Case: Burmah Shell Oil Storage and Distributing Company of India Limited Vs. Commissioner of Income Tax

been indicated by the High Court that decision in Indian Overseas Bank Ltd. v. CIT1 was concerned with proviso (b) to Section 10(2)(vi - b) of the Income Tax Act, 1922 which is in pari materia with Section 34(3)(a) of Income Tax Act, 1961. The High Court has held that (a) excess amount in the earlier years development rebate reserve account is not freezed by Section 34(3)(a) of the Act in view of its clear language; (b) the directors of a company are entitled to free the excess amount and after doing so, the company by debiting it in the profit and loss account and by crediting it to the development rebate reserve account can make up the shortfall of the accounting year in which the development rebate is actually claimed or allowed and (c) except in these cases in which the Central Board of Revenue or the Central Board of Direct Taxes have relaxed the provisions of Section 34(3)(a) it must be complied with in order to earn the development rebate claimed in a particular year. The High Court has held that the appellant-Company did not transfer the excess amounts of the earlier years in the accounting year for the purpose of making up the corresponding reserve and it is an admitted fact that the appellant-Company did not comply with the provisions of Section 34(3)(a) of the Act.12. Mr Rajappa has next urged that so far as the appellant- Company is concerned, the said cylinders must be held to be "actually used up". The question as to whether or not the packages are "actually used up" needs to be determined not in abstract term but with reference to the actual usefulness to the assessee. Mr Rajappa has also contended that the expression "actually used up" in item M(2)(2)(d)(i) of Part 1 of the Depreciation Schedule Appendix 1 of Rule 5 of the Income Tax Rules, 1962 includes both total and partial us e up. Mr Rajappa has submitted after the sale of the cylinders to the Refinery, the cylinders did not belong to the appellant-Company and they lost their usefulness to the appellant-Company and it is immaterial if the very same cylinder s were used by the Refinery to fill up with gases and sending the same to the appellant-Company for distribution to the consumers. It may be noted that similar contentions were also made before the High Court but the same were rejected by holding inter alia that expression "used up" means "exhausted by use, rendered unserviceable". In view of the expression "actually used up", the case of "partial use up" was not acceptable. The High Court has also held that the words "actually used up" qualifies the word "packages". Hence the expression is not required to be interpreted with reference to the user by the assessee. It has been indicated by the High Court that the cylinders in fact, after the sale, were put to use by the Refinery and such cylinders filled up with gas were sent to the appellant-Company which in its turn distributed the same to the consumers. Since the cylinders were actually used up in the trade both by the Refinery and by the appellant- Company after the sale, it cannot be held that the cylinders were "actually used up". Hence, the claim for deduction of Rs 27, 43, 807 as a revenue expenditure under Rule 5 of the Income Tax Rules, 1962 read with item M(2)(2)(d)(i) of Part 1 of Appendix 1 to the rules was inadmissible and reference on this question must be answered against the assessee. 13.Mr J. Ramamurti learned Senior Advocate appearing for the respondent has submitted that the Appellate Tribunal has found as a fact that the gas cylinders are returnable packages. Hence, the schedule entry M(2)(2)(d)(i) of Appendix 1 is applicable. Such schedule refers only to cost and not loss. As the cylinders were not "actually used up" for reasons indicated by the High Court, the assessee was not en titled to any benefit of this entry. Mr Ramamurti has also urged that where entry M(2)(2)(d)(i) of Appendix 1 to the rules is applicable, Section 32(1)(iii) of the Income Tax Act does not apply. Even assuming that Section 32(1)(iii) applies, the Tribunal has not found any fact relating to written down value. Written down value being a question of fact must be found on consideration of relevant materials. The Tribunal has not dealt with this issue and the question therefore did not arise for consideration. Mr Ramamurti has also submitted that in any event, as rightly pointed out by the High Court, the assessee is not entitled to claim any benefit under Section 32(1)(iii) as the assessee has not written off the deficiency in its books of account. Such writing down is a condition which is required to be satisfied. Mr Ramamurti in this connection has referred to a decision of Madras High Court in S. Rajagopala Vandayar v. CIT2 which according to Mr Ramamurti has taken into consideration earlier decisions including the decision of this Court in CIT v. National Syndicate3 and Boards circulars. Mr Ramamurti has also submitted that amendment of Section 34(3)(a) regarding development rebate reserves being effective from April 1, 1962, the assessees claim for such rebate was not at all entertainable. He has therefore, submitted that there is no occasion to interfere with the decision of the High Court and the appeal should be dismissed. 14. After giving our careful consideration to the matter, we approve the decision of the High Court which has already been indicated in some detail. In our view, the cylinders in question did not satisfy a case of returnable packages "actually used up". It also appears to us that the High Court has held, for good reasons, that the assessee could not claim any deduction under Section 32(1)(iii) of the Act and a claim on account of development reserve under Section 34(3)(a) of the Act was also inadmissible for the reasons indicated by the High Court. 15.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]14. After giving our careful consideration to the matter, we approve the decision of the High Court which has already been indicated in some detail. In our view, the cylinders in question did not satisfy a case of returnable packages "actually used up". It also appears to us that the High Court has held, for good reasons, that the assessee could not claim any deduction under Section 32(1)(iii) of the Act and a claim on account of development reserve under Section 34(3)(a) of the Act was also inadmissible for the reasons indicated by the High Court.