1996 (11) TMI 26 - HC - Income Tax

Summary

Issues:
1. Validity of development rebate on plant and machinery.
2. Interpretation of the Finance Act, 1974 regarding eligibility for development rebate.
3. Discretion of the Tribunal in allowing development rebate.

Analysis:
The judgment pertains to an application made by the Commissioner of Income-tax seeking a direction to the Income-tax Appellate Tribunal regarding the validity of development rebate on plant and machinery for the assessment year 1975-76. The Assessing Officer initially disallowed the claim for development rebate due to the absence of a valid contract before December 1, 1973, for the supply of machinery. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal, in its order dated September 17, 1993, allowed the claim, emphasizing the principle that a promoter can act on behalf of a company under incorporation, and the company can ratify such actions post-incorporation. The Tribunal directed the assessing authority to grant the development rebate and withdraw any initial depreciation allowed, if applicable.

Regarding the interpretation of the Finance Act, 1974, the Revenue argued that the development rebate scheme was discontinued for machinery installed after May 31, 1974, but exceptions were provided under section 16 of the Act. The clause stipulated that to be eligible for the scheme, the assessee must have entered into a contract for purchase of machinery before December 1, 1973. The Revenue contended that the agreement for supply of machinery in this case was made on December 28, 1973, after the specified date, thus rendering the claim ineligible.

The Tribunal, in its order dated September 1, 1994, declined to make a reference to the High Court, stating that no referable question of law arose as the decision was based on factual appreciation. However, the High Court, after hearing arguments from both parties, decided to allow the application and directed the Tribunal to refer the question of law regarding the validity of the development rebate claim. The judgment concluded by disposing of the application without costs and instructing the Tribunal to take necessary actions within nine months.

In summary, the judgment delves into the intricacies of the Income-tax Act, 1961, and the Finance Act, 1974, to determine the eligibility of a development rebate claim on plant and machinery, highlighting the significance of contractual timelines and ratification processes in company law.