Development rebate reserve requirements do not by themselves defeat withdrawal or carry forward of unabsorbed rebate under binding precedent.

Non-creation of the prescribed development rebate reserve under sections 33 and 34 of the Income-tax Act did not, by itself, authorise withdrawal of development rebate already allowed in the original assessment, where the issue was governed by the binding precedent in Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO. The same precedent also meant that unabsorbed development rebate of an earlier assessment year could still be carried forward and set off against profits of a subsequent year, even if the reserve had not been created in the relevant previous year. The Revenue's objection was therefore rejected and the assessee succeeded on both rebate and set-off questions.

---

---

Issues: (i) Whether development rebate could be withdrawn for failure to create the prescribed development rebate reserve under section 33 read with section 34 of the Income-tax Act, 1961. (ii) Whether unabsorbed development rebate of an earlier assessment year could be set off against the profits of a subsequent assessment year despite non-creation of reserve in the relevant previous year.

Issue (i): Whether development rebate could be withdrawn for failure to create the prescribed development rebate reserve under section 33 read with section 34 of the Income-tax Act, 1961.

Analysis: The questions were governed by the binding decision of the Court in Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO. On that authority, the consequence of non-creation of the full reserve did not justify withdrawal of the development rebate already allowed in the original assessment in the manner suggested by the Revenue.

Conclusion: The issue was answered in the negative and in favour of the assessee.

Issue (ii): Whether unabsorbed development rebate of an earlier assessment year could be set off against the profits of a subsequent assessment year despite non-creation of reserve in the relevant previous year.

Analysis: The same binding precedent governed the claims for carry forward and adjustment of unabsorbed development rebate for the later assessment year. The absence of a reserve in the earlier year did not defeat the assessee's entitlement to set off the unabsorbed rebate against subsequent profits.

Conclusion: The issue was answered in the affirmative and in favour of the assessee.

Final Conclusion: The reference was disposed of by applying the earlier binding ruling, with the Revenue's objection rejected and the assessee succeeding on the rebate and set-off questions.

Ratio Decidendi: Where a binding precedent governs development rebate, non-creation of the reserve in the relevant year does not, by itself, authorise withdrawal of rebate already allowed or defeat the carry forward and set-off of unabsorbed development rebate in subsequent years.

---