TMI Blog1980 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Business loss Unabsorbed Unabsorbed years determined and depreciation development carried forward rebate -------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. 1962-63 ... ... 7,062 1963-64 ... ... 11,027 1964-65 ... ... 21,342 1965-66 ... ... 73,902 1966-67 ... ... 45,426 1967-68 ... ... 21,430 1968-69 2,21,634 1,12,473 8,867 1969-70 1,08,048 1,10,464 9,547 ---------------------------------------------------------------------------------------------------------------------------------- For the assessment year 1970-71, it disclosed in the income-tax return an income of Rs. 1,51,610. The ITO determined the business income at Rs. 1,58,140 after allowing the current year's depreciation at Rs. 1,12,473. The ITO then set off Rs. 1,58,140, being the absorbable business loss out of Rs. 2,21,634 shown in the above table. The result was that the income was determined to be nil for that year. The balance of business loss of Rs. 63,494 was carried forward. For the assessment year 1971-72, the assessee disclosed Rs. 4,14,333 as income in its return, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that only thereafter the unabsorbed depreciation allowance for the earlier years would come in for adjustment. As regards the unabsorbed development rebate it was held that the ITO should have set off the amounts relating to the assessment years 1962-63 to 1967-68 first and then only taken the business loss relating to the assessment years 1968-69 and 1969-70. Thus, in the view of the Tribunal, the adjustments would be first with reference to the current year's depreciation, then unabsorbed development rebate and thereafter unabsorbed business loss. This order of the Tribunal has given rise to the question referred, which has been set out earlier. The question to be considered is the order of priorities in the adjustment of unabsorbed development rebate, unabsorbed depreciation and unabsorbed business loss. Section 32 relates to the allowance of depreciation. Sub-section (2) of the said provisions, in so far as it is relevant, runs as follows: " Where, in the assessment of the assessee ... full effect cannot be given to any allowance under ... clause (ii) ... in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be. " It would be seen from the above provision that the total income is to be computed first without making any allowance under s. 33 or any deduction under Chap. VI-A or s. 280-0. If there was a paucity of income, then the development rebate admissible would be such as to reduce the said total income to "nil". If there was any balance of development rebate which remained unadjusted, then it would have to be carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be allowed in each year, taking into account the nature of the asset and the use to which it is put. Development rebate, however, was treated originally on a par with depreciation prior to 1st January, 1958. Thereafter, it was liable to be allowed only if the assessee complied with certain conditions. Its allowance was made contingent on the assessee creating a reserve to the extent contemplated by s. 34, and keeping the reserve intact for a period of eight years, the period during which alone development rebate could, if carried forward, be allowed in the hands of the assessee as a deduction. As pointed by the Karnataka High Court in Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132, in s. 33 Parliament has made a provision by way of an incentive to businessmen who invest on new machinery or in modernising plant and equipment. This provision does not deal with any trading loss as it is ordinarily understood. In order to earn development rebate the assessee has to satisfy the conditions prescribed by s. 34 as seen earlier. Thus, it is not an absolute or unconditional allowance. The allowance of the development rebate as shown by s. 33 is so limited as to reduce the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular case. The learned counsel for the assessee submitted that in the present case, the allowance as granted by the Tribunal may be sustained, as in case of doubt, an adjustment more favourable to the assessee may be preferred to the one less favourable to him. There is absolutely no ambiguity in the provision of the statute and, therefore, it is not possible to apply any consideration based on the provision being so applied as to be more advantageous to the assessee or to give the assessee a kind of a choice in the matter of adjustment. The assessee has no choice in a matter like this. The statute determines the priorities. We have already referred to the decision of the Karnataka High Court in Mysore Paper Mills Ltd. v. CIT [1979] 117 ITR 132. In that case, the competition for adjustment was between carried forward depreciation and carried forward development rebate. It was held that carried forward depreciation had precedence over unabsorbed development rebate. The same consideration which applied to determine the priority in this manner would equally apply to the present case also. In fact, in the present case, there is unabsorbed depreciation and also unabsorbed developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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