1985 (9) TMI 81 - HC - Income Tax

Summary

Issues: Interpretation of section 43A(2) of the Income-tax Act, 1961 in relation to development rebate calculation.

In the case at hand, the main issue revolved around the interpretation of section 43A(2) of the Income-tax Act, 1961, concerning the entitlement to development rebate on the increased cost of a pelletisation plant due to the devaluation of the Indian rupee. The assessee had acquired the plant before the devaluation date, resulting in a rise in the liability expressed in Indian currency. The Additional Commissioner reopened the assessment, contending that the development rebate was erroneously allowed. The Tribunal was tasked with determining whether the assessee was entitled to claim development rebate on the enhanced cost due to devaluation.

The crux of the matter lay in the interpretation of section 43A(2) of the Income-tax Act, 1961. The Revenue argued that the additional cost arising from the exchange rate change due to devaluation should not be factored into the actual cost calculation for development rebate purposes. The Revenue relied on the Madras High Court's decision in a similar case to support their contention. The court analyzed the legislative intent behind section 43A and the exclusion of the devaluation impact on asset cost for development rebate calculation. The court emphasized that sub-section (2) operates alongside sub-section (1) of section 43A, and the special provision of section 43A(1) does not affect the general provision for development rebate under section 33.

Ultimately, the court held that for the purpose of computing the deduction on account of development rebate, section 43A(1) should be disregarded. The court clarified that the calculation for development rebate should proceed as if section 43A(1) does not apply, emphasizing the importance of adhering to the provisions of section 33. The judgment concluded that the Tribunal was correct in its interpretation, and the Revenue was directed to pay the costs of the reference. The Tribunal was instructed to determine the allowable development rebate for the assessee based on the provisions of section 33 and section 43(1) of the Income-tax Act, with parties given the opportunity to present their arguments on the actual cost of the asset and the relevant date for calculation.