1996 (2) TMI 3 - SC - Income Tax

Development Allowance - Tribunal was not right in holding that the assessee was not entitled to development allowance at 50 per cent on the sum of Rs. 71,500 being a part of the expenditure incurred during the assessment years 1966-67 and 1967-68 on 1967 tea clearing under the provisions of section 33A of the Income-tax Act for the assessment year 1971-72

Summary

Issues:
Interpretation of section 33A of the Income-tax Act, 1961 regarding development allowance for clearing land and planting tea bushes by a tea company.

Analysis:
The case pertains to the assessment year 1971-72, involving the claim of development allowance under section 33A of the Income-tax Act, 1961, for expenses incurred on tea clearing and planting. The High Court was tasked with determining whether the assessee was entitled to claim development allowance on the sum of Rs. 71,500 spent on tea clearing in 1967 for the assessment year 1971-72. The Tribunal had previously disallowed the claim, leading to subsequent appeals. The Tribunal's decision was based on the assessee's choice to claim only a portion of the expenses incurred in the first two years, restricting the claim in the fourth year. However, the High Court emphasized that section 33A allows for a recomputation of the actual cost of planting, indicating that the development allowance is not limited to the initial computation. The High Court held that if the recomputed amount exceeds the previously allowed deduction, the excess must be granted. The High Court concluded that the assessee's claim should have been allowed, ruling in favor of the assessee and against the Commissioner of Income-tax.

The Supreme Court upheld the High Court's decision, emphasizing the scheme of development allowance under section 33A aimed at encouraging the expansion of the tea industry. The Court highlighted that the allowance is not restricted to the year of expenditure but can be granted in subsequent years. The definition of "actual cost of planting" under section 33A(7) indicates a span of four years for computation. The Court clarified that development allowance is granted in two stages under clauses (a) and (b) of section 33A(1), with clause (b) allowing for a fresh computation of the allowance. The Court noted that the assessee's failure to claim the full allowance in the initial stage does not preclude them from claiming the outstanding amount in the subsequent stage. The Court affirmed that the High Court correctly interpreted the provisions of section 33A and dismissed the civil appeal, with each party bearing its own costs.