COMMISSIONER OF INCOME TAX Vs. T S VENKITESWARAN

JUDGEMENT

(1.) THIS is a reference that was compelled by this Court at the instance of the Revenue under s. 256(2) of the IT Act. The questions of law which are referred are :

(2.) THE assessee is an individual who owned three fishing boats. One boat had run for 4 1/2 months, another for 2 1/2 months and the third only for a period of 2 months during the course of the accounting year. A net income of Rs. 13,671 was admitted from these boats after deduction of all admissible expenses except depreciation and development rebate. Development rebate was claimed in respect of these three boats. The assessee had not, however, maintained any books of account and there was no question of any creation of reserve for development rebate. The ITO rejected the claim for development rebate on the ground that no accounts had been maintained and no reserve had been created, and so be was not entitled to the benefit of development rebate. The income was computed at Rs. 42,010. The assessee appealed to the AAC. That officer found that the expenses claimed as spent on the construction of the boats could not be verified as many of the vouchers were not made available. He held that none of the requirements for the allowance of development rebate had been made out by the assessee. He, therefore, rejected the appeal and upheld the order of the ITO. The assessee appealed further to the Tribunal. The Tribunal found that the boats were new, that during the accounting year profits were not sufficient even to set off the full amount of depreciation due, and so there was no question of creation of any reserve for development rebate. In the next year when there were profits, the assessee had maintained accounts and had created necessary reserve. For the assessment year, all the conditions necessary for the grant of development rebate had been satisfied except the creation of a reserve. This condition, according to the Tribunal, need not be fulfilled in the absence of profit. At the instance of the Revenue, the questions of law have been referred.

(3.) THE substance of the argument of counsel for the Revenue was that the conditions precedent for the grant of development rebate had been clearly provided for in the concerned section in the Act and these require the maintenance of the accounts and the creation of a reserve by the assessee. As this had not been done, the argument was that the assessee would in no circumstances be entitled to the benefit of development rebate.