1985 (5) TMI 86 - AT - Income Tax

Summary

Issues Involved:
1. Adjustment of unabsorbed development rebate from the assessment year 1972-73 against the income of the assessment year 1979-80.
2. Impact of the nationalization of the coal mining business on the entitlement to carry forward and set off unabsorbed development rebate.

Issue-Wise Detailed Analysis:

1. Adjustment of Unabsorbed Development Rebate:
The primary issue in this appeal was whether the CIT (A) erred in allowing the adjustment of the unabsorbed development rebate for the assessment year 1972-73 against the income of the assessment year 1979-80. The assessee-company installed new plant and machinery in the assessment year 1972-73, entitling it to a development rebate under Section 33 of the IT Act, 1961. However, this rebate was not allowed by the Revenue and remained unabsorbed. The assessee sought to carry forward this unabsorbed development rebate to the assessment year 1979-80. The ITO denied this adjustment, arguing that the nationalization of the coal industry transferred the assets and liabilities to the government, thus nullifying the assessee's claim.

2. Impact of Nationalization:
The second issue revolved around the effect of the nationalization of the coal mining business on the assessee's entitlement to carry forward and set off the unabsorbed development rebate. The coal mining business of the assessee was nationalized under the Coal Mines (Nationalisation) Act, 1973, but the company continued to exist and had other sources of income. The ITO argued that the nationalization meant the business ceased to exist, and the government assumed responsibility for all liabilities, making the adjustment of the unabsorbed development rebate invalid.

CIT (A) Decision:
The CIT (A) disagreed with the ITO, holding that the assessee was entitled to set off the unabsorbed development rebate from the assessment year 1972-73 against the income for the assessment year 1979-80. The CIT (A) referenced Section 7(1) of the Coal Mines (Nationalisation) Act, 1973, which stipulates that liabilities before the appointed day remain with the original owner. The CIT (A) emphasized that the development rebate is linked to the assets, not the business, and there is no requirement in the IT Act that the business must continue to exist for the unabsorbed development rebate to be adjusted. The CIT (A) also noted that Section 34(3)(b) did not apply to this case as the machinery and plant were transferred to the government, not withdrawn.

Tribunal's Analysis:
The Tribunal upheld the CIT (A)'s decision, agreeing that the ITO's reasoning was unsound. They cited Section 33(2)(ii) of the IT Act, 1961, which allows the carry forward of unabsorbed development rebate to subsequent years and set off against the total income of the assessee, not just the profits or gains of the specific business. The Tribunal also referenced the Supreme Court's decision in Rajalayam Mills Ltd. vs. CIT, which clarified that unabsorbed development rebate could be set off against other income heads and carried forward for up to eight years.

Conclusion:
The Tribunal concluded that the nationalization did not nullify the assessee's entitlement to the unabsorbed development rebate. Section 7(1) of the Coal Mines (Nationalisation) Act, 1973, indicated that the colliery business did not cease to exist, and the liabilities remained with the assessee. Therefore, the assessee was entitled to the benefit of setting off the unabsorbed development rebate against the income for the assessment year 1979-80. The Departmental appeal was dismissed.