JUDGMENT Gopalan Nambiyar, C.J. 1. The Peria Karamalai Tea and Produce Co. Ltd. is a Private Limited Company. It was assessed under the Companies (Profits) Surtax Act, 1964 for the assessment years 1965-66, 1966-67 and 1967-68. For 1965-66 and 1966-67 the assessment was completed on 17th February 1967 and for 1967-68, on 14th February 1968. For the three relevant assessment years the assessee had created development rebate reserve in excess of what had to be statutorily created. In the three original assessments such excess had been included in the computation of capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964. Later on, the Income Tax Officer being of the opinion that on account of the inclusion of the excess development rebate reserve in the capital, chargeable profits had escaped assessment, reopened these assessments. After hearing the objections of the assessee, the three assessments were re-made on 23rd March 1974 after excluding from the amount of capital such excess development rebate reserve. 2. On appeal by the assessee, the Appellate Assist?nt Commissioner held that the excess development rebate reserve is includible in the capital. On 11th January 1971 the Central Board of Direct Taxes had issued circular No. 53 F. No.7/2/68-TPL bringing to the notice of the Income Tax Authorities that development rebate in excess of the statutory limit is includible in the capital. The Appellate Assistant Commissioner followed the circular and directed the Income Tax Officer to include the capital. The department appealed to the Tribunal. The Tribunal took the view that the question was covered by the decision of the Kerala High Court in the unreported Travancore Rayon's case-viz. I.T.R. Nos. 110 and 131 of 1971. Following that judgment, the Tribunal held against the assessee. On the question as to whether the assessee was entitled to the benefit of the circular, the Tribunal held that as the circular was issued only in 1971, it will not apply to assessment in respect of the years 1965-66, 1966-67 and 1967-68 made and completed when the circular was not in existence. It was also pointed out by the departmental representative that on 9th September 1974 the Commissioner of Income Tax, Kerala, had issued the direction to the assessing officers that the circular is not applicable to the Kerala charge. It was also pointed out by the departmental representative that on 9th September 1974 the Commissioner of Income Tax, Kerala, had issued the direction to the assessing officers that the circular is not applicable to the Kerala charge. The assessee then pointed out that on 2nd November 1974 in another letter, the Commissioner had stated that the instruction on 9th September 1974 will apply only to pending assessments. As these two instructions of the Commissioner were after the date of reassessments, the Tribunal did not refer to these letters. It allowed the department's appeal and restored the assessments of the Income Tax Officer. At the instance of the assessee, the following question of law has been referred, viz. "Whether the Circular (No. 53 F. No. 7/2/63 T.P.L. dated 11th January 1971) issued by the Central Board of Direct Taxes and in which circular the extent of its application is not specified is applicable to reassessments in respect of assessment years 1965-66, 1966-67 and 1967-68 even though such reassessments were made only after the aforesaid date of 11th January 1971 " 3. A Division Bench of this Court in the Travancore Rayons case (I.T.R. 110 and 131 of 1971), stated: "Development Rebate under section 33 of the Income Tax Act being a deduction allowed in computing the income of the company for the purpose of assessment of Income Tax, if any part of that rebate is kept as a reserve, clause (iii) of rule 1 provides that the amount must be reduced from the other reserves. Sub-section 3 of section 34 of the Income Tax Act, 1961 requires 75 per cent of the Development Rebate to be credited as a reserve for future use. That is allowed to be reckoned as a reserve under clause (ii). The excess over 75 per cent will not come under either clause (ii) or clause (iii)." Under Schedule II rule 1 sub-clauses (ii) and (iii) of the Companies (Profits) Surtax Act, 1964, it is provided: "1. That is allowed to be reckoned as a reserve under clause (ii). The excess over 75 per cent will not come under either clause (ii) or clause (iii)." Under Schedule II rule 1 sub-clauses (ii) and (iii) of the Companies (Profits) Surtax Act, 1964, it is provided: "1. Subject to the other provisions contained in this Schedule, the capital of a company shall be the aggregate of the amounts as on the first day of the previous year relevant to the assessment year, of ** ** ** (ii) its reserves, if any, created under the proviso ,(b) to clause (vi-b) of sub-section (2) of section 10 of the Indian Income Tax Act, 1922 (XI of 1922), or under sub-section (3) of section 34 of the Income Tax Act, 1961 (XLIII of 1961): (iii) its other reserves as reduced by the amounts credited to such reserves as have been allowed as a deduction in computing the Income of the company for the purposes of the Indian Income Tax Act, 1922 (XI of 1922), or the Income Tax Act, 1961 (XLIII of 1961); ** ** **" The observation of the Division Bench of this Court extracted above, which was followed by the Tribunal, was in respect of the above provision. 4. The original assessments were on 17th February 1967 for 1965-66 and 1966-67, and on 14th February 1968 for 1967-68. Development reserves to the extent of about rupees two lakhs twenty thousand was allowed under section 8 of the Act. Notice of reassessment was issued and reassessment was ordered on 22nd March 1974 changing the two lakhs twenty thousand of Development Rebate to one lakh fifty-five thousand and odd. Mean?hile, a circular had been issued on 11th January 1971 by the Central Board of Revenue to which we made reference earlier. It was withdrawn on 9th September 1974. It was thus in force on the date of reassessment. The circular, in brief, stated that excess development reserve is includible in the capital. The legal effect of such circulars fell to be examined recently by a Full Bench of this court in Commissioner of Income Tax, Kerala v. Edward (I.L.R. 1979 (2) Kerala 133). It was thus in force on the date of reassessment. The circular, in brief, stated that excess development reserve is includible in the capital. The legal effect of such circulars fell to be examined recently by a Full Bench of this court in Commissioner of Income Tax, Kerala v. Edward (I.L.R. 1979 (2) Kerala 133). It was pointed out that although the circulars are primarily meant to serve as guidelines, and are binding on the subor?inate authorities vested with the administration of Income Tax Act, some of them from their nature and content, do confer some privileges and rights on the assessee whose cases have to be assessed. There may be circulars which affect only certain administrative or procedural aspects. There may equally be circulars which affect certain important rights in regard to assessment of the assessee. This, it was stated, was sufficiently implicit in section 119 (2) of the Act itself. In regard to the latter type of cir?ulars affecting the rights of the assessee, despite the power to recall or withdraw the circulars the assessee's rights to have the assessment effected or carried out in accordance with the circulars, cannot be prejudicially affected by the recall or withdrawal of the circulars. It was held that on the facts the assessee was entitled to have the assessment made and completed in accordance with the circular. Relying on the decision counsel for the assessee argued that the reassessment made applying the circular was correct. 5. Counsel for the revenue invited our attention to page 895 of Kanga and Palkhivala's the Law and Practice of Income Tax Seventh Edition, Vol. I. Speaking with reference to reassessment, it was stated that the proceedings by way of reassessment must be deemed to relate to the original proceedings which commenced with a return filed under section 139 (1) or the issue of a notice under section 139 (2); and that the assessment under this section must be made as if it were made in the relevant assessment year Vide Lakshminarain Bhadani v. C.I.T. (20 I.T.R. 594 (SC.)). It is further observed that the assessment must be based on the provisions of the Act as it stood in the year in which the income ought to have been assessed Vide Krishna Hydraulic Press Ltd. v. C.I.T. (11 I.T.R. 504) and Maneklal Chunilal and sons Ltd. v. C.I.T. (24 I.T.R. 375 at 385-6). It is further observed that the assessment must be based on the provisions of the Act as it stood in the year in which the income ought to have been assessed Vide Krishna Hydraulic Press Ltd. v. C.I.T. (11 I.T.R. 504) and Maneklal Chunilal and sons Ltd. v. C.I.T. (24 I.T.R. 375 at 385-6). The tax should be charged at the rate it would have been charged had the income not escaped assessment. In view of the principle noticed above, and bearing in mind the relevant dates of assessment, namely, 17th February 1967 in respect of 1965-66 and 1966-67; and 14th February 1968 in respect of 1967-68. we see no ground for applying the provisions of the circular dated 11th January 1971 to the assessment. Reassessment is with effect from the date of the original assessment. In that sense therefore there is no scope for taking into account the circular which came into force on 11th January 1971 and remained in force till 9th September 1974. In that view again, there is no room to apply the principle of our recent ruling in Commissioner of Income Tax, Kerala v. Edward (I.L.R. 1979 (2) Kerala 133). 6. Counsel for the assessee relied upon the decision of a Division Bench of the Bombay High Court in Tata Iron and Steel Co. Ltd. v. N.C. Upadhyaya (96 I.T.R. 1). When the decision is fully examined it will be found it is distinguishable on the facts. The decision was concerned with several aspects. But briefly stated, the position disclosed was this. Three rectification notices under section 154 of the Income Tax Act, 1961, for the assessment years 1965-66, 1966-67 and 1967-68, and the orders in pursuance of those notices were challenged in one of the petitions dealt with. A rectification notice dated 12th March 1973 for the assessment year 1968-69 was challenged in the second of the petitions dealt with in the judgment. For all the four years the petitioner had created some development reserve and claimed development rebate under section 33 of the Income Tax Act. Apart from plant and machinery installed, during these years the petitioner had also installed some rolling mill rolls. During these four years the petitioner had not created development reserve after taking into consideration the rolling mills installed by it and it had not claimed any rebate in respect of the same. Apart from plant and machinery installed, during these years the petitioner had also installed some rolling mill rolls. During these four years the petitioner had not created development reserve after taking into consideration the rolling mills installed by it and it had not claimed any rebate in respect of the same. The petitioner's explanation was that the Income Tax Authorities did not include the rolling mill rolls in the expression '' plant and machinery". The Central Board of Direct Taxes on 16th November 1968 issued a circular and directed all Income Tax Officers to allow rebate on the cost of rolling mills. There was also a circular dated 21st November 1958 by the Central Board of Revenue regarding the allowance of development rebate to tea companies-admitted to be of general application. That circular stated that where there is no deliberate contravention of the condition as to creation of reserve fund equal to 75 per cent and the assessee had made his own bona fide com?utation, the Income Tax Officers were to condone genuine deficiencies subject to the short-fall being made good by the assessee through the creation of an additional reserve in the current year's books within the time allowed by the Officer. On the basis of these two circulars the petitioner claimed development rebate on the rolling mill rolls for the four years covered by these two petitions and for that purpose created additional development rebate reserve. The petitioner filed revised returns and the Income Tax Officers granted the additional development rebate for the four years. However, on 7th February 1972, a notice under section 154 of the Act was served on the petitioner whereby the Income Tax Officer proposed to rectify the assessment for the years 1965-66, 1966-67 and 1967 68 on the ground that the rebate was wrongly allowed on the rolling mill rolls in view of the Supreme Court Judgment in the Indian Overseas Bank Ltd. v. Commissioner of Income Tax (77 I.T.R. 512). An order of rectification for the three years followed. The notice and the order were what were challenged by the petitioner. For 1968-69 a rectification notice was issued and that was challenged. It would thus be seen that the facts here are fundamentally different. As a result of the revised returns after the circular, the petitioner had been granted additional development rebate for all the four years. The notice and the order were what were challenged by the petitioner. For 1968-69 a rectification notice was issued and that was challenged. It would thus be seen that the facts here are fundamentally different. As a result of the revised returns after the circular, the petitioner had been granted additional development rebate for all the four years. That was when the circulars were in force. By the rectification notices the development rebate thus granted was sought to be undone. This attracts the principle of our decision in Commissioner of Income Tax Kerala v. Edward (I.L.R. 1979 (2) Kerala 133). The decision is therefore distinguishable. 7. In the result, we answer the question referred in the affirmative, that is, in favour of the department and against the assessee. There will be no order as to costs. A copy of our judgment under the signature of the Registrar and the seal of this court will be communicated to the Income Tax Appellate Tribunal, Cochin Bench, as required by law.