1984 (11) TMI 47 - HC - Income Tax

Issues Involved:

1. Whether the claim of development rebate for the assessment year 1962-63 should be carried forward for consideration in the assessment of the firm for the assessment year 1963-64, or allocated to the partners in the assessment year 1962-63.
2. Whether the Tribunal was correct in upholding the cancellation orders of the Income-tax Officer under section 154 for the assessment years 1962-63 and 1963-64.

Issue 1: Carrying Forward Development Rebate

The Tribunal held that the claim of development rebate for the assessment year 1962-63 had to be carried forward for consideration in the assessment of the firm for the assessment year 1963-64, and it could not be allocated to the partners of the firm in the assessment year 1962-63 itself. The Tribunal referred to section 33(2) of the Income-tax Act, 1961, which states that only the amount of development rebate sufficient to reduce the total income to nil can be allowed in an assessment year, and the remaining amount should be carried forward to subsequent years. The Tribunal found that the statutory requirements for allowance of development rebate in the assessment year 1962-63 were not fulfilled, and thus, the development rebate could not be considered in that year. The Tribunal also noted that the development rebate should be carried forward in the hands of the assessee-firm and not allocated to the partners.

Issue 2: Cancellation Orders under Section 154

The Tribunal upheld the cancellation orders of the Income-tax Officer under section 154 for the assessment years 1962-63 and 1963-64. The Tribunal reasoned that the development rebate could not be allocated to the partners as it had not yet become part of the firm's income. The Tribunal emphasized that the claim of development rebate remains alive to be considered in a year when there are adequate profits and when the statutory requirements of reserve are satisfied. The Tribunal found that the Income-tax Officer's action of rectifying the assessment orders was against the provisions of section 33(2) and that the reference to section 75 was not relevant as it pertained to losses and not to the claim of development rebate.

Relevant Legal Provisions and Case Law:

The judgment referred to several legal provisions and case law to support its conclusions. Section 32(2) of the Income-tax Act, 1961, deals with the carry forward of depreciation allowance, while section 33(2) addresses the carry forward of development rebate. The judgment highlighted that development rebate is a class by itself and can only be allowed when the statutory reserve is created, as required under section 34(3)(a). The judgment also referred to various case laws, including CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 (SC), which discussed the carry forward of depreciation allowance, and CIT v. Madras Wire Products [1979] 119 ITR 454 (Mad), which held that development rebate should be allowed only in the hands of the firm and not the partners.

Conclusion:

The Tribunal was right in holding that the claim of development rebate for the assessment year 1962-63 had to be carried forward for consideration in the assessment of the firm for the assessment year 1963-64, and it could not be allocated to the partners of the firm in the assessment year 1962-63 itself. The Tribunal was also right in upholding the cancellation of the orders of the Income-tax Officer under section 154 for the assessment years 1962-63 and 1963-64. Both questions were answered in the affirmative and in favor of the assessee.

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