R.K.Gulati, J. - (1.) The assessee, M/s. Raza Buland Sugar Company Limited, Rampur, engaged in the business of manufacture of sugar, suffered losses for the assessment years 1967-68 and 1968-69. In these two years, the assessee claimed development rebate in respect of plant and machinery installed in the previous year relevant to the assessment years in question. The Income-tax Officer negatived the claim on the solitary ground that the development rebate cannot be allowed as it had not been backed up by the creation of the necessary development rebate reserve in the books of the assessee as contemplated by Sub-section (3) of Section 34 of the Income-tax Act, 1961 (hereinafter referred to as "the Act").
(2.) The assessee felt aggrieved and approached the Appellate Assistant Commissioner of Income-tax by filing two separate appeals--one for each of the assessment years, contending that, as the assessee had suffered losses as per its account books and there was also loss as per the assessment orders, the development rebate reserve could not be created, but the development rebate should have been quantified and carried forward to the subsequent assessment years for set off in which the assessee earned profit and created the requisite reserve. The Appellate Assistant Commissioner, however, dismissed the claim. On further appeal to the Income-tax Appellate Tribunal, ,the claim of the assessee was accepted. The Tribunal held that in a year where there was a loss, the assessee was not obliged to create development rebate reserve in its books for that year and the assessee cannot be denied the benefit of the development rebate on the ground that no such reserve had been created in the books pertaining to the relevant assessment years in question. The Tribunal, therefore, directed the Income-tax Officer that the development rebate for the years in question be quantified for carrying forward and set off in a subsequent year of profit notwithstanding the fact that no reserve had been created in these years.
(3.) At the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following two common questions of law for the opinion of this court under Section 256(1) of the Act : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee cannot be denied the benefit of carry forward of development rebate for the assessment years 1967-68 and 1968-69 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Income-tax Officer to determine the development rebate and to carry forward the rebate for set off in a subsequent year of profit for the assessment years 1967-68 and 1968-69 ?";