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TMI Blog2006 (10) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... ery in respect of which the development rebate was claimed. The assessment for 1969-70 was finalised on this basis by an assessment order dated March 8, 1972. The Appellate Assistant Commissioner (AAC) in an order in I. T. A. No. 16/CC-III/72-73, dated January 15, 1973, made certain observations about the assessee having wrongly claimed development rebate. As a consequence, the Assessing Officer sought to reopen the assessment under section 147(a) of the Act. The assessee went in appeal and this time the AAC by an order dated October 11, 1977, held that the notice should have been issued under section 147(b) of the Act and also decided certain other points on the merits. The Appellate Assistant Commissioner also made certain observations about the consequence of the assessee selling the cops and bobbins as scrap. Against this both the assessee and the Revenue filed appeals before the Income-tax Appellate Tribunal (ITAT). The Revenue's appeal, I. T. A. No. 3750 (Del)/77-78, was dismissed by the Income-tax Appellate Tribunal on January 9, 1981. The relevant portion of the said order read thus : "Ground No. 8 in the assessee's appeal and ground No. 3 in the departmental appeal relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, 1980. The assessee's further appeal before the Income-tax Appellate Tribunal, I. T. A. No. 4033 (Del)/80 was allowed by the Income-tax Appellate Tribunal which followed its earlier order dated January 9, 1981. Thereafter, the Income-tax Appellate Tribunal referred the matter to this court under section 256(1) of the Act for its opinion on the question set out in the first paragraph of this judgment. 5. Ms. Prem Lata Bansal, learned advocate for the applicant submits that the provisions of sections 34(3) read with section 155(5) of the Act are required to be strictly construed. Where the assessee comes forward to declare certain components as comprising the plant and machinery in respect of which development rebate is claimed, then the conditions spelt out therein would apply to all such components as well. She points out that there are specific conditions on which the said development rebate is permitted. The first is that an amount equivalent to 75 per cent. of the development rebate to be actually allowed should be debited to the profit and loss account and the same amount should be credited to a reserve account. There are restrictions on the manner of use of this reserve. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b)." "34. (3)(b) If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub-section (5) of section 155 shall apply accordingly : Provided that this clause shall not apply— (i) where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958 ; or (ii) where the ship, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Government . . . ", then the development rebate originally allowed "shall be deemed to have been wrongly allowed". It is entirely up to the assessee how it chooses to describe plant and machinery in respect of which the assessee wants to claim development rebate. It is quite possible that certain components of the plant and machinery may not be usable for eight years. In that event, if the assessee chooses to include such components as part of the plant and machinery, it runs the risk of being tied down by the condition of non-transferability attached to such components in terms of section 155(5). Further, the assessee stands to lose development rebate only pro rata, i.e., corresponding to the extent of plant and machinery that has been sold within the period of eight years. Since this is a benefit that has been extended to the assessee in terms of section 34(3) read with section 155(5) of the Act the provisions require to be strictly construed. 9. Turning to the facts of the instant case, there is no dispute that the assessee in fact sold the cops and bobbins as scrap by weight. Clearly, therefore, this was a transfer of the cops and bobbins, which comprised the plant and mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y but also its exclusive user by the assessee for the purpose of his business, that is essential to enable the assessee to get the development rebate under section 33(1)(a). In cases where an assessee disables himself from such continued exclusive user of the plant or machinery for the purpose of his business for the specified period, the consequences specified in section 34(3)(b) will follow, provided the machinery or plant is 'otherwise transferred'. It is true that there is no sale ; nor is there any complete extinguishment of the right of the assessee in the machinery or plant by the grant of lease ; but the exclusive possession and enjoyment of the machinery or plant by the assessee no longer exists or survives. Such right to exclusive possession and enjoyment vests in the lessee and it is a case where the machinery or plant is 'otherwise transferred' to the lessee." 11. The Gujarat High Court in Kalindi Investment P. Ltd. v. CIT [1995] 213 ITR 207 explained (at pages 214 and 215) that the objective behind the benefit of development rebate and the language of the statute ". . . leaves no room for doubt that if a person who acquires a new asset and avails of the benefit of ded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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