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Issues: (i) Whether the assessee had complied with proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922, so as to qualify for development rebate on plant and machinery installed after January 1, 1958; (ii) Whether the expenditure of Rs. 3,000 paid for drafting a special resolution and suggesting amendments to the articles of association was an admissible business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.
Issue (i): Whether the assessee had complied with proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922, so as to qualify for development rebate on plant and machinery installed after January 1, 1958.
Analysis: The statutory requirement was to debit an amount equal to 75% of the development rebate to the profit and loss account and credit it to a reserve for use in the business for ten years. The reserve could be created after the close of the accounting year, provided available profits existed for that purpose. The assessee had undistributed profits in the general reserve and validly amended its accounts by special resolution before the assessment was completed. The requirement was not confined to the original closing of accounts, and no statutory period for compliance was prescribed.
Conclusion: The assessee had complied with proviso (b) to section 10(2)(vib) and was entitled to the development rebate. The answer was in the affirmative and in favour of the assessee.
Issue (ii): Whether the expenditure of Rs. 3,000 paid for drafting a special resolution and suggesting amendments to the articles of association was an admissible business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.
Analysis: The expenditure was incurred to align the company's articles with changes in company law and to enable the company to continue functioning in accordance with law. It was incurred wholly and exclusively for the business and was not shown to create any enduring capital asset or advantage of a capital nature.
Conclusion: The expenditure was allowable as business expenditure under section 10(2)(xv). The answer was in the affirmative and in favour of the assessee.
Final Conclusion: Both referred questions were answered for the assessee, resulting in allowance of the claimed development rebate and deduction of the legal expenditure.
Ratio Decidendi: Where the statute prescribes creation of a development reserve but does not fix the time for making the corresponding entries, compliance may be made after the close of the accounting year and before completion of assessment if available profits permit; expenditure incurred to keep a company's constitutional documents in conformity with law is revenue in nature when it is laid out wholly and exclusively for business.
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