TaxTMI 
TaxTMI 
2004 (8) TMI 646
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....I-A), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised in the manner laid down in sub-section (2): Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital (excluding the amounts capitalized from reserves) of the assessee, no allowance under this sub-section shall be made in respect of such excess : (2) The amount credited to the reserve account under sub-section (1) shall be utilised by the assessee before the expiry of a period of eight years next following the previous year in which the amount was credited (a) for acquiring a new ship for the purposes of the business of the assessee ; and (b) until the acquisition of a new ship, for the purposes of the business of the assessee other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. (3) Where any amount credited to the reserve account under subsection (1), (a) has been utilised for any purpose other than that referred to i....
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....I-A was Rs.3,15,22,393. The assessee claimed deduction under section 33AC of the Act, to the extent of profits available and reflected the taxable income at Nil. The Assessing Officer allowed deduction under section 33AC of the Act, in respect of profits as per the audited books of account at Rs.48,26,930 and in respect of uncommitted reserve of Rs. 18,00,000. The total amounts to Rs. 66,26,930 instead of Rs. 3,15,22,393 resultantly denying the benefit to the extent of Rs. 2,48,95,463. The denial was made on the ground of insufficiency of profits. According to the Assessing Officer, reserve means amount set aside out of profits or other surpluses which are not meant to cover any liability, contingency, commitment or depreciation in the value of assets. The Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer. Shri Dastur, learned counsel for the assessee, heavily relied on the decision of the apex court rendered in the case of Shri Shubhlaxmi Mills Ltd. v. Addl. CIT [1989] 177 ITR 193. This decision was rendered in the context of development rebate. The honble Supreme Court has held that the existence of sufficient profits is not necessary to avail of ....
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....ted between the High Courts on the question whether the statute required the creation of the reserve in the previous year in which the new machinery or plant was installed, when the amount of the profit of that previous year was either nil or insufficient for the purposes of enabling the creation of such reserve. It is not necessary to refer to these cases, for it seems clear to us that the Explanation, which applies to the assessment year under consideration before us, removes the doubt altogether. What is contemplated is the creation of a reserve fund in the relevant previous year, irrespective of the result of the profit and loss account disclosed by the books of the assessee. Mere book entries will suffice for creating such a reserve fund. The debit entries and the entries relating to the reserve fund have to be made before the profit and loss account is finally drawn up. That is a condition for securing the benefit of development rebate and if that condition is not satisfied, we fail to see how the deduction on account of development rebate can be claimed at all. It was argued by Shri Dastur that prior to the insertion of the Explanation, there was cleavage of judicial opinio....
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....given in the Income-tax Act for the word reserve, its ordinary natural meaning should be taken into account. Shri Boota Singh relied on various precedents. Shri Dastur stressed that the statutory reserve is class by itself. It cannot be compared with other reserves. Whereas the statutory reserve makes reference for reserve only ; in respect of other reserves, at times, question crops whether it is reserve or provision. To meet the liability, provision is created and not reserve. Various distinguishing features of statutory reserves and other reserves were pointed out by Shri Dastur. It was submitted that the definition of the word as per the Companies Act is applicable in the context of other reserves. It cannot be applied in the context of statutory reserves. Qua the statutory reserve, it was contended that the availability of profit is not sine qua non. The only condition laid down in respect of allowability is that it cannot exceed the amount of total income. We have carefully perused the prescription of section 33AC of the Act. It prescribes for the deduction of an amount, not exceeding the total income, as computed before making any deduction under Chapter VI-A. The other c....