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TMI Blog1979 (10) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment rebate were carried forward as follows : Assessment year Development rebate carried forward Rs. 1960-61 55,801 1961-62 64,927 1962-63 4,70,622 In addition, for the assessment year 1962-63, the assessee was declared eligible to carry forward to the assessment year 1963-64 a sum of Rs. 5,550, being the loss brought forward from the assessment year 1958-59. For the assessment year 1963-64, now under reference, the assessment was completed on 26th February, 1968, on the total income of Rs. 2,18,396 after setting off the brought forward loss of Rs. 5,550. The ITO found that the assessee had credited to the development rebate reserve account a sum of Rs. 78,992. He held that this reserve was adequate to cover an allowance of development rebate only to the extent of Rs. 1,04,957. Deducting this sum of Rs. 1,04,957 from the total income determined, namely, Rs. 2,18,396, there was a balance of Rs. 1,13,439. The assessee was eligible for relief under s. 84 of the Act in a sum of Rs. 1,60,617. The result was that the total income of the assessee had to be determined as nil. The ITO completed the assessment observing that the assessee was not assessable for thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried forward figures of development rebate, for the later years underwent modification as follows: Assessment year Amount to be carried forward Rs. 1962-63 3,07,916 1963-64 1,29,554 The assessee appealed to the AAC and contended before him that the total income of the assessee was Rs. 2,11,730 and that since the assessee had created a reserve of Rs. 78,922 it was entitled to a development rebate of Rs. 1,04,957 and the balance of the income amounted to only Rs. 1,06,773. It was claimed that it was only to this extent that the ITO could declare the claim of development rebate as forfeited. The AAC accepted this contention and allowed the appeal accordingly. The ITO appealed to the Tribunal. The Tribunal was also of the opinion that the order of the AAC should be confirmed. The Tribunal was of the view that the maximum development rebate that could be allowed to the assessee would be. Rs. 2,11,730 so as to reduce the total income to " nil " and that if the assessee had created a reserve of 75 per cent. of this amount, it would have got an allowance of. Rs. 2,11,730. Since the assessee had created a reserve of only Rs. 78,922 the development rebate that could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee, as a condition for retaining the allowance, cannot use the said amount reserved, for distribution by way of dividends or for remittance outside India as profits or for the creation of any asset outside India. The result of these provisions is as under. The assessee has to furnish the necessary particulars of the plant and machinery installed and also to credit to a reserve a sum equal to 75 per cent. of the amount to be allowed as deduction. The reserve cannot be drawn upon for certain purposes for period of eight years. In the present case, the assessee had created a reserve of Rs. 78,922. There is no dispute that the assessee was granted the development rebate appropriate to the said reserve. The question that now arises for consideration is the extent of the forfeiture of the allowance consequent on the assessee's failure to create the requisite reserve. As mentioned already, the assessee had a profit of Rs. 2,11,730 which was assessed as the total income. It had credited to the development rebate reserve a sum of Rs. 78,922. The contention urged on behalf of the revenue is that as the assessee was left with a balance of Its. 1,32,808, it would lose or forfeit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave sufficed. The ITO did not grant any development rebate though Rs. 2,64,908 and Rs. 1,26,061 would, if the conditions are complied with, respectively, be allowable for the assessment years 1958-59 and 1959-60, but allowed for the assessment year 1960-61 a sum of Rs. 77,703. The ground for disallowance for the earlier years was that there was no assessment for the assessment year 1958-59 and that there was no claim made for the assessment year 1959-60. The AAC upheld the computation as made by the ITO, and the Tribunal sustained the disallowance for the assessment year 1958-59 on a new plea raised by the revenue before it, namely, that the provision for carrying forward of development rebate itself was introduced only with effect from 1st April, 1958, and that, therefore, there could not be any carry forward from 1958-59. For the second year, namely, 1959-60, the Tribunal held that the necessary particulars had been furnished by the assessee and that as the assessee had created the necessary amount to the reserve in that year, it would be entitled to development rebate of Rs. 10,292 which was brought forward from the earlier year and adjusted against the profits of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebate for that year to the following year, namely, the sum of Rs. 1,26,061. But since, notwithstanding the loss as per the assessment, the assessee had in that year created a reserve of Rs. 7,719 it would be entitled to an allowance of development rebate to the extent of Rs 10,292 to be set off first against the total assessed income of the following assessment year 1960-61. Similarly, the balance of the development rebate carried forward from the assessment year 1959-60 would, to the extent warranted by the reserve created in the assessment year 1960-61, be then eligible to set off as against the balance of the total assessed income of that year." The principle laid down is that the assessee would be eligible for such amount of development rebate as is appropriate to the reserve created out of the profits of that year and that the balance remaining unadjusted would have to be carried forward. On that occasion, there was no need for this court to go into the question as to whether there would be any forfeiture, if the assessee failed to create such a reserve in full, as this point was not taken. It is that question which is now before us. Consistently with the intendment of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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