COMMISSIONER OF INCOME TAX Vs. VALLIAPPA TEXTILES LIMITED

JUDGEMENT

(1.) This is a reference made under Sec. 256(1) of the Income-Tax Act, 1961 (hereinafter referred to as the 'Act') on the following two questions :

(2.) Brief facts of the case, as are available in the records, are as follows: For the assessment year 1974 75 the Income-Tax Officer accepted the claim of the assessee that it was a priority industry which was entitled to development rebate at the higher rate of 35%, as the industry was included at item 32 of the Fifth Schedule to the Act. The assessee had claimed development rebate at the lower rate of 25% during the assessment year 1970-71 and 1971-72. During the assessment year 1970-71 the development rebate claimed on that basis was Rs. 1,90,671-00, but as the profit available for adjustment was only a sum of Rs. 13,408-00 the rebate was partly adjusted and the balance of Rs. 1,77,263- 00 was carried forward for the assessment year 1971-72. During that year also, there was a part adjustment of the rebate and the balance of Rs. 64,045-00 was carried forward. It was in the course of the appeal filed by the assessee for the assessment year 1974-75, the claim regarding computation of the development rebate at the rate of 35% of the investment applicable to priority industry, was made. The appellate authority accepted this plea of the assessee not only for the assessment-year 1974-75 but also for the earlier years and directed the assessing officer to recompute the development rebate at the rate of 35%. The Department filed an appeal against the order of the Appellate Asst. Commissioner in regard to this direction. The Tribunal accepted the contention of the assessee and held that it was mandatory for the assessing officer to allow development rebate at the appropriate rates and that as development rebate for the assessment years 1970-71 and 1971-72 was required to be adjusted against the profit earned by the assessee during the period relevant to the assessment year 1974-75, it was obligatory on his part to compute the development rebate at the rates applicable to priority industry. Thus the Tribunal confirmed the order of the Appellate Assistant Commissioner on this point Aggrieved by this, the revenue sought for a reference under Section 256 of the Act and the Tribunal has referred the questions referred to above to this court for its opinion.

(3.) Sri K. Srinivasan, learned counsel for the Revenue, does not dispute that the development rebate to which the assessee was entitled to during the assessment years 1970-71 and 1971-72 was at the rate of 35% of the value of the new plant and machinery purchased by the assessee. He also does not dispute that there has been a wrong computation at the rate of 25% and also that the balance of the rebate unadjusted for wait of profits and carried forward, was to be adjusted during the year 1974-75 when the assessee had made sufficient profit for full adjustment. He however contended that inasmuch as the assesses had not sought for recomputation of development rebate at the rate of 35% within the period of four years prescribed for rectification under Sec. 154 of the Act, the claim of the assessee could not have been granted. On the other hand, Sri G. Sarangan, learned counsel appealing for the assessee, stated that it was the statutory duty of the authorities to compute the development rebate for any particular year and as long as some part of such rebate was yet to be set-off against the profits in any particular year it was open to the authorities to recompute the same.