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TMI Blog1982 (11) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal for that year? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in upholding the Appellate Assistant Commissioner's order allowing the assessee's claim of development rebate of Rs. 5,52,247 in the assessment years 1970-71 and 1971-72 ? " The facts as gathered from the statement of the case briefly stated are that assessee is a company running a Five Star Hotel known as Clark Shiraz at Agra. The assessment years under consideration are assessment years 1970-71 and 1971-72. The respective accounting years ended on September 30, 1969, and September 30, 1970. The dispute relates to the assessee's claim for development rebate on plant and machinery installed up to September 30, 1968. It appears that the assessee-company was incorporated in 1961. It suffered losses in the initial years of its business and for the first time made some profit in the accounting year ending on September 30, 1968, which was the previous year for assessment year 1969-70. The assessee claimed development rebate in respect of the various items of plant and machinery acquired by it up to September 30, 1968, for the first time in assessment year 1969-70. The tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The same, therefore, was treated as irrelevant. In assessment year 1970-71, the assessee's claim for development rebate was allowed by the ITO in respect of the machinery and plant purchased during that year. However, so far as the claim for development rebate on machinery and plant installed in earlier years was concerned the ITO pointed out that the same had already been rejected while making the assessment for the assessment year 1969-70. The assessee's income had been computed at Rs. 26,026 in that year. The claim of development rebate could not, therefore, be carried forward and considered in that year. Assessee filed appeals to the AAC for both the years, i.e., assessment years 1970-71 and 1971-72. Both these appeals were disposed of by consolidated order. The AAC allowed the assessee's claim for allowance of development rebate on machinery and plant installed up to September 30, 1968. This claim amounted to Rs. 5,52,247 and the AAC directed that this should be allowed in assessment year 1970-71 to the extent of the income available in that year and the balance should be allowed in assessment year 1971-72. The Department went up in appeal to the Tribunal against the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to reagitate the same in appeal for the assessment year 1970-71. The Tribunal was, therefore, unjustified in entertaining the assessee's claim in the appeals for these years. That point did not even arise out of the assessment order in appeals before the Tribunal. In support of his contention Sri Katju relied upon CIT v. Somendra Kumar Neogi [1981] 131 ITR 592 (Cal). It appears that in that case the assessee was carrying on a proprietary business and converted it into a private company in May, 1968, i.e., subsequent to the end of the accounting year relevant to the assessment year 1968-69. The ITO was aware of this fact when he made the assessment for the assessment year 1968-69 and hence refused to allow development rebate. The AAC and the Tribunal held that the development rebate should be allowed and withdrawn subsequently. On a reference it was held that the ITO was justified in his action and the refusal to allow development rebate was proper. It appears that in that case the assessee was an individual for the assessment year 1968-69, for which the previous year ended on 31st March, 1968. In the course of the assessment proceedings, the ITO took the view that develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears that the said authority was concerned about the meaning of " succession " within the meaning of s. 33 of the Act and so this controversy was not before that court in that case. Next reliance was placed upon [1971] 80 ITR 1 (Guj), (Surat Textile Mills Ltd. v. CIT) where the facts were as below : The assessee-company purchased a cheese dyeing plant in the accounting year 1951-52 for Rs. 1,44,575 and it was installed in 1959. The company had not created any development rebate reserve in the profit and loss account of the year 1959. But in the accounts of the company for the accounting year ended on December 31, 1961, with the permission of the CBR, the company transferred an adequate amount to the reserve fund from the profit and loss account brought forward from earlier years and in the assessment for 1960-61, the development rebate was allowed by an order dated March 20, 1962. In 1964, the ITO made an order rectifying the assessment order of 1962 on the ground that the order allowing development rebate was an error apparent on the record. Subsequently, the Supreme Court decided in Indian Overseas Bank Ltd.'s case [1970] 77 ITR 512, that, unless the reserve was created in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in section 33 shall not be allowed unless an amount equal to seventy-five 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 a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than (i) for distribution by way of dividends or profits; or (ii) for remittance outside India as profits or for the creation of any asset outside India : Provided that this clause shall not apply where the assessee is company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 (LIV of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958: Provided further that where a ship has been acquired after the 28th day of February, 1966, this clause shall have effect in respect of such ship as if for the words 'seventy-five ', the word 'fifty' had been substituted. Explanation.-For the removal of doubts, it is hereby declared that the deduction referred to in section 33 shall not be denied by reason only that the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income of the assessee assessable for that assessment year, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward for a total period of eight years. Thus, it is obvious that the allowability of the development rebate is not confined to the first year. It can be carried forward and allowed against the income accruing in the succeeding seven years. The development rebate can be calculated in relation to the cost in the very first year but its allowability shall depend on as to when assessable income is available. It has been shown above that the income for the assessment year 1969-70 of the assessee had been reduced to nil and so the assessee could not possibly claim any development rebate in that year. The assessee had positive income for the first time in the assessment year 1970-71, when it could be allowed a development rebate. The income for the assessment year 1969-70 having been reduced to nil no development rebate was allowable in that year, even if it transpired that the claim had been wrongly rejected by the ITO. In this connection we may refer Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO [1973] 92 ITR 241,244 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te was allowed to be carried forward. Actually on the expectation of a profit, the petitioner created a development rebate reserve of Rs. 3 crores, which was, however, written back. (9) For A.Y. 1969-70, the development rebate was determined at Rs. 5,39,78,223. For that year the petitioner bad created development rebate reserve of Rs. 12 crores. There was sufficient profit during this year. In computing the total income the ITO allowed to the petitioner development rebate to the extent of Rs. 8,37,53,014 covering the development rebate determined for A. Y. 1968-69 and A. Y. 1969-70 only. Development rebate for A.Ys. 1965-66, 1966-67 and 1967-68 aggregating to Rs. 27,13,62,131 was not allowed by the ITO on the ground that during these years the petitioner had not created any development rebate reserve. This was obviously due to a new stand taken by the ITO that in order to claim development rebate, the development rebate reserve must be created during the year in which new machinery and plant was installed or put to use irrespective of whether there were or there were no assessed profits during that year. (10) For A.Y. 1970-71, in the assessment order dated 24th January, 1973, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring loans or otherwise and utilise the reserve account for a period of 10 (now 8) years for the purpose of the business of the assessee's undertakings only. The Calcutta High Court held that an assessee is not obliged to create a reserve fund in any year if he had no taxable income in that year for the purpose of carrying forward development rebate to the following years. It followed the judgment of the Madras High Court in Radhika Mills Ltd. v. CIT [1969] 74 ITR 661 (Mad). We agree with the judgments of the Madras and the Calcutta High Courts referred to by us hereinabove when they lay down that an assessee is not obliged to create development rebate reserve if there was no taxable income in the relevant years for the purpose of enabling him to carry forward the development rebate to the following years. In our opinion, the petitioner before us was not obliged to create a reserve in order to be eligible for allowance of development rebate if there was no taxable income in the relevant years according to its assessment. " In Radhika Mills Ltd. v. CIT [1969] 74 ITR 661 (Mad), it was observed (headnote): "The allowance of development rebate is always in respect of the year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that there is no income available in the assessee's hands in the relevant year out of which the requisite reserve or any part of it could actually be created." In Addl. CIT v. Vishnu Industrial Enterprises [1980] 122 ITR 919 (All), Messrs. Vishnu Industrial Enterprises (P.) Ltd., Kanpur, the assessee, suffered losses in the assessment years 1967-68 and 1968-69. The assessee claimed development rebate in respect of plant and machinery installed in those years. The ITO repelled the claim on the view that the assessee had not debited the profit and loss account, nor created the development reserve. On appeal, it was held that since there was no profit, development reserve could not be created, but the development rebate should have been calculated and allowed in a succeeding year in which the assessee earned profits and created the requisite reserve. The ITO was directed to determine the development rebate admissible to the assessee. The ITO went up in appeal and the Tribunal affirmed the view of the AAC. The reference was initiated at the instance of the Commissioner in the following terms (p. 921): Whether, on the facts and in the circumstances of the case, the Appellate T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 1969-70 had been reduced to nil the assessee could not be allowed the income rebate in that year. Addl. CIT v. Vishnu Industrial Enterprises [1980] 122 ITR 919 (All) further reads at p. 924: "The position was clarified by the Board of Direct Taxes in its Circular F. No. 10/49/65-ITA-I, dated 14th October, 1965, which, inter alia, explained the position regarding the creation of statutory reserve for allowance of development rebate, as follows : '(a) In the case of certain industrial undertakings, particularly those in which there is Government participation either by way of capital loan or guarantee, and where there are certain obligations of law or agreement about maintenance of reserve for development purposes, the development rebate reserve may be treated as included in the said reserve though not specifically created as a development rebate reserve. (b) In a case where the total income computed before allowing the development rebate is a loss, there was no legal obligation to create any statutory reserve in that year, as no development rebate would actually be allowed in that year. (c) Where there was no deliberate contravention of the provisions, the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, be held that any part of the development rebate reserve was utilised by the assessee for payment of dividends. Since the income of the assessee for the assessment year 1969-70 had been reduced to nil the assessee was not entitled to get any development rebate in 1969-70 and was consequently under no obligation to create any reserve in that year. Rejection of appeals of the assessee against the assessment orders of the ITO for 1969-70 did not come in the way of the assessee's claim for development rebate in respect of the assets installed up to September 30, 1968, for the assessment year 1970-71. The Tribunal was correct in upholding the AAC's order allowing the assessee's claim for an allowance of the development rebate on machinery and plant installed up to September 30, 1968. This claim amounted to Rs. 5,52,247 for the assessment years 1970-71 and 1971-72. We, therefore, answer both the questions referred to us in the affirmative, in favour of assessee and against the Department. The assessee will be entitled to costs which are assessed at Rs. 250. Let this opinion and answers be transmitted to the Tribunal under the signature of the Registrar and the seal of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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