JUDGMENT
R.N. Misra, J.
1. This is an application of the revenue under Section 256(2) of the Income-tax Act of 1961 (hereinafter referred to as “the Act”), for a direction to the Appellate Tribunal to state a case and refer the following question said to be of law for opinion of the court:
“On the facts and in the circumstances of the case, whether the Tribunal was right in allowing development rebate to be carried forward to the subsequent year when no reserve was created in the year the machineries were first put to use ?”
2. Assessee is a private limited company. The year of assessment is 1968-69. Assessee put up its plant and machinery for the first time during this year. The Income-tax Officer computed assessee’s loss for the year at Rs. 3,03,143 but did not allow any development rebate to be carried forward as provided in Section 33(2) of the Act on the ground that the condition imposed under Section 34(3) of the Act had not been satisfied.
3. Assessee preferred an appeal to the Appellate Assistant Commissioner for a direction to the Income-tax Officer to determine the development rebate to be carried forward in the manner provided by law to be allowed in such year when the condition imposed under Section 34(3) of the Act was satisfied. The first appellate authority, however, declined to give any direction.
4. In further appeal before the Appellate Tribunal by the assessee, the assessee canvassed that even though the development rebate could not be allowed because the reserve had not been created, it was incumbent on the Income-tax Officer to determine the development rebate allowable so that it could be carried forward to subsequent assessment years for adjustment as and when there was assessable profit and a reserve to satisfy the condition imposed in Section 34(3) of the Act. The Tribunal accepted this contention and required the Income-tax Officer to compute the development rebate for the purpose of being carried forward.
5. Learned standing counsel for the revenue seriously disputes the view taken by the Appellate Tribunal that there was any mandate in the scheme of Section 33 of the Act for carrying forward development rebate even when no provision had been made by the assessee in compliance of the mandatory requirement of Section 34(3) of the Act. The determination of the question requires a detailed examination of the scheme contained in the provisions of Sections 33 and 34 of the Act.
6. As far as relevant, Section 33 provides :
“33. (1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purpose of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of Section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant, was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in Clause (b);…..
(2) In the case of a ship acquired or machinery or plant installed after the 31st day of December, 1957, where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be, the total income for this purpose being computed without making any allowance under Sub-section (1) or Sub-section (1A) of this section or Sub-section (1) of Section 33A or any deduction under Chapter VIA or Section 280O is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under Sub-section (1) or Sub-section (1A), as the case may be,–
(i) the sum to be allowed by way of development rebate for that assessment year under Sub-section (1) or Sub-section (1A) shall be only such amount as is sufficient to reduce the said total income to nil; and
(ii) the amount of the 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 the development rebate, if any,
still outstanding shall be carried forward to the following assessment year
and so on, so however that no portion of the development rebate shall be
carried forward for more than eight assessment years immediately succeed
ing the assessment year relevant to the previous year in which the ship was
acquired or the machinery or plant installed or the immediately succeeding
previous year, as the case may be.”
7. Relief by way of development rebate was introduced for the first time by
the Finance Act of 1955, and was intended as a fillip to business by permit
ting assessees to deduct a certain percentage of the actual cost of specified
capital assets as revenue expenditure in lump. This is not over and above
the normal recoupment of actual cost of the capital assets through deprecia
tion allowance. The three qualifications for being entitled to development
rebate are:
(i) the asset should have been owned by the assessee during the relevant accounting year;
(ii) it must be wholly used for the purpose of the business; and
(iii) the business should have been carried on by the owner during the entire accounting period.
8. Under section 33, the quantum of allowance is fixed by a percentage of the actual cost. The year for which development rebate is claimable is, in the case of machinery or plant, the year during which the same is put to use; sums equivalent to the percentages indicated in Section 33 are to be deducted in the relevant accounting year in computing profit or loss of the assessee. Section 33 requires that unabsorbed development rebate will have to be carried forward to subsequent years to the limit of eight years.
9. Section 34(3)(a) makes the following provisions :
“The deduction referred to in Section 33 shall not be allowed unless an amount equal to seventy-five per cent, of the development rebate to be actually allowed is debited to the profits and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than…”
10. Thus, while Section 33 lays down that development rebate is admissible and indicates the manner of calculation, Section 34(3)(a) imposes a further condition before development rebate can actually be allowed. In view of the statutory provisions that development rebate is admissible under certain contingencies and in case it is not set off it can be carried forward for eight years following the year of assessment, kven if there be no satisfaction of the requirement of Section 34(3)(a) of the Act, the rebate has to be computed and has to be carried forward to be allowed in such year when the condition imposed by Section 34(3)(a) is satisfied.
11. The Tribunal relied upon a decision of the Bombay High Court in the case of Indian Oil Corporation Ltd. v. S. Rajagopalan, Income-tax Officer, [1972] 92 ITR 241 (Bom), for accepting the assessee’s contention that even if for the year in question the assessee was not entitled to allowance of development rebate, the Income-tax Officer is obliged to calculate the same for the purpose of carry-forward. In our view a bare construction of the Sections supports the decision of the Tribunal and it is unnecessary to examine precedents. The scheme contemplates the computation of development rebate which has to be carried forward in the manner prescribed by the statute to be allowed in such years when the condition imposed under Section 34(3)(a) of the Act is satisfied. In our view, the decision of the Tribunal is in accord with the statutory provision and no error can be found. The application of the revenue must accordingly fail.
Panda, J.
12. I agree.
