1988 (3) TMI 47 - HC - Income Tax

Summary

Issues:
1. Interpretation of development rebate rates for priority industries.
2. Recomputation of development rebate rates for earlier assessment years.
3. Applicability of rectification under section 154 of the Income-tax Act, 1961.

Analysis:
The case involved a reference made under section 256(1) of the Income-tax Act, 1961, regarding the interpretation of development rebate rates for priority industries and the recomputation of such rebate for earlier assessment years. The assessee, a priority industry, claimed development rebate at a lower rate in the assessment years 1970-71 and 1971-72, which was carried forward. The appellate authority accepted the plea to compute the rebate at a higher rate for the assessment year 1974-75 and earlier years. The Tribunal upheld this decision, emphasizing the mandatory nature of allowing development rebate at appropriate rates for priority industries. The Revenue challenged this, arguing that the claim could not be granted due to the expiration of the rectification period under section 154.

In analyzing the provisions of sections 33 and 34 of the Act, the court highlighted that development rebate is not a simple deduction and can be carried forward for up to eight years based on the total income of the assessee. Section 34(3) requires the creation of a reserve to cover the rebate to be allowed in a given year. The court held that the assessing officer could recompute the rebate as long as part of it remained unadjusted, even if the rectification period under section 154 had expired. The court emphasized that the exact amount and rate of development rebate could be examined in any year when the rebate is allowed, subject to compliance with the reserve creation condition under section 34.

The Department relied on a previous decision but the court distinguished it, stating that development rebate could be set off only against available income and carried forward if unabsorbed. The court rejected the Department's contention, emphasizing the duty of the assessing officer to compute the rebate correctly until fully adjusted, with rectification possible only under section 154. Ultimately, the court upheld the Tribunal's conclusion, answering both questions in favor of the assessee and against the Revenue.