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TMI Blog1992 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... at, as the assessee had suffered losses as per its account books and there was also loss as per the assessment orders, the development rebate reserve could not be created, but the development rebate should have been quantified and carried forward to the subsequent assessment years for set off in which the assessee earned profit and created the requisite reserve. The Appellate Assistant Commissioner, however, dismissed the claim. On further appeal to the Income-tax Appellate Tribunal, the claim of the assessee was accepted. The Tribunal held that in a year where there was a loss, the assessee was not obliged to create development rebate reserve in its books for that year and the assessee cannot be denied the benefit of the development rebate on the ground that no such reserve had been created in the books pertaining to the relevant assessment years in question. The Tribunal, therefore, directed the Income-tax Officer that the development rebate for the years in question be quantified for carrying forward and set off in a subsequent year of profit notwithstanding the fact that no reserve had been created in these years. At the instance of the Revenue, the Income-tax Appellate Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any assets outside India. Section 34(3)(a) of the Act, as it stood earlier to its amendment by the Finance Act, 1990, contained an Explanation attached to it. A survey of the provisions referred to above would show that, subject to the fulfilment of the necessary requirements, the allowability of the development rebate is not confined to the year of acquisition/installation of the plant or machinery, but can be carried forward and allowed for period of eight years immediately succeeding the assessment year in respect of which the claim could be made. The question for consideration is whether where the total income computed before allowing development rebate is nil, or is a minus figure, there is any obligation on the assessee to create statutory development rebate reserve in the year of installation of the plant or machinery, or the year of first use, as the case may be, if no development rebate was to be actually allowed in that year, or whether in such a situation, the requisite development rebate reserve could be created, without impairing the claim for al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Supreme Court in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193, the Legislature decided to intervene with a view to redress the hardship of taxpayers and adopting a pragmatic approach, if we may say so, amended section 34(3)(a) by section 11 of the Finance Act, 1990, to secure that the condition of creation of the reserve even in a year of loss or insufficiency of profit will not be a mandatory requirement in making the claim for allowance of development rebate. By the amendment in question a material change in the law applicable to the case was brought about, inasmuch as in clause (a) of sub-section (3) of section 34, the words " any previous year in respect of which the deduction is to be allowed under sub-section (2) of that section or any earlier previous year (being previous year not earlier than the year in which the ship was acquired or the machinery or plant was installed or the ship, machinery or plant was first put to use ) " were substituted for the words " the relevant previous year " and the Explanation to clause (a) was omitted with full retrospective effect from April 1, 1962, that is the date from which the Income-tax Act, 1961, was enforced. It can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year is not prior to the year in which the ship was acquired or the machinery or plant was installed, or first put to use. Section 34(3)(a) which lays down the conditions for the grant of development rebate, inter alia, provides that no deduction on account of development rebate under section 33 of the Act shall be allowed, unless an amount equal to 75% of the development rebate to be actually allowed is debited to the profit and loss account and credited to the reserve account of any previous year in respect of which, deduction is to be allowed, or any earlier year, not being the previous year earlier than the year in which the machinery or plant is installed or first put to use, or the ship is acquired. The legislative intent in the provisions under discussion is that the requisite reserve may be made in the year or years in which, either the whole or a part of development rebate reserve is to be allowed in term of sub-section (2) of section 33 of the Act, or in any earlier previous year which is not the year earlier to the year in which the machinery or plant, etc., was installed or first put to use. An assessee is not obliged to create the reserve in the year of installation if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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