ivil Appeal No 330 of 1976
From the Judgment and Order dated 1331972 of the Allahabad High Court in ITR No 457 of 1968
V Gauri Shankar section Rajappa and Ms A Subhashini for the petitioner
Harish N Salve AT Patra Ms Bina Gupta Ms Monika Mohil Rajiv Shakhdhar and Praveen Kumar for the Respondent
The following Order of the Court was delivered This appeal is directed against the Judgment dated 1331972 made by a Division Bench of the Allahabad High Court in Income Tax Reference No 457 of 1968 deciding the following question of law in favour of the assessee and against the Revenue
Whether on the facts and in the circumstances of the case the assessee can be said to have complied with the provi sions of proviso b to section 102vib of the Income Tax Act 1922 and was therefore entitled to allowance of development rebate on the plant and machinery installed after 11 1958
 It would be unnecessary to detail out facts which led to the framing of the question and the answer given
The dis pute centered around the timing of the creation of the reserve known as the development rebate reserve
In Commis sioner of Income Tax Madras vs Veeraswami Nainar  Ors 55 ITR p 35 the Madras High Court took the view that develop ment rebate reserve should be made at the time of making up the Profits and Loss Account
This view was affirmed by this Court in Indian Overseas Bank s Ltd vs Commissioner of Income Tax 12
Both cases arose under the Indian Income Tax Act 1922
Distinction was drawn between develop ment rebate reserve and other reserves creatable under the Companies Act and the Income Tax Act and it was required to be separately created
On appearance of the Indian Overseas Bank s case on the scene it appears that an 464 important circular of the Central Board of Direct Taxes was unwittingly mowed down
That circular was of October 4 1965 and stands reproduced in circular No 189 dated 30th Janu ary 1976 at page 90 in 102 Income Tax Reports Statutes
The Board s Explanation with regard to the position for creation of statutory reserve for allowance of development rebate was in these terms a In the case of certain industrial undertakings particularly those in which there is Government participa tion either by way of capital loan or guarantee and where there are certain obligations by law or agreement about the maintenance of reserve for development purposes the devel opment rebate reserve may be treated as included in the said reserve though not specifically created as a development rebate reserve
b In a case where the total income computed before allowing the development rebate is a loss there was no legal obligation to create any statutory reserve in that year as no development rebate would actually be allowed in that year
c Where there was no deliberate contravention of the provisions the Income tax Officer may condone genuine deficiencies subject to the same being made good by the assessee though operation of adequate additional reserve in the current year books in which the assessment is framed
This led to a spate of litigation pressing the Indian Overseas Bank s case some taxing authorities in some cases took revisional and rectificatory actions
These reached various High Courts
The Gujarat High Court in Surat Textile Mills Ltd vs Commissioner of Income tax Gujarat 80 ITRP 1 opted for what may be called a narrow view in assuming that besides Explanation a reproduced above explanations b and c as well too stood wiped out by Indian Overseas Bank s case
In these circumstances the Central Board of Direct Taxes took the step of withdrawing in the year 1972 the Circular dated October 14 1965 to the extent it stood superseded by decision in Indian Overseas Bank s case and the judgment of the Gujarat High Court in Surat Textile Mills Ltd vs Commissioner of Income Tax
Other High Courts took what may be called a broader view
The trend of reasoning in those cases was that expla nation a only was done away with by this Court in Indian Overseas Bank s case but explanations b and c were still alive
In this connection Veerabha 465 dra Iron Foundary  Anr
vs Commissioner of Income Tax  Tata Iron and Steel Co Ltd vs
NC Upadhyaya 96 ITRp
1 and The Commissioner of Income Tax vs Sardar Singh may be seen
In the face of such difference of opinion it was repre sented to the Board that earlier instructions dated October 14 1965 represented the correct position of law and that the withdrawal to the extent it was presumed to be overruled by this Court in Indian Overseas Bank s case had created unnecessary hardship to the assessees
It appears that the instant case out of which this appeal has arisen was decided by the Allahabad High Court taking the broader view Special leave was sought by the Revenue from this Court on the question of resolving the conflict between the two views
Leave was granted at a time when the Board itself had clarified the matter vide Circular No 189 dated 30th January 1986 of which hint has been left earlier
The Board states to have re examined the issue involved coming to the view that except the clarification given in paragraph a above which stood superseded by the decision of this Court in Indian Overseas Bank s case the clarifications given in paragraphs b and c quoted above hold good
It can thus legitimately be stated that the Board has itself opted for the view expressed in Tara Iron and Steel Companies  case and other cases of the kind taking the broader view in the matter
When the Board has itself opted for that view and that view is being followed by Income Tax authorities concerned we see no reason to do the exercise of taking any side of the two views and leave the matter at that
It is undisputed that the Board s view is not only valid under the new Income Tax Act of 1961 but to the Indian Income Tax Act 1922 as well
For the foregoing discussions this appeal fails and the judgment of the High Court is left untouched
In the circum stances of the case there will be no order as to costs
VPR Appeal dis missed


Summary:
The land in this case was leased by the Government to one R in 1931 and a regular lease deed was drawn in 1938
It was a perpetual lease
The lessee constructed a residential building on the land and assigned the lease in favour of one L
On the death of L the interest in the lease devolved on the respondents
Respondent No 1 sent a letter through his Advocate to the Land  Development Officer stating that he proposed to construct a multi storeyed building demolish ing the bungalow and demanding to know the charges for conversion of the land use from residential to commercial purposes
The Land  Development Officer replied that the letter was receiving attention
Actually the names of the respondents were mutated in the property register after the exchange of the above letters
However no application for conversion of the land user was made on behalf of the les sees of the land
Again in 1978 the parties sent a letter to the Land  Development Officer demanding to know the terms for con struction of a commercial building on the lease land and the charges to be paid for the same
The Assistant Settlement Commissioner sent a reply requesting that a formal applica tion be made in the prescribed proforma for permission to construct multi storeyed commercial building duly signed by all the co lessees
In 1980 a reminder was sent to the parties
Only thereafter the parties filed an application in the prescribed form
In 1984 the Government intimated the parties that it was willing to comply with the request provided the parties were willing to abide by certain terms and conditions in advance
The parties made a representation to the Works  Housing Minis 301 ter requesting for reconsideration of the terms and condi tions
After a good deal of correspondence the Government rejected the representation
Thereafter the parties ap proached the High Court by way of a Writ Petition challeng ing the terms and conditions imposed by the Government
It was contended that since they applied for permission to convert the user of land on 1521978 they were liable to pay charges calculated with reference to that date only that no charges for misuse of the land could be levied after 1521978 that no interest could be charged on the alleged additional premium which was calculated by taking into consideration May 25 1981 as the base date
Accepting the contentions the High Court held that there was no need to make any application for conversion after 1962 when the Master Plan was prepared by the Delhi Development Authority declaring the region as a commercial zone and that the conversion was automatic and statutory
The High Court held that the Respondents were notobliged to make the payment of conversion charges calculated at rates prevalent in April 1984 instead of the rates obtaining in February 1978
It directed the Government to recompute the additional premium and other charges
Aggrieved by the High Court Judgment the Government preferred the present appeal
The same contentions as were raised in the High Court were advanced before this Court by both the parties
Allowing the appeal this Court HELD 1
The land has to be used as per the agreement between the contracting parties and no change of the user can be made contrary to the agreement even if the Master Plan permits such user
The Plan helps the parties to change the user if the parties mutually agree to do so
It does not permit the occupant to change the user unilaterally
It is not therefore correct to say that no permission of the landlord was needed to change the user of the land
The High Court is not right in holding that there was an automatic or a statutory conversion of the user of the land because in the Plan the land in question fell in the area reserved for commercial use
The High Court failed to appreciate that the change of user of the land permitted by the Plan was only enabling in nature
It lifted the restriction which was otherwise there for using the land for commercial purpose
312B C  A 2
All that the parties wanted to know from the Land  Development Officer were the terms and conditions for the construction of a commercial building on the land and the charges to be paid for the same
This can hardly be called an application for permission to con 302 struct a commercial building on the land
It is no more than an enquiry
It is immaterial in this connection whether any regular form of application was prepared and was available for use at the relevant time
Even assuming that such a form was prescribed for the first time on June 15 1978 the letter of February 15 1978 could hardly be described as an application signed by the lessees meaning thereby all the lessees for permission to convert the user of the land
The absence of a prescribed form does not make the letter the required application
The least that is expected in an application for the purpose is a request by all the lessees to permit the change of the user of the land showing readi ness and willingness to abide by the terms and conditions for such conversion or the user
The letter in question on the other hand did nothing more than make an enquiry sug gesting that the application for the change of the user would be made after the terms and conditions including the charges for the same are known
Thus the letter of February 15 1978 was not an application made for the change of the user of the land
309F H 310A B 3
It is clear from the authority s letter dated March 1 1980 that different persons were seeking permission for change of the user of the land and some of them were not even the co lessees of the land
Since there was no firm application by the authorised person or persons for conver sion of the user of the land the authority had asked the lessees to sent the application in the prescribed form duly signed by all the co lessees
There was no reply to this letter of March 1 1980 and hence a reminder was sent by the authority on June 3 1980 warning the lessees that in case no reply was received from them within 15 days the matter would be treated as closed
It is pursuant to this reminder that on February 27 1981 a letter accompanied by an appli cation in the prescribed form was sent and both the letter as well as the prescribed form were duly signed for the first time by all the co lessees
The contents of the accom panying letter make it clear that even the lessees treated this application as the first duly made application for the purpose
As has been stated in the application the plans for the construction of the commercial building were sanc tioned only on January 21 1981 and the exemption applica tion made to the competent authority under Section 201 of the Delhi Development Act 1957 was even then still under process
It is in response to this application that the sanction was given by the authority on January 12 1984 to convert the user of the land
Thus it was only on February 27 1981 that an application for the change of the user of the land was made by or on behalf of the respondent lessees of the land
310G H 311A D 4
There is no explanation given by the appellants as to why the 303 application made by the respondents on February 27 1981 was not replied to till January 12 1984
Hence in the absence of anything else on record it will have to be taken that the date with reference to which conversion charges have to be counted is 27th February 1981
311E 5
The additional premium should be calculated by the appellants on the basis of the rate which was prevalent as on February 27 1981 which is the date of the application made for the change of the user
The interest should be charged on such additional premium wef 12th April 1984 since a period of three months from the date of notice viz January 12 1984 was available to the respondent lessees to make the payment of the additional premium
The respondent lessees would not be entitled to convert the present user of the land into the commercial user uniess and until the last of the three annual installments of the addi tional premium together with the interest thereon is paid
312C E 6
The respondents will further be liable to pay the misuse charges mentioned at items 6 and 7 of the notice of 1211984 till 12th April 1984 from which date they would be paying the conversion charges
312F