Madras H.C : Provided further that an amount equal to the amount of the deduction under this sub-section is debited to the P&L a/c of the previous year in respect of which deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee.

Counsel Appeared

Mrs. Chitra Venkataraman, for the Appellant : None, for the Respondent

JUDGMENT

R. JAYASIMHA BABU, J.:

The second proviso to s. 80HHC(1) of the IT Act, 1961, as it stood during the relevant assessment year, the assessment year being 1988-89, reads thus :

“Provided further that an amount equal to the amount of the deduction under this sub-section is debited to the P&L a/c of the previous year in respect of which deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee.”

The assessee here is a closely held industrial domestic company carrying on a business of running a cotton spinning mill. For the assessment year in question originally a total income of Rs. 56,00,250 was returned. Subsequently, a revised return declaring a total income of Rs. 95,84,053 was filed. While making the assessment, the AO restricted the assessee’s claim under s. 80HHC of the IT Act solely on the ground that a separate reserve had not been created to which the amount of deduction claimed under this provision should have been credited. The assessee’s plea that the law does not require creation of special reserve and that crediting the amount to general reserve which reserve will be used for business purposes would answer the requirements of the provision, was rejected in appeal, but was accepted by the Tribunal on further appeal. The correctness of that view is sought to be called into question in this appeal.

We do not find any substance in the Revenue’s contention that in order to claim the benefit under s. 80HHC of the IT Act, the deduction claimed under the section should have been credited to special reserve account created specially for that purpose. The Revenue is reading into the provision more than what is contained therein. We must deprecate this approach on the part of the Revenue. The plain language of the provision makes it abundantly clear that the credit is to be made “to a reserve account to be utilised for the purposes of business of the assessee”. That the credit, in fact, had been made to a reserve is not in dispute. That the reserve to which credit is made is used for the business of the assessee, is also not in dispute. The claim made by the assessee was, therefore, within the four corners of the law and should have been allowed. The assessee has been needlessly dragged from one forum to another by reason of this wholly unjustified approach on the part of the Revenue.

The appeal is, therefore, dismissed with costs. The cost shall be in the sum of Rs. 2,000 which will be deposited by the Revenue to the credit of legal services authority, High Court, Madras, as the assessee has not appeared.

[Citation : 252 ITR 895]