1997 (4) TMI 13 - SC - Income Tax

Supreme Court upholds development rebate eligibility, dismisses Revenue's appeal

The Supreme Court dismissed the appeal by the Revenue regarding the eligibility of the assessee for development rebate under section 33(1)(a) of the ... Development rebate under section 33(1)(b)(B)(i)(a) - wholly used for the purpose of the business - finality of assessment and consequential estoppel - scope of Tribunal's reference to the High CourtDevelopment rebate under section 33(1)(b)(B)(i)(a) - wholly used for the purpose of the business - finality of assessment and consequential estoppel - Entitlement of the assessee to development rebate at the rate of 35 per cent in respect of the freezing, cold storage and ice plant let out to a sister concern for the assessment year 1969-70. - HELD THAT: - The Tribunal's reference asked whether the assessee could claim development rebate in respect of the freezing and storage plant. The High Court proceeded on the factual and legal premise that the Income-tax Officer had treated the income from letting as business income and had granted development rebate, a view confirmed by the Appellate Assistant Commissioner, and that the Department did not challenge the grant of rebate in the appellate proceedings which were taken to the Tribunal. On that basis the High Court held that the condition that the machinery be 'wholly used for the purpose of the business carried on by him' must be assumed to be satisfied for the assessment year in question because the assessment orders accepting that view had become final. The Supreme Court agreed that the Revenue's contention that the condition in section 33(1)(a) was not satisfied was not within the scope of the question referred by the Tribunal and that, having regard to the finality of the earlier assessment orders and absence of challenge by the Department at earlier stages, the High Court was justified in treating the condition as satisfied and in upholding the Tribunal's allowance of rebate at 35 per cent.Appeal dismissed; the assessee is entitled to development rebate at 35% for AY 1969-70 on the basis that the assessment orders granting the rebate had become final and the Revenue's contrary contention was outside the reference's scope and unventured at earlier stages.Final Conclusion: The appeal is dismissed. The Court upheld the High Court and Tribunal in allowing development rebate at 35% for the assessment year 1969-70, treating the condition of 'wholly used' as satisfied in view of the final assessment orders and the limited scope of the Tribunal's reference; no order as to costs. Issues:1. Interpretation of section 33(1)(a) of the Income-tax Act, 1961 regarding eligibility for development rebate.2. Whether machinery or plant let out temporarily can be considered as 'wholly used for the purpose of the business carried on by him' as per the Act.3. Validity of development rebate granted at the rate of 35 per cent.Analysis:The case involved an appeal against the judgment of the Kerala High Court related to the assessment year 1969-70 under the Income-tax Act, 1961. The assessee, a registered firm dealing in sea foods, had set up a freezing, cold storage, and ice plant at their Bombay branch, which was temporarily let out to a sister concern. The issue arose when the assessee claimed development rebate at 35 per cent. under section 33(1)(b)(B)(i)(a) of the Act, but the Income-tax Officer allowed only 20 per cent. development rebate, citing that the plant was let out and not used for processing goods. The Appellate Assistant Commissioner upheld this decision, but the Income-tax Appellate Tribunal ruled in favor of the assessee, granting the rebate at 35 per cent. The Tribunal then referred the question to the High Court regarding the eligibility of the assessee for development rebate on the let-out freezing and storage plant.The Revenue contended before the High Court that the plant and machinery let out by the assessee could not be considered 'wholly used for the purpose of the business carried on by him,' a mandatory requirement for development rebate eligibility under section 33(1)(a) of the Act. However, the High Court rejected this contention, emphasizing that the Income-tax Officer had treated the income derived from letting out the plant as business income of the assessee, and the Appellate Assistant Commissioner had confirmed this treatment. The High Court noted that the Department did not challenge the grant of development rebate during the assessment process, and as the orders had become final, it was assumed that the condition of section 33(1)(a) was satisfied. Therefore, the High Court upheld the grant of development rebate at 35 per cent.During the appeal to the Supreme Court, the senior counsel for the Revenue raised the question of the assessee's eligibility for development rebate based on the conditions of section 33(1)(a). The Court, after considering the arguments and the scope of the question referred by the Tribunal, found no merit in the appeal. The Court dismissed the appeal, stating that the raised contention did not fall within the scope of the referred question. Consequently, no costs were awarded in the case.