ADDITIONAL COMMISSIONER OF INCOME TAX Vs. SUBHLAXMI MILLS LIMITED

JUDGEMENT

(1.) IN this case, at the instance of the Revenue, the following two questions have been referred to us by the Tribunal :

(2.) IN the instant case we are concerned with the asst. year 1962 63. The assessee before us is a limited company and at the relevant time was running a textile mill at Combay in the State of Gujarat. The accounting period of the assessee for the asst. year 1962 63 was the calendar year 1961 ending on December 31, 1961. For this particular year the assessee claimed that a sum of Rs. 1,26,223 should be considered as the development rebate allowable to it under the provisions of S. 33 of the IT Act, 1961. The assessee had not created a reserve as contemplated by S. 34(3) of the Act of 1961. The ITO declined to entertain the claim on the ground that the assessee had not complied with the conditions of admissibility under S. 34(3) of the Act of 1961. Before the AAC the same contention was urged as regards the claim for development rebate. This appellate officer agreed with the views of the ITO and held that, as the assessee had not satisfied the preconditions mentioned in S. 34(3), the assessee could not claim the development rebate. The matter was carried in further appeal before the Tribunal by the assessee and so far as development rebate was concerned, the contention of the assessee was that the ITO should have determined the development rebate and allowed the assessee to carry forward the development rebate to subsequent years as in the relevant previous year the assessee had incurred a loss in its business. The Tribunal found that in the relevant year the business income of the assessee was Rs. 1,31,169, but it was taken at nil in view of the set off of earlier years' losses to the extent of the business income. The return of income as filed by the assessee had shown a loss of Rs. 1,53,300. The Tribunal held that though development rebate could not be allowed in asst. year 1961 62, the assessee could not be denied the benefit of carry forward of such development rebate which should be calculated in the course of assessment for the asst. year 1961 62 but should be carried forward and set off in any subsequent year as permitted by law when the assessee fulfilled the necessary requirements for allowance like creation of adequate reserve. Thereafter, at the instance of the Revenue, the two questions hereinabove set out have been referred to us for our opinion.

(3.) IN 1961 certain further changes were made in S. 10(2)(vib) w.e.f. 1st April, 1960, by the Taxation Laws (Amendment) Act, 1960. It was provided by this amendment that no allowance under cl. (vib) was to be made in respect of any machinery or plant which consisted of office appliances or road transport vehicles. When the IT Act, 1961, was enacted the provisions of S. 10 (2)(vib) were divided between two sections, namely, S. 33 and S. 34. Sec. 33 of the new Act provided by Sub S. (1) what was originally provided for by cl. (vib). Sub s. (2) of S. 33 is equivalent to Explanation 1 to cl. (vib). Explanation to Sub S. (2) of S. 33 is equivalent to Explanation 2 to cl. (vib) of S. 10(2). Sub s. (3) of S. 33 provides for development rebate where a scheme of amalgamation had been brought into force and a company under such scheme of amalgamation is sold or otherwise transferred to the company formed in pursuance of the predecessor's amalgamation with that company, any ship, machinery or plant in respect of which development rebate has been allowed to the predecessor under sub S. (1) of S. 33 is also transferred. We are not concerned in the course of this judgment with the provisions of Sub S. (2). Sub s. (4) of S. 33 provides for the succession of a firm by a company in the business carried on by the firm and as a result of such succession the firm sells or otherwise transfers to the company any ship, machinery or plant, which is the subject matter of development rebate, allowed to the firm. Sec. 34 is on the same terms as the proviso to S. 10(2)(vib) and it lays down conditions for depreciation allowance and development rebate. Provisions as to development rebate are to be found in S. 34(1) and S. 34 (2). It may be pointed out that under the IT Act, 1961, the carry forward can be permitted for a period of eight years only immediately succeeding the assesment year in which the ship was acquired and the machinery or plant was installed or immediately preceding the previous year, as the case might be, and in the same manner it was provided that the reserve which was set up for the purpose of getting benefit of the allowance of development rebate should be utilised by the assessee during the period of eight years next following but, in other respects, the restrictions remain as they were under S. 10(2)(vib) of the 1922 Act. Sec. 34(3)(b) of the Act of 1961 provides that if any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made for development rebate under S. 33 or under the corresponding provisions of the Indian IT Act, 1922, in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of the Act of 1961, and the provisions of Sub S. (5) of S. 155 regarding rectification shall apply accordingly. In 1966, by the Finance Act, 1966, and Explanation was added ; S. 9 of the Finance Act, 1966, provided that the following Explanation shall be, and shall be deemed always to have been, inserted, in S. 34, namely :