- (1.) There is no substance in this appeal which has been preferred by the assessee against the decision of the High court rendered on 16/01/1973 in Income Tax Reference No. 44 of 1971, whereby the High court took the view that the Tribual was not justified in law in directing the ITO first to allow the development rebate under the rules and subsequently withdraw it under S. 35 (11) of the Income Tax Act, 1922 (hereafter referred to as 'the Act').
(2.) The short facts giving rise to this appeal are that for the assessment year 1958-59 in respect whereof the accounting year ended on 31/03/1958, the assessment was first completed by the ITO on 16/07/1960 and while making such assessment development rebate under the prescribed rate was allowed in favour of the assessee in respect of seven buses which had been purchased by the assessee before 31/12/1957 and had been used by the assessee in its business during the accounting period. It appears that in this assessment certain additions were also made by the ITO. The assessee preferred an appeal to the AAC and in appeal the AAC did not agree with the additions made by the ITO but he set aside the assessment order altogether and directed that a fresh assessment de novo be made. Such de novo assessment was made by the ITO on 31/08/1967 by which time the ITO came to know the fact that the assessee had sold these seven buses within eight years of their purchase with the result that it was realised that the assessee was not entitled to the development rebate. Therefore, the development rebate was denied by the ITO to the assessee. The assessee preferred an appeal to the AAC and contended that the ITO ought to have first allowed the development rebate and thereafter withdrawn or cancelled the same under S. 35 (11) of the Act by means of the rectification order. The AAC did not agree with this contention and took the view that it was open to the ITO to deny the development rebate even at an initial stage since the fact that the buses had been disposed of within eight years of their purchase had come to his notice and it was not necessary for him first to allow the development rebate and then withdraw or cancel the same later on. The matter was carried by the assessee to the tribunal and the tribunal took a contrary view holding that it was incumbent uponthe ITO first to allow the full development rebate under the rules and then subsequently withdraw it under S. 35 (11) of the Act. A specific question as to whether on the facts and in the circumstances of the case, the tribunal was justified in law in directing the Income Tax Officer first to allow full development rebate under the Rules and subsequently withdraw it under S. 35 (11) of the Act, was referred to the High court at the instance of the revenue. The High court answered the question in the negative in favour of the revenue and against the assessee.
(3.) After hearing counsel for the assesaee, we are satisfied that the view taken by the High court is perfectly justified having regard to the language of S. 10 (2) {vi-b). The material portion of clause (vi-b) with which we are concerned is the proviso below sub-clause (2) (ni-b) and that proviso runs thus : Provided that no allowance under this clause shall be made unless. . and if any such machinery is sold or otherwise transferred by the assessee to any person other than the government at any time before the expiry of ten years from the end of the year in which it was acquired or installed, any allowance made under this clause shall be deemed to have been wrongly allowed for the purposes of this Act. The obvious purpose of the aforesaid provision is to deny the development rebate to the assessee if the machinery (here the buses) is sold by the assessee before expiry of ten years from the end of the year in which it was acquired. Ordinarily at the initial assessment the position whether this particular condition is satisfied or not may not be within the knowledge of the ITO, hence recourse is required to be made to the procedure of allowing the rebate first and subsequently canceling it under S. 35 (11) of the Act. In the facts of the present case when a fresh de novo assessment was directed by the AAC to be undertaken by the ITO and when such de novo assessment was undertaken by the ITO the aforesaid fact about the buses having been disposed of by the assessee within eight years from the date of their purchase had come to the knowledge of the ITO. In such circumstances, we do not think that it was necessary for the ITO to have first allowed the development rebate and then cancelled it under S. 35 (II) of the Act. Among the conditions which entitle an assessee to claim development rebate is also the condition that the assessee has not disposed of the machinery to any person other than the government before the expiry of 10 years from the end of the year in which it was acquired and the assessee has to satisfy the same. Such a condition had not been fulfilled by the assessee and this fact came to the knowledge of the ITO when fresh de novo assessment was made by him on 31/08/1967.;