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TMI Blog1976 (8) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's claim in part and the result of the Appellate Assistant Commissioner order dated 31st January, 1972 was worked out by the Income Tax Officer in his order dated 20th December, 1972 as follows: Business loss to be carried forward as per original order dt. 20th July 1967 Rs. 64,857 Depreciation to be carried forward Rs. 30,098 Unabsorbed development rebate to be carried forward Rs. 3,99,061 3. It is necessary to note in this connection that in the previous year relevant to the assessment year 1966-67, the assessee company had not created any development rebate reserve and yet development rebate to be carried forward was determined on the basis of the instructions of the Central Board of Revenue in circular F. No 10/49/65-I.T.A.-I dated 14th October 1965 in which one of the points laid down was that in cases where the total income computed before allowing development rebate is less, there was no legal obligation to create any statutory reserve in that year as no development rebate would actually be allowed in that year. The instructions were withdrawn to the extent they were held to be inconsistent with the decision of the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of rectification under s. 154 or under s. 155. The Appellate Assistant Commissioner noted that the primary condition to be satisfied under s. 155 (5) was that an allowance by way of development rebate has to be made wholly or partly to an assessee. He found from a reading of s. 33(2) wherein a distinction has been made between the development rebate to be allowed and the development rebate which had already been allowed. He further noted that in s. 155 (5) reference is made to any allowance made under s. 33. On a plain reading of s. 33 (2), 34 (3) (b) and s.155 together, the Appellate Assistant Commissioner held that the stress is upon the development rebate allowance having been made and not to be made and therefore, the conditions specifically required both under s. 34 (3)(b) and under s. 155 had not been fulfilled. He accordingly held that the Income Tax Officer had no jurisdiction to invoke the provisions of s. 155 (5) in the case and cancelled the order passed to by the Income Tax Officer under s. 155. 6. Aggrieved by the order of the Appellate Assistant Commissioner the Income Tax Officer has come on appeal before the specifically representative pointed out that und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sufficient to reduce the said total income to nil, and (ii) the amount of development rebate, to the extent to which it has not been allowed as aforesaid shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid to nil and the balance of development rebate, if any still outstanding shall be carried forward to the following assessment year and so on............................... for a period not more than 8 assessment years immediately succeeding the assessment year in which the machinery or plant is installed. 9. The explanation to s. 33 (2) provides that "where for any assessment year development rebate is to be allowed in accordance with the provisions of sub-s. (2) in respect of machinery or plant installed in more than one previous year then the following procedure shall be allowed:- (i) the allowance under clause (ii) of sub-s. (2) shall be made before any allowance under clause (i) of that sub-section is made; and (ii) where an allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year as the actual cost to the assessee less all depreciation actually allowed to him under this Act. Explanation 3 to that section provides as follows: "Any allowance in respect of any depreciation carried forward under sub-s. (2) of s. 32 shall be deemed to be depreciation "actually allowed." 13. The combined effect of s. 33 (1), 33 (2) and 155 (5) in cases there are no other defects and the conditions for the allowance of development rebate are satisfied would be as follows : If the profits of the year of installation of machinery are sufficient to allow the deduction for development rebate to the full extent under s. 33 (1) then the development rebate will be allowed fully in that year itself. If the profits of the year are not adequate enough to allow full development rebate, then the allowance of development rebate for that year will be limited to the amount of profits before allowance of development rebate. If there are no profits at all in that year, the whole of development rebate otherwise allowable would be carried forward to subsequent years and in case where there are some profits but the profits are inadequate enough, then the balance of development rebat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .......... is made,' it clearly means that the allowance is actually made and the deduction is given out of the profits,. If that is so, we have no doubt that is so, the same meaning must follow in s. 155 (5) where the same words have been used i.e., 'an allowance by way of development rebate has been made.' Further it is to be noted that the provisions of s. 155 (5) shall come into play in two different sets of circumstances referred to in clause (i) and clause (ii) of the sub-section. Clause (i) speaks of cases where an asset in respect of which development rebate is allowed has been sold within the specified period. Clause (ii) on the other hand speaks of circumstance where the amount credited to the development rebate reserve account has been utilised for one of the three purposes mentioned therein viz., for distribution of dividends or profits; or for remittance outside India as profit or for the creation of any asset outside India or for any other purposes which is not a purpose of the business of the undertaking. The decisions of the Madras High Court in the case of Radhuika mills ltd. vs. CIT(5) and of the Bombay High Court in the case of Indian oil corporation ltd. vs. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deprive the benefit of development rebate to the assessee in the circumstances falling under clause (i) and clause (ii) of s. 155 (5) would be of no avail to the department. Thus, in the present case, if the provisions of s. 155 (5) are applied to the assessment year 1966-67 and the assessment for that year is rectified under s. 155 (5) read with s. 154 there is no provision under which the assessment of any subsequent year could be rectified because the deeming provisions in s. 155 (5) related to the year in which the development rebate originally allowed shall be deemed to have been wrongly allowed an and not to any of the year. In this case if there were sufficient profit for asst. year 1967-68 and 1968-69 against the development rebate brought forward could have been fully allowed then the rectification referred to in sub-s. (5) of s. 155 could only be for assessment years 1967-68. If we are to accept the department's contention i.e., the year of installation is the year to which the deeming provisions of s. 155 (5) applies, irrespective of the fact that there is no profit in that year, there is nothing in s. 155 (5) which would in the circumstances mentioned above enable th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have already observed, it has been held that if in the year of installation there is a loss it is not necessary, for carry forward of development rebate, that the development rebate reserve should be created in that year because no acutal allowance would have been made in that year. 17. In the case of CIT vs. Straw products ltd (7) certain allowance of depreciation had been under the Bhopal Income tax Act. The assessee company was not required to submit any return under that Act for 10 years. In the original assessment the Income Tax Officer had allowed depreciation on the basis of original cost. The Income Tax Officer revised the assessment on a notional basis reducing the written down value of the assets by the amount of depreciation allowable under the Bhopal Income Tax Act in appeal, the Appellate Assistant Commissioner restored the, original assessment holding that view that the expression actually allowed could not imply depreciation, allowed by a mental phenomenon this view was upheld by the High Court and the matter went to the Supreme Court. The High Court decided the matter on 22nd August, 1961. Subsequently on 20, August 1962, the Taxation Laws (Merged States) (Remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orward. The words 'allowance has been made' would clearly indicate the factual position and indicate that such an allowance has been made. Further, as we have already indicated the words 'wholly or partly' which we find in s. 155 (5) could not relate to a year where there is no profit. 18. The learned departmental representative relied on two judgments. The first one was the Gujarat High Court Judgment in the case of CIT vs. Sayaji Mill ltd.(10) and the second one was of the Punjab and Haryana High Court judgment in the case of commissioner of income tax vs Indian motor transport Co Pvt. Ltd. (4). In both the cases there were profits in the year in which the installation of machinery was made and the development rebate was otherwise allowable. But before the assessment was completed it was found that the assets had actually been sold and the Income Tax Officer did not allow any development rebate. All that High Court said in those two cases was that in such circumstances it was an exercise in formalities in making the allowance first and then to rectify the assessment again to withdraw the allowance. If in fact during the assessment year 1966-67, there were profits enough to cov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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