1976 (8) TMI 55 - AT - Income Tax

Summary

Issues Involved:
1. Determination of development rebate and depreciation.
2. Jurisdiction of the Income Tax Officer under Section 155(5) for rectification.
3. Interpretation of the phrase "where an allowance by way of development rebate has been made."
4. Application of Section 155(5) in the context of subsequent sale of machinery.

Issue-wise Detailed Analysis:

1. Determination of Development Rebate and Depreciation:
The assessee installed machinery in the previous year relevant to the assessment year 1966-67, including a broaching machine sold on 24th February 1971. The original assessment order dated 20th July 1967 determined the business loss, depreciation, and development rebate to be carried forward. The Appellate Assistant Commissioner partially accepted the assessee's claim for higher development rebate and depreciation. The revised figures were determined by the Income Tax Officer in his order dated 20th December 1972.

2. Jurisdiction of the Income Tax Officer under Section 155(5) for Rectification:
The Income Tax Officer, upon learning of the sale of the broaching machine, passed an order under Section 155 on 10th October 1974 to rectify the assessment for 1966-67, reducing the development rebate to be carried forward. The assessee appealed against this order, arguing that no development rebate had been allowed in the assessment year 1966-67 or subsequent years up to 1971-72. The Appellate Assistant Commissioner held that the primary condition under Section 155(5) was not fulfilled as no allowance by way of development rebate had been made, thus canceling the Income Tax Officer's order.

3. Interpretation of the Phrase "Where an Allowance by Way of Development Rebate Has Been Made":
The tribunal emphasized the interpretation of the phrase "where an allowance by way of development rebate has been made." It concluded that this phrase means the actual allowance of the deduction from the profits of a particular year and not merely the consideration of computation of allowance. The tribunal referred to various sections and judicial decisions to support this interpretation, emphasizing that the allowance must be actually made and deducted from the profits.

4. Application of Section 155(5) in the Context of Subsequent Sale of Machinery:
Section 155(5) applies when an allowance by way of development rebate has been made and the machinery is subsequently sold within eight years. The tribunal noted that the section's provisions would be ineffective if applied only to the year of installation when there was no profit, as it would not allow rectification of subsequent years where the development rebate was actually allowed. The tribunal concluded that Section 155(5) should apply to the year in which the allowance was actually made, and since there were no profits in the assessment year 1966-67, the section had no application to that year.

Conclusion:
The tribunal held that the Income Tax Officer erred in rectifying the assessment for 1966-67 under Section 155(5), as no allowance by way of development rebate had been made in that year. The order of the Appellate Assistant Commissioner was upheld, and the appeal was dismissed. The cross-objection supporting the Appellate Assistant Commissioner's order was also dismissed as redundant.