of the revenue. 2. We answer the second part of question No. 1 in the negative and in favour of the revenue. 3. We answer question No. 2 as refrained by us in the negative and in favour of revenue.