1998 (2) TMI 48 - HC - Income Tax

Summary

Issues:
Whether the assessee is entitled to development rebate under section 33 of the Income-tax Act on the increased cost of machinery due to devaluation of Indian currency.

Detailed Analysis:

The case involved an Indian company engaged in manufacturing electronic instruments, relays, and fusegears. The company declared a loss of Rs. 11,92,468 for the assessment year 1967-68, but the assessment was completed on a total income of Rs. 29,06,220. The company had purchased machinery from foreign parties in August 1965 for Rs. 2,45,540, with the installation completed in October and November 1965. The actual payment for the machinery was made in August 1966, following the devaluation of the Indian currency on June 6, 1966. The devaluation led to an increase in the machinery's cost by Rs. 1,41,185.

The company claimed development rebate on the increased cost of Rs. 1,41,185, arguing that the actual cost as per section 43(1) of the Income-tax Act should include the increased cost due to currency devaluation. However, the Income-tax Officer rejected the claim, citing section 43A(2) of the Act, which prohibits the allowance of development rebate on increased costs due to devaluation.

The Appellate Assistant Commissioner upheld the Income-tax Officer's decision, prompting the company to appeal to the Appellate Tribunal. The Tribunal, relying on previous court decisions, held that section 43A(2) only excludes the applicability of sub-section (1) in computing the actual cost for development rebate. Since section 43(1) defines "actual cost," the company was deemed entitled to development rebate on the increased cost due to devaluation.

During the proceedings, the Supreme Court's decision in CIT v. Arvind Mills Ltd. was referenced, which contradicted the previous court decisions. The Supreme Court clarified that section 43A prohibits considering fluctuations in exchange rates for development rebate purposes. Consequently, the question of whether the company was entitled to development rebate on the increased cost was answered in the negative, favoring the Revenue.

Therefore, the court ruled against the company, denying the development rebate claim on the increased machinery cost due to currency devaluation. The case was disposed of without any order as to costs.