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TMI Blog1980 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... pany which was not " succession " within the meaning of s. 33 of the I. T. Act, 1961. He, accordingly, rejected the claim for the development rebate for 1968-69. There was an appeal before the AAC. The AAC was of the view that the ITO was right in so far as he held that, the conversion of the proprietary business into a limited company could not be considered to be a succession within the meaning of s. 33 of the Act. But, having noticed that the existence of the limited company was only with effect from, 1st May, 1968, which was within the accounting period relevant to the assessment year 1969-70, the AAC-held that the assessee had carried on business as a proprietary concern and the claim for development rebate was made in respect of machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny on 1st April, 1968. Therefore, the ITO was aware that the assessee was not entitled to the development rebate in respect of the machinery purchased and installed during the previous year by virtue of the provisions contained in s. 34(3)(b) of the I.T. Act, 1961. According to the revenue, therefore, the ITO was justified in not allowing the claim of the development rebate for that year. It was also argued that the assessee was not entitled to development rebate having contravened the provisions contained in s. 34(3)(b) of the Act and, therefore, the disallowance by the ITO of the development rebate was correctly done. It was also contended that the conditions required for allowing the development rebate, as provided by s. 34, had not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years 1967-68 and 1968-69 and subsequently withdrawn this allowance of development rebate by an order under section 155(5) of the Act when he noticed that the business was converted into a limited company on May 1, 1968. In the facts and circumstances of this case, we are satisfied that the AAC correctly directed that the assessee-company is entitled to development rebate for the assessment years 1967-68 and 1968-69." On the aforesaid findings, the Tribunal under s. 256(1) of the I.T. Act, 1961, referred the following question to this court: " Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 34(3) read with section 34(3)(b) along with the provisions of section 155(5) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, years following, even that might have been the original intention at the time of the assessee's creation of the development fund, but it was not the purpose which could he said to exist at the time of making of the assessment. That fact was concluded by the fact of assessment for the subsequent, year when the proprietary business concern was transfered or converted into a limited company and it came to the knowledge of the revenue. In these circumstances, it cannot be said that the ITO would have been justified in allowing development rebate on the ground that the amount required to be debited to the profit and loss account of the year in question had been credited to a reserve to be utilised by the assessee during a period of 8. years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the procedural aspect of s. 34(3)(a) read with s. 34(3)(b) in conjunction with a. 155(5), then, in our opinion, recourse to the deeming provision should normally be avoided. It is true that the powers of the ITO may have to be exercised in accordance with the procedure. But, it is a fundamental rule of construction that the rules of procedure are to subserve the purpose of the Act and the rules of procedure are the handmaid of justice and should not be allowed to become the mistress to defeat the justice of the Act, and if such a construction is possible which is not destructive of the main purpose of the Act, then in our opinion, this procedure followed by the ITO, in the facts and circumstances of the case, at the time of the making t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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