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Interpretation of Section 34(3) of the Income Tax Act regarding the withdrawal of development rebate by the Income-tax Officer. Analysis: The judgment by the High Court of Kerala involved a dispute regarding the withdrawal of development rebate granted to an assessee, Malayalam Plantations Ltd., under Section 34(3) of the Income Tax Act. The company, registered in London, owned estates in Kerala and was assessable in India due to its income from plantations and other activities. The relevant assessment years were 1965-66 and 1966-67. Section 34(3) required the creation of a development rebate reserve equal to 75% of the development rebate to be actually allowed, to be utilized for business purposes excluding dividends or remittance outside India. The company's income was partly agricultural and partly non-agricultural, subject to Rule 8 of the Income Tax Rules, 1962, which deemed 40% of tea income taxable. The dispute arose from the Income Tax Officer's withdrawal of the development rebate for 1966-67 and reduction for 1965-66. The Appellate Assistant Commissioner found the company had created reserves exceeding requirements for all relevant years. The Tribunal concurred, noting a reserve surplus even after appropriation. It held that the excess reserve was unnecessary and could be withdrawn without contravening Section 34(3). The Tribunal dismissed the department's appeal, emphasizing the excess reserve was not utilized to compensate for deficiencies in subsequent years. The High Court upheld the Tribunal's decision, finding no contravention of Section 34(3) justifying action under the Act. It affirmed that the company had not utilized excess reserves in subsequent years and concluded that the withdrawal of surplus reserves did not disentitle the assessee from the development rebate benefit. The Court ruled in favor of the assessee, stating that the Tribunal's view was correct and that there was no violation of the relevant provisions. The question posed by the Income-tax Appellate Tribunal was answered in the affirmative, in favor of the assessee and against the revenue, with no order as to costs.
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