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TMI Blog1982 (1) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ry or plant is first put to use in the immediately succeeding year, then, in respect of that previous year. The grant of the deduction, however, is subject to the conditions laid down in s. 34(3) of the Act which, as it stood at the relevant time, read as follows: "34. (3)(a) The deduction referred to in section 33 shall not be allowed unless an amount equal to seventy-five percent. 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:... " It is necessary to refer to one more provision in this context and that is the provision contained in s. 33(2) which sets out the mode of deduction of the allowance by way of development rebate. This sub-section reads as follows: " 33. (2) In the case of a ship acquired or machinery or plant installed after the 31st day of December, 1957, where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of Rs. 3,02,461 were to be allowed to the assessee in the previous year it should have created reserve of 75% of this amount or Rs. 79,397 under s. 34(3)(a). The assessee, however, created only a reserve to the extent of Rs. 60,000. While computing the assessment for the assessment year 1969-70, the ITO rejected the assessee's claim for the development rebate straightaway. In his view the assessee should have created a reserve to the extent of Rs. 79,397 but had created a reserve only to the extent of Rs. 60,000 and since the assessee had failed to fulfil one of the statutory conditions necessary to be fulfilled before the development rebate can be allowed as deduction, the assessee's claim won not entertained in this respect. The assessee preferred an appeal to the AAC. The assessee's representative appears to have thought of a short cut to get out of the difficulty raised by the ITO. He seems to have contended before the AAC that though the assessee was entitled to development rebate at 35% it was prepared to waive its rights to the higher rate of development rebate and confined its claim for development rebate to 20% which is available in the case of industries other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, no reserve for development rebate was required to be created at all in the previous year relevant to the assessment year in question. It was contended that even though a development rebate reserve has been created in this year the carry forward could not be restricted to the extent of development rebate reserve and the entire development rebate calculated in accordance with the provisions of s. 33(1) was in law to be carried forward to the succeeding assessment year to be set off against the income of the relevant years in which there is a positive total income. It is only in the year in which the development rebate has to be considered for being actually allowed that a reserve to the extent of 75% of the amount to be actually allowed was required to be created. The assessee, therefore, sought an amendment of the order of the Tribunal which allowed the carry forward only " of the unabsorbed development rebate sufficiently covered by the reserve created by the assessee ". This application was, however, rejected by the Tribunal. However, on an application preferred by the revenue under s. 256(1), the Tribunal has referred, to us the following question for our decision: " Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly allowed because of the absence of a positive total income or the sufficiency of it has to be carried forward to it to the subsequent years. In each subsequent year the figures of total income and the claim of development rebate which is carried forward should be compared and the treatment will be similar as in the earlier years. Thus, over a period of eight years the development rebate will be allowed depending upon the total income of the assessee not always in one single year but in some cases distributed over a period of eight years (or less) depending upon the amount of development rebate and the figures of total income of the assessee in the several relevant assessment years. Section 34(3) which deals with the creation of a reserve is very guarded and careful in its language. It does not require an assessee to create reserve equivalent in amount to 3/4ths of the amount of development rebate to which the assessee is entitled in the year of installation or the year of user of the asset, nor does it say that the reserve should be created in one or the other of the two years above-mentioned. On the contrary, it only requires an assessee to create a reserve equal to 75% of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we apply that interpretation for the purposes of the present case it clearly follows that since the assessee's total income for the assessment year 1969-70 was nil the development rebate to be actually allowed is nil and, therefore, the amount of reserve to be created by the assessee is also nil. In other words, the assessee need not have created any reserve at all during the previous year relevant for the assessment year 1969-70 since he is not going to get any deduction in this respect for this assessment year. Therefore, the non-creation of a reserve or the creation of a reserve only at Rs. 60,000 which in the opinion of the ITO is inadequate cannot debar the assessee from the claim to the development rebate of 35%, for, the fact remains that though nominally the assessee is entitled to development rebate it gets no relief in this assessment year and the amount has only to be carried forward to subsequent years and will be allowed in the various assessment years depending upon the fulfilment (if the requirements for the creation of the reserve in the respective previous year(s) in regard to which the development rebate is actually allowed to the assessee. It, therefore, appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see may claim actual allowance of the development rebate need not have been decided by the Tribunal at this stage and should have been left to be decided in the appropriate assessment year depending upon the facts relating to the total income, and to the creation of the reserve and other relevant circumstances. We are, therefore, of opinion that we should answer the question referred to us by saying that the Tribunal was not right in saying that the unabsorbed development rebate sufficiently covered by the reserve created by the assessee should be carried forward to be set off in the year in which there is positive income. The Tribunal should have directed that the full unabsorbed development rebate to the extent of Rs. 1,05,863 was eligible to be carried forward by the assessee but that it should be set off in future years in which there was positive income subject to the conditions of s. 34(2) being fulfilled in the relevant previous years. Learned counsel for the department invited our attention to a large number of decisions. These decisions have held, (a) that the assessee cannot plead as an excuse for the non-creation of a reserve the absence of a positive figure of income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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