1972 (7) TMI 28 - HC - Income Tax

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 - Whether in the facts and circumstances of the case the Income-tax Appellate Tribunal had the power and jurisdiction to direct the Appellate Assistant Commissioner 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

Summary

Issues Involved:
1. Whether the assessee's claim for development rebate was rightly disallowed.
2. Whether the Income-tax Appellate Tribunal had the power and jurisdiction to direct the Appellate Assistant Commissioner to entertain and consider the assessee's contention regarding the taxability of profits on the sale of certain machinery.

Issue-wise Detailed Analysis:

1. Disallowance of Development Rebate:

The first issue revolves around the assessee's claim for a development rebate in respect of machinery and plant installed in the textile mill at Bombay for the assessment years 1959-60 and 1960-61. The Income-tax Officer initially found that the assessee was entitled to allowances of Rs. 7,35,533 and Rs. 4,51,104, respectively. However, since the mill was sold in 1961, before the expiry of ten years from the end of the relevant accounting periods, the claim was disallowed.

According to section 10(2)(vib) of the Indian Income-tax Act, 1922, and the proviso to this section, if any machinery or plant is sold or transferred within ten years from the end of the year in which it was acquired or installed, any allowance made under this clause shall be deemed to have been wrongly allowed. Section 35(11) empowers the Income-tax Officer to recompute the total income of the assessee for the relevant year as if the recomputation is a rectification of a mistake apparent on the record.

The Tribunal upheld the disallowance, stating that the Income-tax Officer has the implied power to reject the claim for development rebate if it is known that the machinery or plant was sold within the prescribed time limit. The argument that the Income-tax Officer must first allow the claim and then rectify it under section 35(11) was found to be unfounded. The Tribunal concluded that the assessee's claim for development rebate was rightly disallowed.

2. Tribunal's Power to Direct Appellate Assistant Commissioner:

The second issue concerns whether the Tribunal had the power to direct the Appellate Assistant Commissioner to entertain the assessee's contention that the profits on the sale of certain machinery were not taxable since the business was not in existence during the relevant previous years. The Appellate Assistant Commissioner initially refused to entertain this contention, stating it was not raised before the Income-tax Officer and would involve new factual investigations.

The Tribunal, however, observed that the basic facts necessary for this contention were already on record, such as statements claiming depreciation for the machinery and notices given to employees about the factory's closure. The Tribunal directed the Appellate Assistant Commissioner to rehear the parties and decide the matter after considering all relevant materials.

Section 33(4) of the Indian Income-tax Act, 1922, confers wide powers on the Tribunal to pass such orders as it thinks fit in dealing with appeals. The Supreme Court in Hukumchand Mills Ltd. v. Commissioner of Income-tax interpreted this provision to include the power to direct further inquiries. The Tribunal's direction was within its jurisdiction as the claim regarding the taxability of profits was part of the appeal's subject matter.

The Tribunal rightly felt that substantial justice required the Appellate Assistant Commissioner to investigate the claim, even though it was raised for the first time at the appellate stage. The Tribunal's direction was deemed competent and within its jurisdiction.

Conclusion:

Both questions referred to the court were answered in the affirmative. The assessee's claim for development rebate was rightly disallowed, and the Tribunal was competent to direct the Appellate Assistant Commissioner to entertain and consider the assessee's contention regarding the taxability of profits on the sale of machinery. Each party was ordered to bear its own costs of the reference.