1978 (3) TMI 60 - HC - Income Tax

Summary

Issues Involved:

1. Computation of actual cost for development rebate u/s 33.
2. Impact of devaluation of the rupee on the cost of assets.
3. Applicability of s. 43A(1) and s. 43A(2) in relation to development rebate.

Summary:

1. Computation of actual cost for development rebate u/s 33:
The primary issue was whether the Tribunal was correct in holding that no upward adjustment of Rs. 2,64,24,737, which the assessee had to bear due to the devaluation of the rupee, should be made in computing the actual cost for the purpose of calculating development rebate u/s 33. The court affirmed that the Tribunal was right in its decision.

2. Impact of devaluation of the rupee on the cost of assets:
The assessee, a shipping company, purchased two ships before the devaluation of the rupee and claimed a development rebate based on the increased cost due to devaluation. The ITO allowed the rebate only on the original cost, citing s. 43A(2), which excludes the increased liability due to devaluation from being considered for development rebate. The AAC and Tribunal upheld this view, stating that the increased liability due to devaluation could not be added to the original cost for claiming development rebate.

3. Applicability of s. 43A(1) and s. 43A(2) in relation to development rebate:
Section 43A(1) allows for adjustments in the actual cost of an asset due to changes in the exchange rate, but s. 43A(2) specifically excludes such adjustments for the purpose of development rebate u/s 33. The court noted that the legislature clearly intended to exclude the variation in the cost of acquisition due to devaluation for granting development rebate. The court referenced previous judgments, including Addl. CIT v. Kwality Spinning Mills (Private) Ltd. and Arvind Mills Ltd. v. CIT, to distinguish the present case and support its conclusion.

Conclusion:
The court concluded that the general principles of increased cost due to devaluation could not be applied for development rebate under s. 33 due to the explicit prohibition in s. 43A(2). The Tribunal's decision was upheld, and the question was answered in the affirmative, against the assessee and in favor of the revenue. The assessee was ordered to pay the costs of the revenue, with an advocate's fee of Rs. 250.