SECTION 33A – DEVELOPMENT ALLOWANCE
280. Creation of reserve for claiming development allowance – Whether should be calculated at 75 per cent of 40 per cent of amount calculated on the basis of specified percentage of cost of planting tea bushes
1. Attention is invited to section 33A which provides for the grant of deduction by way of development allowance of a certain percentage of expenses incurred on planting of tea bushes on any land in India owned by an assessee who carries on business of growing and manufacturing tea. Sub-section (3) of section 33A stipulates certain conditions which must be fulfilled before the abovesaid deduction is allowed. One of the conditions is that a reserve of an amount equal to 75 per cent of the development allowance to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve amount to be utilised by the assessee during the period of eight years next following for the purpose of the business of the undertaking.
2. Clarifications have been sought from the Board regarding the manner in which the amount of reserve for claiming deduction on account of development allowance is to be calculated. In this connection, it is pointed out that provisions of law require that the reserve should be equal to 75 per cent of the ‘development allowance actually to be allowed’. It is argued that since only 40 per cent of the income of a tea company is chargeable to tax, the actual allowance on account of development allowance is only 40 per cent of the amount calculated on the basis of specified percentage of the cost of planting tea bushes.
3. A similar question had been examined with regard to the quantum of reserve to be created for claiming deduction on account of development rebate in the cases of tea companies. Vide Board’s Circular Letter F. No. 1(8)-58-TPL, dated 1-11-1958, it was clarified that in the case of tea companies it would be sufficient compliance if the reserve created is equal to 75 per cent of the amount actually allowed as development rebate. Since the conditions regarding the creation of reserve for the grant of development allowance under section 33A are identical to those prescribed with regard to the creation of reserve for claiming deduction on account of development rebate, it is clarified that the reserve required to be created for claiming development allowance should be calculated at 75 per cent of the amount which is actually allowed by way of development allowance, i.e., 75 per cent of 40 per cent of the amount calculated on the basis of specified percentage of the cost of planting tea bushes.
Circular : No. 325 [F. No. 202/62/77-IT(A-II)], dated 3-2-1982.
