High Court allows inclusion of increased machinery cost for development rebate

The High Court of Madras ruled in favor of the assessee, a private limited company, allowing the inclusion of the increased cost of machinery due to currency devaluation for claiming development rebate under section 33. The court held that the actual cost as defined in section 43(1) should encompass the increased cost, rejecting the department's argument based on section 43A(2). Consequently, the court affirmed that the assessee was entitled to development rebate on the heightened price of imported machinery resulting from fluctuation in the exchange rate for the assessment year 1967-68.

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Issues: Claim of development rebate based on increase in cost of machinery due to devaluation of Indian currency.

The High Court of Madras considered the case of an assessee, a private limited company, claiming development rebate for the assessment year 1967-68 on the value of newly added plant and machinery. The Income-tax Officer disallowed the claim citing section 43A(2) of the Income-tax Act, 1961, which prohibits changes in actual cost for granting development rebate under section 33. The Appellate Assistant Commissioner and the Tribunal upheld the Income-tax Officer's decision. The Tribunal held that the expression "actual cost" as defined in section 43(1) applied to the case, allowing the inclusion of the increased cost of Rs. 48,342 for claiming development rebate. The Additional Commissioner of Income-tax challenged this conclusion, leading to a reference to the High Court on whether the assessee was entitled to development rebate on the increased price of imported machinery due to fluctuation in the exchange rate.

For the purpose of answering the question, the High Court referred to section 33 which deals with the grant of development rebate, section 43 which defines terms relevant to income from business, and section 43A which deals with changes in the rate of exchange. The court emphasized that section 43A(2) excludes the applicability of section 43A(1) in computing the actual cost for the purpose of development rebate under section 33. The Tribunal and the court agreed that the sum of Rs. 48,342 should be included in the actual cost as defined in section 43(1) for claiming development rebate. The court held in favor of the assessee, stating that the department's contention against computing the actual cost as provided in section 43(1) was not valid. Therefore, the court affirmed that the assessee was entitled to development rebate on the increased cost of machinery due to currency devaluation.

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