COMMISSIONER OF INCOME TAX Vs. SAYAJI MILLS LIMITED

JUDGEMENT

(1.) THIS reference arises out of assessments to income tax made on the assessee for the asst. yrs. 1959 60 and 1960 61, the corresponding accounting years being the financial years ending 31st March, 1959, and 31st March, 1960. Two questions arise for our determination in this reference : first, whether the assessee's claim in each assessment year for allowance of a sum by way of development rebate in respect of the machinery and plant, etc., installed in one of the industrial units run by it was rightly disallowed and, secondly, whether in the facts and circumstances of the case the Tribunal had the power and jurisdiction to direct the AAC to entertain and take into consideration the assessee's contention that the profits on sale of certain machinery were not taxable since the business was not in existence at any time during the relevant previous years. In order to properly appreciate and determine those questions it would be necessary to set out a few facts and we proceed to do so.

(2.) THE assessee company runs two textile mills, one at Bombay and the other at Baroda. It also owns another industrial unit at Kathwada which is known by the name of "Maize Products". During the course of proceedings for assessment to income tax for the asst. yrs. 1959 60 and 1960 61, the assessee claimed an allowance by way of development rebate in respect of machinery and plant, etc., installed in the textile mill at Bombay. The ITO found that the assessee was entitled to an allowance in the sums of Rs. 7,35,533 and Rs. 4,51,104, respectively, by way of development rebate in the concerned assessment years. He, however, observed that since the mill was sold by the assessee some time in 1961, that is, before the expiry of ten years from the end of the relevant accounting periods, the claim for allowance by way of development rebate was not allowable. The contention of the assessee before the ITO was that in accordance with the provisions of S. 10(2)(vib) of the Indian IT Act, 1922, it was obligatory on the ITO to allow the development rebate in the first instance and that if it was ultimately found that the rebate was wrongly allowed in view of the provisions contained in the proviso to S. 10(2)(vib), it was open to the ITO to rectify the mistake under S. 35(11) of the Act. The contention of the assessee was negatived by the ITO as well as by the AAC and also by the Tribunal. These are the facts relevant for the decision of the first question.

(3.) TURNING to the first question, the relevant provisions are to be found in ss. 10 and 35 of the Indian IT Act, 1922. Sub s. (1) of S. 10 provides that the tax shall be payable by an assessee under the head "profits and gains of business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him. Sub s. (2) of S. 10 provides that such profits or gains shall be computed after making certain allowances and one of them is the allowance of a sum by way of development rebate prescribed in cl. (vib) of the said sub section. According to cl. (vib), in so far as it is relevant for the purposes of the present case, an allowance of a sum by way of (sic) new machinery or plant installed after the thirty first day of March, 1954, which is wholly used for the purpose of the business carried on by the assessee. This allowance is to be worked out according to the formula set out in cl. (vib) and since in the present case nothing turns upon the quantum of development rebate, we need not refer to the said formula. There are two Explanations to cl. (vib) and they are also not relevant for the purposes of this case. There is a proviso to cl. (vib) which has a direct bearing on the question under consideration and the relevant part of the said proviso read as under at the material time :