1980 (8) TMI 37 - HC - Income Tax

Summary

Issues:
Assessment of development rebate for an individual assessee for the assessment year 1968-69 after conversion of business into a private limited company.

Analysis:
The initial assessment by the Income Tax Officer (ITO) disallowed the development rebate claim for the assessment year 1968-69, stating that the conversion of the business into a private limited company did not qualify as "succession" under section 33 of the Income Tax Act, 1961. The Appellate Assistant Commissioner (AAC) acknowledged the conversion but noted that it occurred within the accounting period relevant to the assessment year 1969-70. The AAC held that the conditions under section 34(3)(a) had been met, allowing the development rebate claim for the assessment year 1968-69. The Revenue appealed to the Tribunal, arguing that the ITO correctly disallowed the claim based on the conversion date. However, the Tribunal found that the assessee had complied with all conditions for development rebate in the relevant years, and the ITO should have withdrawn the rebate under section 155(5) upon conversion. The Tribunal referred the matter to the High Court.

The High Court considered the provisions of section 34(3)(b) along with section 155(5) and emphasized that the ITO was aware of the conversion when making the assessment for the year 1968-69. The Court noted that the development rebate could not be utilized for 8 years due to the conversion, and the ITO should have withdrawn it under section 155(5). The Court highlighted the importance of procedural compliance and stated that the ITO's actions were justified in light of the subsequent conversion. The Court referred to a Gujarat High Court decision but deemed it irrelevant to the current case. Ultimately, the Court ruled in favor of the Revenue, emphasizing the ITO's proper assessment based on the known conversion circumstances.

In conclusion, the High Court upheld the Revenue's appeal, emphasizing the ITO's awareness of the conversion and the need to withdraw the development rebate under section 155(5) due to the change in business structure. The Court highlighted procedural adherence and ruled in favor of the Revenue's position, citing the ITO's proper actions in the assessment process.