1984 (2) TMI 42 - HC - Income Tax

Court rules no reserve needed for development rebate in loss year. Assessee wins.

The High Court of Punjab and Haryana ruled in favor of the assessee, stating that there was no legal obligation to create a reserve for the development ... Developement Rebate, Development Rebate Reserve Issues:- Denial of development rebate to the assessee in the assessment year 1972-73.- Interpretation of provisions under the Income Tax Act regarding the creation of statutory reserve for development rebate.Analysis:The High Court of Punjab and Haryana was presented with a question of law regarding the denial of a development rebate to the assessee in the assessment year 1972-73. The assessee, a private limited company engaged in the manufacture and sale of polyester and resins, claimed a development rebate for machinery installed during the relevant accounting period. The Income Tax Officer (ITO) initially denied the rebate, stating that since the assessee had not created a reserve for the development rebate in the previous year and had not claimed the rebate, they were not entitled to it in the current assessment year. However, the Appellate Authority Commission (AAC) overturned the decision based on a Bombay High Court precedent, directing the ITO to reconsider the claim if a reserve had been created. The Tribunal later rejected the claim, citing that the machinery was not installed in the relevant year and no order for carrying forward the rebate had been obtained under the Income Tax Act.The court delved into the interpretation of provisions under the Income Tax Act related to the allowance of development rebate. It was noted that Circular No. 189 dated January 30, 1976, clarified that if the total income had been computed before allowing the development rebate and resulted in a loss, there was no obligation to create a statutory reserve in that year. This clarification aligned with earlier circulars and decisions emphasizing that the creation of a reserve was not mandatory in a year with losses where no development rebate could be allowed. The court highlighted precedents from various High Courts supporting this interpretation, emphasizing that the assessee was not required to create a separate rebate reserve for carrying forward the development rebate.In conclusion, the court ruled in favor of the assessee, stating that there was no legal obligation to create a reserve for the development rebate in a year with losses where no rebate could be allowed. The judgment was delivered in favor of the assessee, with costs awarded against the Revenue. Judge Rajendra Nath Mittal concurred with the decision.