SHUBHLAXMI MILLS LIMITED V. ADDITIONAL COMMISSIONER OF INCOME-TAX, GUJARAT INSC 100; AIR 1989 SC 1406; 1989 SCR 86; 1989 SCC 465; 1989 JT 1; 1989 SCALE 724

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1. Name of the Case: Shubhlaxmi Mills Limited Vs. Additional Commissioner of Income-Tax, Gujarat [1989] INSC 100 (28 March 1989)

2. Facts: The appellant, a textile mill owner, claimed a development rebate under Section 33 of the Income Tax Act, 1961, for the assessment year 1962–63. The Income Tax Officer rejected the claim, as the appellant had not created a reserve account as required under Section 34(3)(a). On appeal, the Assistant Commissioner upheld the rejection. However, the Appellate Tribunal ruled in favor of the appellant. The High Court, on reference by the Revenue, ruled against the appellant, holding that the reserve must be created in the relevant year for claiming the development rebate.

3. Issue(s): 1) Whether the creation of a reserve in the relevant previous year is a mandatory condition for claiming a development rebate under Section 33(1) of the Income Tax Act, 1961. 2) Whether the High Court was correct in denying the appellant the benefit of carrying forward the development rebate.

4. Holding(s): 1) Yes, the creation of a reserve account in the relevant previous year is a mandatory condition under Section 34(3)(a) for claiming the development rebate. 2) Yes, the High Court was correct in ruling that the appellant failed to meet the statutory conditions for availing the rebate.

5. Rationale:

  • Statutory Requirement:

Section 34(3)(a) mandates that 75% of the development rebate must be debited to the profit and loss account of the relevant previous year and credited to a reserve account. The Explanation added by the Finance Act, 1966, clarified that the reserve must be created irrespective of the profit or loss of the relevant year.

  • Condition Precedent:

The Court held that mere book entries are sufficient to create the reserve, and this must occur before finalizing the profit and loss account for the relevant year. Failure to fulfill this condition disqualifies the taxpayer from claiming the rebate.

  • Distinction from Earlier Cases:

The Court distinguished earlier cases like West Laikdihi Coal Co. Ltd. v. CIT and Indian Oil Corporation Ltd. v. S. Rajagopalan, which were decided under the Indian Income Tax Act, 1922 and did not have the same statutory requirement or the Explanation.

  • Ruling on Carry Forward:

The Court rejected the argument that the reserve could be created in subsequent years and that the rebate could be carried forward without fulfilling the initial statutory conditions. The Supreme Court dismissed the appeal, affirming the High Court's decision that compliance with Section 34(3)(a) is mandatory for claiming the development rebate. No costs were awarded.

References (1) SHUBHLAXMI MILLS LIMITED V. ADDITIONAL COMMISSIONER OF INCOME-TAX, GUJARAT INSC 100; AIR 1989 SC 1406; 1989 SCR 86; 1989 SCC 465; 1989 JT 1; 1989 SCALE 724 (2) Advocate Khoj. <https://www.advocatekhoj.com/library/judgments/index.php?go=1989/march/28.php> (3) Ibid

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