1985 (9) TMI 5 - SC - Income Tax

Is it necessary to allow development rebate in the fresh assessment and then cancel it by rectification - High Court took the view that the Tribunal was not justified in law in directing the Income-tax Officer first to allow the development rebate under the rules and subsequently withdraw it under section 35(l1) - High Court was right in answering the question in favour of the Revenue

Summary

Issues:
- Interpretation of the provision denying development rebate if machinery is sold before the specified period.
- Whether Income-tax Officer was required to first allow and then withdraw development rebate.
- Justification of High Court's decision against the assessee.

Analysis:
The judgment involves the interpretation of a provision denying development rebate if machinery is sold before the specified period. The case revolved around the Income-tax Officer's decision to deny development rebate to the assessee after discovering that the buses, for which the rebate was allowed, had been sold within eight years of purchase. The High Court held that the Tribunal was not justified in directing the Income-tax Officer to first allow and then withdraw the rebate. The proviso under section 10(2)(vib) was crucial, stating that if machinery is sold before ten years from acquisition, any allowance made shall be deemed wrongly allowed. The Court emphasized that the purpose was to deny rebate if the condition was not met, even if not initially known to the Officer.

Regarding the requirement for the Income-tax Officer to first allow and then withdraw the rebate, the Court held that in cases where the condition for rebate entitlement was not fulfilled, as in this instance, there was no necessity to follow a two-step process. The Court highlighted that the Officer became aware of the non-compliance during the fresh assessment, justifying the immediate denial of the rebate. The Court emphasized that the condition regarding not selling machinery before the stipulated period was essential for claiming the rebate, and the Officer acted correctly upon discovering the non-compliance during the assessment.

Ultimately, the High Court's decision in favor of the Revenue was deemed justified by the Supreme Court. The Court concurred with the High Court's reasoning, emphasizing that the denial of the rebate was warranted due to the failure to meet the condition specified under the relevant provision. Consequently, the appeal was dismissed, upholding the decision against the assessee and affirming the denial of the development rebate.