1979 (1) TMI 50 - HC - Income Tax

Summary

Issues:
Assessment of development rebate for the assessment year 1962-63 based on the creation of the development reserve, consideration of excess provision from the previous year, interpretation of section 34(3)(a) of the Income-tax Act, 1961 regarding the conditions for claiming development rebate.

Analysis:
The judgment by the High Court of BOMBAY addressed the dispute concerning the development rebate claimed by an assessee for the assessment year 1962-63. The assessee had created a development reserve and claimed a rebate of Rs. 1,28,415, but the Income Tax Officer (ITO) allowed a proportionate rebate of Rs. 84,689 based on the actual reserve created during the year. The Appellate Tribunal, however, held that the excess amount from the previous year could be considered in determining the development rebate, thus allowing the full claim. The main issue revolved around the interpretation of section 34(3)(a) of the Income-tax Act, 1961, which requires 75% of the development rebate to be debited to the profit and loss account of the relevant previous year. The High Court analyzed the entries in the profit and loss account for the assessment year 1962-63, which showed a provision of Rs. 96,722, representing 75% of the claimed development rebate. The excess provision from the previous year was also taken into account, satisfying the conditions of section 34(3)(a).

The Court emphasized that the crucial aspect was the debiting of 75% of the development rebate to the profit and loss account, which was met in this case. The excess provision from the earlier year was appropriately reversed and included in the development reserve for the assessment year in question. Therefore, the Tribunal's decision to allow the full development rebate claim was deemed justified. The Court concluded that the assessee was entitled to the entire claim for the development rebate, as the conditions under section 34(3)(a) were fulfilled. Consequently, the question referred to the Court was answered in the affirmative, in favor of the assessee, with the revenue directed to pay the costs of the reference.