1970 (4) TMI 12 - SC - Income Tax

Supreme Court emphasizes strict compliance with tax law provisions for claiming development rebate allowance.

The Supreme Court ruled that compliance with the specific provisions of section 10(2)(vib) of the Indian Income-tax Act, including the creation of a ... Banking Company - Reserve for Development Rebate - appellant-company had transferred a sum from the profit and loss account to the reserve fund. The appellant claimed allowance by way of development rebate under proviso (b) of s. 10(2)(vib) amounting to ₹ 1,37,836 in the computation of its business income - Assessee's appeal dismissed Issues:- Interpretation of compliance with section 17 of the Banking Companies Act and section 10(2)(vib) of the Indian Income-tax Act, 1922 for development rebate allowance.Analysis:The judgment delivered by the Supreme Court involved a case where the appellant, a public limited company engaged in banking business, claimed a development rebate under section 10(2)(vib) of the Indian Income-tax Act for a specific amount. The appellant transferred a sum to the reserve fund during the relevant accounting year, meeting the requirements of section 17 of the Banking Companies Act and section 10(2)(vib). However, the appellant did not create a separate reserve fund as mandated by proviso (b) of section 10(2)(vib). The main question addressed was whether the creation of a reserve in compliance with the Banking Companies Act is sufficient to fulfill the requirements of the Income-tax Act for claiming the development rebate allowance.The court emphasized that the creation of a separate reserve as specified in proviso (b) of section 10(2)(vib) is a prerequisite for obtaining the development rebate allowance. The court highlighted that the nature and purpose of the reserve under the Banking Companies Act differ from the independent reserve required by the Income-tax Act. The reserve under the Income-tax Act is intended to be utilized for the business of the undertaking over a specified period, and its creation is a condition precedent for claiming the rebate. The court cited previous judgments to support the importance of complying with the specific provisions regarding the reserve fund and emphasized that the entries in the account books are not mere formalities but essential for restricting the use of the reserve amount.Ultimately, the court held that since the appellant failed to create the separate reserve as mandated by the Income-tax Act, it was not entitled to claim the development rebate allowance. The court dismissed the appeal and ruled against the appellant, affirming that compliance with the specific requirements of section 10(2)(vib) is necessary to avail of the concession granted for the development rebate. The judgment underscored the significance of strict adherence to statutory provisions for claiming tax benefits and allowances, emphasizing the importance of fulfilling the conditions prescribed by law to qualify for such concessions.