TMI Blog1981 (4) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... tire hire charges payable by the Indian subsidiary to the assessee-company have been remitted to U. K. in full every year. The assessee-company does not draw up a separate profit and loss account and balance-sheet for its Indian business but keeps a consolidated profit and loss account of its entire global activity in the U. K. Thus, the rental received by the assessee-company from its Indian subsidiary company forms part of the total rentals shown in its consolidated profit and loss account maintained in the U.K. However, in the consolidated balance-sheet in the U.K., the assessee-company created a separate development rebate reserve in regard to its Indian business under the head " Appropriation to Reserves " with a sub-head " Development Rebate Reserve (India) from year to year. In respect of the five assessment years in question, the assessee-company's claim for grant of development rebate was rejected by the ITO on four grounds, one of the grounds being that the Indian company had remitted the rentals as profits to the assessee-company. The ITO also held that the data processing machines were office appliances which were excluded from the benefit of development rebate from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he years 1959-60, 1960-61 and 1961-62, in regard to such number of machines for which the reserves created did not fall short of the 75% of the rebate admissible. Arising out of this order of the Tribunal, the following two questions have been referred to this court under s. 66(1) of the Indian I.T. Act, 1922, and s. 256(1) of the I.T. Act, 1961? " 1. Whether, on the facts and in the circumstances of the case, the data processing equipment could be regarded as 'office appliances' for the purpose of granting development rebate for the assessment years 1960-61, 1961-62, 1962-63 and 1963-64 ? 2. Whether, on the facts and in the circumstances of the case, the amount equal to 75% of the development rebate, credited to reserve could be said to have been utilised by the assessee-company for remittance outside India as profits ? " The controversy which is put in issue in the first question, viz., whether the data processing machines are office appliances for the purposes of development rebate under s. 33(1) of the I.T. Act, 1961, has been considered in sufficient detail in the earlier decision of this court in CIT v. I.B.M. World Trade Corporation , Income-tax Reference No. 68 of 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the revenue has contended that the entire amount of rental earned by the Indian subsidiary has been remitted by it to the assessee-company and, therefore, the assessee-company is disentitled from claiming development rebate in view of the second condition in cl. (a) of s. 34(3) of the I.T. Act, 1961. What is argued is that the entire amount which was remitted, included profits and, therefore, the entire profits earned by the Indian company had been remitted outside India. The Tribunal has positively observed in its order that it was not the case of the revenue that any part of the reserve account had been remitted outside India for the creation of any asset outside India. The only question, therefore, is whether, when the entire rental income of the Indian subsidiary has been remitted to the assessee-company in U.K., it constitutes an amount out of the reserve account remitted outside India as profits. The scheme of s. 34(3)(a) shows that it was not intended to give benefit of development rebate to an assessee, who having crediting the reserve account for the purposes of earning development rebate, then utilised that reserve account either for distribution by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eight years next following the year in which the reserve is credited. The prohibition in s. 34(3)(a) against the amount credited to reserve account being utilised in the manner indicated by cls. (i) and (ii) thus operates in respect of the eight years next following the year in which the amount has been credited to the reserve account. The argument before us is that each of the years of account is concerned, all the monies earned have been remitted to the U.K. This overlooks the fact that the stipulation in s. 34(3)(a) is in respect of the period of eight years following the year in which the reserve is created. Any remittances in the year in which the amount has been later credited to the reserve account will not at all attract the prohibition under s. 34(3)(a), cls. (i) and (ii). Therefore, on the mere fact that all the amounts earned have been remitted in the respective accounting years, the assessee was not entitled to the benefit of development rebate cannot be sustained on the wording of s. 34(3)(a). Though we have already pointed out that on the terms of s. 34(3)(a) the prohibition operates in the years subsequent to the year in which any amount is credited to a reser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which the sum was credited to the reserve account, any remittances were made outside India as profits out of the amount so credited to the reserve account. In the view which we have taken, we need not consider the correctness of the observations made by the Tribunal in para. 10 of the order that the provisions of s. 34(3)(a)(ii) are inapplicable in the case of a foreign company selling goods or services directly to India. So far as the present reference is concerned, the assessment years 1959-60, 1960-61 and 1961-62 are governed by the Indian I.T. Act, 1922, and the provisions of s. 34(3)(a)(ii) are analogous to cl. (b)(ii) of the proviso which occurs in s. 10(2)(vib) of, the Indian I.T. Act, 1922. The provisions of s. 155(5) of the I.T. Act, 1961, corresponds to s. 35(1) of the Indian I.T. Act, 1922. It is, therefore, not necessary for us to consider independently the relevant provisions of the I.T. Act, 1922. In the view which we have taken, the questions are answered as follows : Question No. 1-In the negative and against the revenue. Question No. 2-In the negative and against the revenue. Revenue to pay costs of this reference. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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