1994 (11) TMI 81 - HC - Income Tax

Amalgamating Company Assessment Year New Industrial Undertaking Relief In Respect Set Off Special Deduction Unabsorbed Development Rebate

Issues Involved:
1. Set off of unabsorbed development rebate of the amalgamating company against the profits of the amalgamated company for the same assessment year.
2. Entitlement of the amalgamated company to claim relief under section 80J for the balance period of five years for ships acquired by the amalgamating company.

Issue-wise Detailed Analysis:

1. Set off of Unabsorbed Development Rebate:

The primary issue was whether the unabsorbed development rebate of Rs. 6,54,000 carried forward in the case of the amalgamating company (Bombay Barges and Ships Pvt. Ltd.) for the assessment year 1975-76 could be set off against the profits of the amalgamated company (the assessee) for the same assessment year, despite the provisions of section 33(2)(ii) read with section 33(3)(b) of the Income-tax Act, 1961.

- The assessee claimed the benefit of carry forward and set off of the unabsorbed development rebate by filing revised returns for the assessment years 1974-75 and 1975-76. The Income-tax Officer upheld the claim for the assessment year 1974-75 but rejected it for the assessment year 1975-76, stating that the rebate could not be set off in the same year.

- The Commissioner of Income-tax (Appeals) affirmed this decision, holding that the unabsorbed development rebate could only be adjusted in the assessment year 1976-77, not 1975-76.

- The Tribunal, however, held that the assessee was entitled to set off the unabsorbed development rebate for the assessment year 1975-76 in its own assessment for the same year. This decision was based on the interpretation of section 33(3)(b).

- Upon review, the High Court disagreed with the Tribunal's interpretation, emphasizing that section 33(3)(b) and section 33(2)(ii) clearly stipulate that the unabsorbed development rebate can only be carried forward to the "following assessment year." Thus, the unabsorbed development rebate for the assessment year 1975-76 could only be carried forward to the assessment year 1976-77.

Conclusion: The Tribunal was incorrect in allowing the set off of the unabsorbed development rebate for the assessment year 1975-76. The correct interpretation is that the rebate can only be carried forward to the next assessment year, i.e., 1976-77. The first question was answered in the negative, in favor of the Revenue.

2. Entitlement to Relief under Section 80J:

The second issue was whether the amalgamated company could claim relief under section 80J for the balance period of five years for ships acquired by the amalgamating company.

- The assessee claimed relief under section 80J for the period from January 1, 1975, to March 31, 1975, for three barges taken over from Bombay Barges. The Income-tax Officer rejected this claim, arguing that section 80J did not provide for such relief in the case of ships taken over by an amalgamated company.

- The Tribunal, however, found that all conditions of section 80J were satisfied and that the relief should be extended to the ships as per the instructions of the Central Board of Direct Taxes (CBDT). The Tribunal held that the assessee was entitled to the relief under section 80J.

- The High Court reviewed the provisions of section 80J and the Tribunal's findings. It noted that the relief under section 80J is available to industrial undertakings that fulfill all specified conditions, including that the undertaking is not formed by the splitting up or reconstruction of a business already in existence, and it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

- The High Court agreed with the Tribunal's finding that the conditions of section 80J were met and that the assessee was entitled to the relief for the balance period of five years.

Conclusion: The Tribunal was correct in holding that the assessee was entitled to relief under section 80J for the balance period of five years. The second question was answered in the affirmative, in favor of the assessee.

Final Disposition: The reference was disposed of with the first question answered in favor of the Revenue and the second question answered in favor of the assessee. No order as to costs was made.

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