Purposive reading of Rule 6E and section 234C clarifies no double taxation on UEPR reversal and interest on returned income.

Rule 6E was read purposively so that reversal of a disallowed UEPR amount is not taxed again merely because the reversal occurs in a later year, avoiding double taxation where the earlier disallowance had already been made. The clarification accepted that the timing of reversal need not be confined to the immediately succeeding year, and relief on this point stood in favour of the assessee. Interest under section 234C was also clarified to be computed on returned income, not assessed income, and the computation was directed accordingly in the assessee's favour.

---

---

Issues: (i) whether the reversal of UEPR was deductible under Rule 6E of the Income Tax Rules, 1962 when the corresponding disallowance had been made in an earlier year and the reversal occurred in a later year; and (ii) whether interest under section 234C was to be computed on returned income or assessed income.

Issue (i): whether the reversal of UEPR was deductible under Rule 6E of the Income Tax Rules, 1962 when the corresponding disallowance had been made in an earlier year and the reversal occurred in a later year.

Analysis: Rule 6E was read purposively to prevent an absurd result. The provision was understood to reflect the legislative intent that an amount disallowed as deduction in one year should not again be taxed on reversal, since that would result in double taxation. The fact that insurance policies may now extend beyond one year meant that reversal of UEPR need not necessarily occur only in the immediately succeeding year, and the rule had to be applied so that the amount is not taxed in the year of reversal merely because the reversal took place later than the next year.

Conclusion: The clarification on UEPR reversal was accepted, and the conclusion in the earlier order stood affirmed in favour of the assessee.

Issue (ii): whether interest under section 234C was to be computed on returned income or assessed income.

Analysis: Section 234C was understood to refer to returned income for computing interest. The earlier treatment of the issue as consequential did not preclude correction, and the computation was directed to be made on the basis of returned income rather than assessed income.

Conclusion: Interest under section 234C was directed to be computed on returned income, in favour of the assessee.

Final Conclusion: The miscellaneous application succeeded and the earlier order was clarified on both issues, with the relief operating wholly in favour of the assessee.

Ratio Decidendi: A provision dealing with reversal of a disallowed reserve must be applied purposively to avoid double taxation, and interest under section 234C is computed with reference to returned income.

---