TMI Blog1997 (7) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... its head office at Ballabhgarh in Haryana and rolling mill foundry unit and machine tools unit at its branch office at Batala in Punjab. The assessee purchased machinery worth Rs. 1,71,023 during the assessment year 1973-74. The assessee claimed development rebate of Rs. 42,756 being 25 per cent. of Rs. 1,71,023. The Income-tax Officer did not allow the claim of development rebate on the ground that the development rebate reserve was not created. The Commissioner of Income-tax (Appeals) confirmed the disallowance on the reasoning that the assessee had made profits of Rs. 49,961 as per profit and loss account and, therefore, it could have created 75 per cent. reserve of the development rebate allowable. Since the assessee had not complied with the requirements provided under sections 33 and 34 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), it was not entitled to claim the development rebate. The assessee filed a further appeal before the Tribunal, which was accepted. After noticing conflicting decisions in regard to the allowability of development rebate without creating the development rebate reserve, relying upon a decision of the Andhra Pradesh High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes issued Circular No. 189, dated January 30, 1976, providing that the assessee was not bound to create the statutory reserve in the year in which it did not make profits. Relying upon Circular No. 189, dated January 30, 1976, issued by the Board, the Andhra Pradesh High Court in Agro Insecticides and Allied Industries' case [1981] 127 ITR 796, held: "(i) that the controversy which arose as a result of conflicting decisions of various courts as regards allowing of development rebate had been set at rest by the circular of the Central Board of Direct Taxes No. 189, dated January 30, 1976, which clearly said that the assessee was not bound to create the statutory reserve in the year in which it did not make profits. Hence, the assessee could not be denied the benefit of development rebate, merely because the reserve was not created during the year of installation of the machinery." Thereafter, the matter was examined by the Supreme Court in Shri Shubhlaxmi Mills Ltd. v. Addl. CIT [1989] 177 ITR 193. The Supreme Court took a view contrary to the one taken by the Andhra Pradesh High Court in Agro Insecticides and Allied Industries' case [1981] 127 ITR 796. Interpreting se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making it applicable from the assessment year 1962-63 and subsequent years. It was primarily done to secure that the condition of creation of reserve even in the year of loss or insufficiency of profits will not be a mandatory requirement in making the claim for allowance of the development rebate. The object of this amendment was to take away the rigour of the judgment of the Supreme Court in Shri Shubhlaxmi Mills' case [1989] 177 ITR 193, with a view to redress the hardship of the taxpayers. The object and scope of the amendment, as given in the memorandum explaining the provisions of the Finance Bill, 1990, is : "20. The provisions of section 33 read with section 34 of the Income-tax Act relating to development rebate provide for a deduction of a percentage of the actual cost of a ship acquired or machinery or plant installed. One of the conditions for allowance of the deduction is that an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account. The Finance Act, 1966, by inserting an Explanation in section 34 allowed the creation of such a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad High Court in CIT v. Raza Buland Sugar Co. Ltd. [1993] 202 ITR 191. It was held that it was not mandatory to create the development reserve in the year of loss or insufficiency of profits in which the machinery or plant, etc., is installed or first put to use to claim development rebate in the subsequent years. It was observed: "Now, adverting to the amended provision of section 34(3)(a), a bare reading of it clearly manifests that for seeking allowance of development rebate under section 33 of the Act, which has been made subject to section 34, the creation of the statutory reserve is a condition precedent. The assessee is not entitled to the allowance if the requisite reserve as required by section 34(3)(a) has not been made. Creation of the reserve is a sine qua non for the allowance. However, there is no mandatory requirement in the amended provisions to create development reserve even in the year of loss or insufficiency of profits in which the machinery or plant, etc., is installed or first put to use. The amendments effected in section 34(3)(a) by the Finance Act, 1990, referred to earlier, are significant in this respect. It is now provided that the statutory reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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