Development rebate reserve compliance under income-tax law upheld for plant and machinery installed after 1 January 1958.

Compliance with proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922 depended on the timing and manner of creating the development rebate reserve for plant and machinery installed after 1 January 1958. The Court reviewed the earlier authority, the conflicting High Court views on its effect, and the CBDT clarification, and accepted that the remaining clarifications continued to apply where no reserve was required or deficiencies could be made good. On that basis, it held that the assessee had complied with the proviso and was entitled to development rebate, leaving the High Court's decision in the assessee's favour undisturbed.

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Issues: Whether the assessee had complied with proviso (b) to section 10(2)(vib) of the Indian Income-tax Act, 1922 so as to qualify for development rebate on the plant and machinery installed after 1 January 1958.

Analysis: The dispute turned on the timing and manner of creation of the development rebate reserve. The Court noted the earlier line of authority on reserve creation, the conflicting views of the High Courts on the effect of the earlier decision on the subject, and the subsequent clarification issued by the Central Board of Direct Taxes. The Board reaffirmed that, apart from the part superseded by the earlier decision, the remaining clarifications governing cases where no reserve was required or deficiencies could be made good continued to hold the field. The Court accepted that this reflected the correct legal position under both the Indian Income-tax Act, 1922 and the Income-tax Act, 1961.

Conclusion: The assessee was held to have complied with the proviso and was entitled to development rebate.

Final Conclusion: The appeal failed and the High Court's decision in favour of the assessee remained undisturbed.

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