1969 (1) TMI 18 - HC - Income Tax

Unadjusted development rebate in respect of new machineries installed - set off against the profits and carry forward the unadjusted rebate to the later years

Issues Involved:
1. Entitlement to carry forward development rebate for the year ended March 31, 1958.
2. Entitlement to carry forward development rebate for the year ended March 31, 1959.
3. Compliance with statutory provisions for claiming development rebate.
4. Conditions for creation and utilization of development rebate reserve.
5. Reassessment and recomputation of development rebate for subsequent years.

Issue-wise Detailed Analysis:

1. Entitlement to Carry Forward Development Rebate for the Year Ended March 31, 1958:
The Tribunal's decision to disallow the development rebate for the year ended March 31, 1958, was upheld. The judgment clarified that the provision for carrying forward development rebate was introduced by the Finance Act of 1958, effective from April 1, 1958. Since the machinery was installed before January 1, 1958, the provision for carrying forward the development rebate did not apply, and thus, no rebate could be carried forward for that year.

2. Entitlement to Carry Forward Development Rebate for the Year Ended March 31, 1959:
The Tribunal found that the assessee had furnished the necessary particulars on December 30, 1960, before the assessment was completed, which was deemed sufficient compliance. However, since no corresponding reserve was created for the balance of the claim for the rebate for the assessment year 1959-60, the Tribunal sustained the disallowance of Rs. 1,18,342 for carrying over. The judgment indicated that the entire development rebate for the year 1959-60 should be carried forward to the following year, subject to the creation of the requisite reserve.

3. Compliance with Statutory Provisions for Claiming Development Rebate:
Section 10(1) and sub-section (2) of the Income-tax Act were cited, which provide for the computation of profits or gains after making appropriate allowances, including development rebate under clause (vib). The judgment emphasized that the allowance of the rebate depends on the creation of a requisite reserve and goes to reduce the total income of the year of installation or the following year. The judgment underscored that the development rebate could only be carried forward if the necessary particulars were furnished before the completion of the assessment.

4. Conditions for Creation and Utilization of Development Rebate Reserve:
The judgment highlighted the conditions under the first proviso to clause (vib), which require that the particulars prescribed for the purpose of clause (vi) be furnished and that an amount equal to 75% of the development rebate to be allowed is debited to the profit and loss account and credited to a reserve account. The judgment stated that mere book entries without actual reserve creation would not suffice. The reserve must be capable of being utilized for the business purposes and not for prohibited purposes like distribution as dividends or remittance outside India.

5. Reassessment and Recomputation of Development Rebate for Subsequent Years:
The judgment concluded that the scheme of clause (vib) requires the assessee to make a claim for development rebate with necessary particulars at least before the completion of the assessment. If the total assessed income is nil or a loss, the development rebate should be carried forward to the following year, provided the requisite reserve is created. The judgment directed that the entire development rebate for the assessment year 1959-60 be carried forward to the following year and set off against the total assessed income for the assessment year 1960-61, subject to the creation of the requisite reserve. The unabsorbed balance of the development rebate is entitled to be carried forward to the next year.

Conclusion:
The judgment answered the reference partly in favor of the assessee and partly against it. The disallowance of development rebate for the assessment year 1958-59 was upheld. The entire development rebate for the next year should be carried forward to the following year, subject to the creation of the requisite reserve, and set off against the total assessed income for the assessment year 1960-61. The unabsorbed balance of the development rebate will be carried forward to the following year. The judgment required recomputation and revision of the assessments for the assessment years 1959-60 and 1960-61. No orders were made as to costs.

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