ADDITIONAL COMMISSIONER OF INCOME TAX Vs. MARKAND ENGINEER

JUDGEMENT

(1.) This income-tax reference arises out of the assessment of a registered firm carrying on business under the name and style of M/s. Markanda Enginearing for the assessment year 1969-70 for which the relevant previous year ended on 31-3-1969. The assessee is engaged in an industry covered by items 20 and 22 of the Fifth Schedule to the Income-tax Act and was as such entitled to development rebate at 35 per cent of the actual cost of the new machinery or plant installed before 1-4-1970 and wholly used for the purpose of business under section 33- ( 1) (b) (B) (i) (a) as against the normal rate of 20 per cent available in the case of other assessees in respect of a like asset under section 33(1) (b) (B) (iv) (a) of the Act. The deduction towards development rebate is to be allowed in respect of the previous year in which the machinery or plant is installed or where such machinery or plant is first put to use in the immediately succeeding year then in respect of that previous year. The grant of the deduction, however. is subject to the conditions laid down in section 34(3) of the Act which as it stood at the relevant time read as follows :

(2.) We may now revert to the facts of the present case which should be considered in the context of the above provisions. During the previous year which ended on 31-3-1969 the assessee firm installed new machinery, the actual cost of which was Rs. 3,02,461. Since the development rebate was at 35 per cent as already mentioned it would have been eligible for a development rebate of Rs. 1.05,863 provided that it created a reserve as contemplated by the provisions above-mentioned. If the entire amount of development rebate attributable to the new plant and machinery which works out to Rs. 1.05,863 @35 per cent of actual cost of Rs. 3,02,461 were to be allowed to the assesses in the previous year it should have created a reserve of 75 per cent of this amount or Rs. 79,397 under section 34(3) (a). The assessee, however, created only a reserye to the extent of Rs. 60,000.

(3.) While completing the assessment for the assessment year 1969-70 the Income-tax Officer rejected the assessee's claim for the development rebate straightaway. In his view the assessee should have created a reserve to the extent of Rs. 79,397 but had created a reserve only to the extent of Rs. 60,000 and since the assessee had failed to fulfil one of the statutory conditions necessary to be fulfilled before development rebate can be allowed as a deduction the assessee's claim could riot be entertained in this respect.