Carried-forward development rebate can be set off despite machinery being hired out and not used in the assessee's own business.

Unabsorbed development rebate under section 33(2) of the Income-tax Act, 1961 may be carried forward to later assessment years and adjusted against total income until fully exhausted. The provision does not require the relevant machinery to remain in the assessee's own business or to be used exclusively for that business before the carried-forward rebate can be set off. The statutory limit concerns only the extent of adjustment, not continued user of the asset. The noted position is consistent with the earlier view of the same High Court.

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Issues: Whether unabsorbed development rebate of earlier years could be carried forward and set off against the assessee's total income in the assessment year 1970-71 even though the relevant machinery had been given on hire and was not used for the assessee's own business.

Analysis: Section 33(2) of the Income-tax Act, 1961 permits development rebate, to the extent not allowed in the relevant year, to be carried forward to subsequent assessment years and adjusted against the assessee's total income until the allowance is exhausted. The provision does not impose a condition that the assessee must continue to use the concerned asset exclusively in connection with its own business before the unabsorbed rebate can be carried forward. The statutory limitation is only as to the extent of adjustment, not the continued user of the asset in the assessee's business. The conclusion is supported by the earlier decision of the same Court on the point.

Conclusion: The assessee was entitled to carry forward and set off the unabsorbed development rebate against the income of the assessment year 1970-71 notwithstanding that the machinery had been hired out and was not used in the assessee's own business.

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