1982 (11) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was correct in holding that the assessee's claim for development rebate in respect of assets installed up to September 30, 1968, was rightly considered by the Appellate Assistant Commissioner in the assessment year 1970-71.
2. Whether the Tribunal was correct in upholding the Appellate Assistant Commissioner's order allowing the assessee's claim of development rebate of Rs. 5,52,247 in the assessment years 1970-71 and 1971-72.

Issue-Wise Detailed Analysis:

Issue 1: Consideration of Development Rebate Claim in Assessment Year 1970-71
The Tribunal held that the assessee's claim for development rebate for assets installed up to September 30, 1968, was rightly considered by the AAC in the assessment year 1970-71. The assessee, a company running a Five Star Hotel, had suffered losses in initial years and made a profit for the first time in the accounting year ending September 30, 1968. The ITO initially rejected the claim for development rebate for the assessment year 1969-70, stating that the development rebate reserve created was insufficient and had been utilized for declaring dividends, violating s. 34(3)(a)(i) of the I.T. Act. The AAC treated the grounds for non-allowance of development rebate as irrelevant for 1969-70 since the income was reduced to nil after considering past losses. The Tribunal found that the development rebate could only be allowed in the year the assessee had positive income, which was 1970-71. The development rebate reserve had to be created in the year the rebate was allowed, not necessarily when the assets were installed. Thus, the Tribunal upheld the AAC's decision to consider the claim in 1970-71.

Issue 2: Allowance of Development Rebate of Rs. 5,52,247
The Tribunal upheld the AAC's order allowing the assessee's claim of development rebate of Rs. 5,52,247 for the assessment years 1970-71 and 1971-72. The Tribunal reasoned that the development rebate reserve had to be created in the year when the rebate was actually allowed. In this case, the rebate was first allowed in the assessment year 1970-71, and the reserve was created accordingly. The Tribunal found that the total reserve created by the assessee up to 1970-71 was Rs. 4,15,000, more than the statutory amount required. The profit earned by the assessee up to September 30, 1968, was sufficient to cover the declaration of dividends, and therefore, it could not be said that any part of the development rebate reserve was utilized for paying dividends. The Tribunal concluded that the assessee had complied with all conditions under s. 34(3) and was rightly allowed the development rebate by the AAC.

Conclusion:
The High Court affirmed the Tribunal's decision, answering both questions in the affirmative, in favor of the assessee and against the Department. The court held that the assessee was entitled to claim development rebate in the assessment year 1970-71 since the income for 1969-70 was reduced to nil, and the reserve had to be created in the year the rebate was allowed. The court also upheld the Tribunal's finding that the assessee complied with the conditions laid down in s. 34(3)(a) and was entitled to the development rebate for the assessment years 1970-71 and 1971-72. The assessee was awarded costs assessed at Rs. 250.