Sabyasachi Mukhakji, J. - (1.)This reference under Section 256(1) of the I.T. Act, 1961, relates to the assessment of an assessee, who is an individual, for the assessment year 1968-69, for which the previous year ended on 31st March, 1968. In the course of the assessment proceedings, the ITO took the view that development rebate was not allowable as the assessee's business had been converted into a private limited company which was not " succession " within the meaning of Section 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 Section 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 machinery purchased and installed during that year. The AAC also found that the ITO had noticed that on 1st May, 1968, the business of the assessee was converted into that of a limited company. The AAC, accordingly, held that the condition required under Section 34(3Xa) of the I.T. Act, 1961, had been complied with by the assessee inasmuch as the conversion of the proprietary business into a limited company took place only on the 1st May, 1968. The AAC came to the conclusion that the change of the constitution of the assessee's business took place during the accounting year relevant to the assessment year 1969-70. He held that the ITO should have complied with the provisions of Section 155(5) of the Act for withdrawing the development rebate in respect of the assessment year 1968-69. The assessee was entitled to development rebate which could have been withdrawn by the ITO under Section 155(5) of the Act inasmuch as the assessee should be deemed to have been allowed development rebate wrongly under Section 34(3) of the Act and that the withdrawal of such development rebate should be under Section 155(5). He, therefore, held that the ITO was not justified in refusing the allowance of the development rebate for the assessment year 1968-69.
(2.)The revenue went up in appeal before the Tribunal. It was contended on behalf of the revenue that, it was within the knowledge of the ITO, at the time when he made the assessment for the year 1968-69, that the assessee's business had been converted into a limited company 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 Section 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 contain- ed in Section 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 Section 34, had not been fully complied with by the assessee inasmuch as the proprietary concern of the assessee was converted into a limited company. This contention on behalf of the revenue was not accepted by the Appellate Tribunal. It was argued that the ITO was not justified in considering this aspect while completing the assessment for the year 1968-69, and the Tribunal, after consideration of all the relevant facts observed, inter alia, as follows :
" The records of the case indicate that the conversion of the business into a limited company took place during the accounting year relevant to the assessment year 1969-70. However, for the assessment years 1967-68 and 1968-69, the assessee continued his business as a proprietary concern and all the conditions required for the grant of development rebate under Section 34 have been fully complied with by the assessee in respect of both these years. When the ITO noticed that the business was converted into a limited company, it was his duty to apply the provisions of Section 155(5) of the Act and thereby withdraw the development rebate which was allowed during the assessment years 1967-68 and 1968-69. It will not be correct to state that the assessee-company in this case did not fully satisfy the conditions as prescribed under Section 34 of the Act for the grant of development rebate in respect of the assessment years 1967-68 and 1968-69. As correctly pointed out by the AAC, it was the duty of the ITO to have granted the development rebate for the assessment 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,"

(3.)On the aforesaid findings, the Tribunal under Section 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 the Act, the Tribunal was right in holding that the assessee is entitled to allowance of development rebate for the assessment year 1968-69 ? "