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TMI Blog1975 (12) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------- Name of Worth Percentage Amount of the machine of rebate of rebate -------------------------------------------------------------- 1. Boring machine 99,407 35% 34,792 2. Turret Lathe 66,300 35% 23,205 3. Turret Lathe 58,613 35% 20,540 -------------------------------------------------------------- The claim of development rebate as regards the last item of Turret Lathe worth Rs. 58,613 was limited to Rs. 15,418 so as to limit the total claim to Rs. 73,415. Since it was apparent that the assessee had not created the reserve sufficient enough to support the claim of development rebate of the uniform rate of 35% on all machines it was submitted in the alternative that the claim of development rebate should be allowed on 5 machines including the above named three machines at different rates as under : Table B ---------------------------------------------------------- Name of machine Worth Rs. Percentage Amount of of rebate rebate ---------------------------------------------------------- 1. Boring machine 99,407 35% 34,792 2. Turret Lathe 66,300 35% 23,205 3. Turret Lathe 58,613 20% 11,722 4. Lathe 16,702 20% 3,240 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the third, fourth and fifth items of machinery set out in Table B of para. 2 above is contrary to the provisions of section 33(1)(iii)(c)(A)(a) (as it stood prior to amendment from April 1, 1968) read with section 34(3) of the Act ? " In the above question, reference is made to section 33(1)(iii)(c)(A)(a), as it stood before the amendment of 1968, but this clause is in pari materia with the present section 33(1)(b)(B)(i)(a) of the Act. The question which is involved in this reference is whether it is permissible for an assessee to claim development rebate at a lesser rate than what is contemplated by section 33 especially when reserve, which is referable to an item of machinery, with regard to which the development rebate is claimed, does not comply with the provisions contained in section 34(3)(a) of the Act with regard to the creation of a reserve. In this case, it is an admitted fact that the development reserve which is created in its account books by the assessee is not 75% of the rebate at the enhanced rate of 35% on the actual cost of machinery mentioned in Table B. The facts of the case show that initially the assessee created the reserve only at the rate of 20% on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment rebate on the machines, which are covered by the 5th Schedule is for the benefit of the assessee, who undertakes the venture of a new industry, which is to be treated on priority basis and, therefore, it would be open to such an assessee to let go the advantage of higher development rebate with regard to any of such machines purchased or installed by it during the relevant accounting period. According to Shri Shah, therefore, the departmental authorities were not correct in rejecting the assessee's claim of development rebate at the rate of 20% on the machines mentioned at Sr. Nos. 3, 4 and 5 of Table B. After considering the scheme of sections 33 and 34 of the Act, which refer to the grant of development rebate, we find ourselves unable to accept these contentions of Shri Shah. In substance what Shri Shah has contended amounts to saying that even though a particular machine falls within a specific category of cases for the purpose of earning development rebate the assessee can claim a lesser rebate by creating a reserve which falls short of the requirements of sub-section (3) of section 34. The question, therefore, is whether such a claim is permissible having regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case is concerned, the assessee has admitted by its revised return that all the five machines, which are mentioned in Table B are falling in the category of articles and things specified in the Fifth Schedule and are, therefore, entitled to the enhanced development rebate of 35%. If that be so, none of these can be carried to the general category which contemplates the machines purchased or used " for the purpose of any other business " and therefore, all the five machines mentioned in Table B should be considered as covered only by the category which earns the higher rebate at the rate of 35%. Now, the grant of development rebate under section 33 is governed by the provisions contained in section 34. Sub-section (1) of section 34 says that deductions referred to in section 33 shall be allowed only if the particulars prescribed for the purpose of clauses (i) and (ii) of sub-section (1) of section 32 have been furnished by the assessee in respect of the relevant machinery or plant. This is one condition for earning development rebate. In this case, we are not concerned with this condition. Another condition is the one contemplated by sub-section (3)(a) of section 34, the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment rebate contemplated for the articles and things mentioned in the Fifth Schedule. This contention of the assessee is not permissible, because if once it is found that a particular machine falls within a particular category for the purpose of earning development rebate, an assessee cannot earn any rebate on that machine if he has not complied with the condition precedent of creating a reserve of an amount equal to 75% of the development rebate which is to be actually allowed to him. Sub-section 3(a) of section 34 specifically provides for the creation of a reserve which has reference to the rebate which is " to be actually allowed ". Therefore, the pertinent question is what is the rebate " to be actually allowed " to the articles and things specified in the Fifth Schedule ? The answer is, the rebate at the rate of 35%. The next question is whether the assessee has created the reserve of 75% of this rebate. If the answer is in the negative, it follows that the assessee has not complied with the condition precedent contemplated by sub-section (3)(a) of section 34 and would, therefore, fail in getting any rebate with regard to the machine concerned. It is true that the reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing observations of the Madras High Court in Commissioner of Income-tax v. Veeraswami Nainar : " It will follow that in order that an assessee can claim an allowance by way of development rebate under section 10(2)(vib) he should comply with the conditions contained in the proviso thereto as otherwise, under the express terms of that proviso, he would not be entitled to the allowance. Where he fails to satisfy the conditions requisite for obtaining the allowance, it will not be for the court to embark upon what the general object of the exemption was, and whether the conditions imposed were of a theoretical or technical nature, which, in the interests of justice, should be, dispensed with. We are, therefore, of opinion that the assessee, not having set apart in his accounts 75 per cent. of the amount claimable as development rebate, could not claim the benefit of section 10(2)(vib) of the Act." The above referred decision of the Madras High Court is approved by the Supreme Court in Indian Overseas Bank Ltd. v. Commissioner of Income-tax, wherein Hegde J., delivering the judgment for the court, observed that the creation of reserve contemplated by clause (b) to the proviso to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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