Allowance of development rebate in view of decision of S.C. in Subhlaxmi's case. - Income Tax - 1830/1989

INSTRUCTION NO. 1830/1989 Dated: September 28, 1989 The Supreme Court recently on March 28,1989 in the case of Shri. Shubhlaxmi Mills Ltd. Vs. Addl.CIT, Gujarat (177 ITR 193) has pronounced a very important judgement on the point of allowance of development rebate and the creation of reserve necessary therefor. The Supreme Court has held that in order to claim the deduction on account of development rebate u/s.33(1) it is obligatory that the debit entry in the profit and loss account and the credit entry in a reserve account should be made in the relevant previous year in which the machinery or plant is installed or first put to use. Existence of sufficient profits in that year is not necessary. The Supreme Court's decision in the above case is at variance with the legal position explained by the C.B.D.T. in its circular No.259 dated 11-7-79. However the impact of the Supreme Courts decision on the provisions relating to investment allowance is being examined separately by the board. 3. In the meantime assessments already completed where development rebate or investment allowance has been allowed, should be reopened in view of the decision of the Supreme Court in Subhlaxmi's case unless some proceedings are going to be time-barred. In that event the initiated proceedings may be completed but the matter relating to payment of demand arising on this account if any may not be pressed for recovery. 4. These instructions may be brought to the notice of all officers working in your region.