Allowance of development rebate--Creation of reserve under s. 34(3)(a) of the Income-tax Act, 1961 - Income Tax - 259/1979

Allowance of development rebate--Creation of reserve under s. 34(3)(a) of the Income-tax Act, 1961 Circular 259 Dated 11/7/1979 To All Commissioners of Income-tax. Subject : Allowance of development rebate--Creation of reserve under s. 34(3)(a) of the Income-tax Act, 1961. Sir, The Board had an occasion to consider the question whether the development rebate reserve created in respect of a particular machinery or plant in the year of installation or use and/or in the year or years subsequent thereto, to the extent of availability of book profits, can be taken into account for the purposes of section 34(3)(a) of the Income-tax Act, 1961, in the year or years of actual allowance of the development rebate. 2. Sub-sections (1)(a) and (1A)(c) of section 33 of the Income-tax Act, 1961, provide for deduction of development rebate, subject to fulfilment of certain conditions in respect of previous year in which the ship was acquired or the plant and machinery was installed or, if it is first put to use in the immediately succeeding previous year, then, in respect of that previous year. According to sub-section (2) of the said section, the actual allowance in the relevant assessment year is to the extent to reduce the total income as referred to therein, to nil and the balance, if any, is allowed in the same way in the following year or years but no portion of the unabsorbed rebate is to be carried forward for more than eight assessment years immediately succeeding the relevant assessment year. Section 34(3)(a), inter alia, provides that deduction of development rebate under section 33 shall not be allowed unless an amount equal to 75 per cent. of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to the reserve account. 3. After considering various aspects of the matter, the Board have decided that the requirements of the provisions of section 33 and s. 34(3)(a) of the Act will be considered to have been satisfied if the accumulated reserve in respect of the said machinery or plant up to the year or years of actual allowance is equal to the 75 per cent. of the amount of development rebate to be actually allowed. This would mean that the condition for creation of requisite reserve would stand satisfied if the sum total of the reserve created either in the year of installation or use or in the subsequent year or years is equal to the requisite amount of 75 per cent. of the actual allowance of development rebate in any year or years. 4. Necessary instructions may be issued to the Income-tax Officers to complete the pending assessments on the lines indicated above. Past assessments should also be reviewed and the above noted stand be taken in the pending appeals. Yours faithfully, (Sd.) Hari Narain, Under Secretary, CBDT.