Development rebate denied at de novo assessment where statutory condition was already known to be unfulfilled.

Development rebate was conditional on the machinery not being sold or otherwise transferred within the prescribed period, and the allowance was unavailable where that condition was not met. Because the Income-tax Officer already knew at the de novo assessment stage that the buses had been sold within eight years of purchase, he was not obliged to grant the rebate first and then withdraw it under the rectification provision; the rebate could be denied at assessment. The decision therefore favoured the Revenue.

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Issues: Whether, on a de novo assessment, the Income-tax Officer was bound first to allow the development rebate and thereafter withdraw it under section 35(11) of the Indian Income-tax Act, 1922, or whether he could the rebate at the threshold when the disqualifying fact had already come to his knowledge.

Analysis: The proviso to section 10(2)(vib) made the availability of development rebate conditional upon the machinery not being sold or otherwise transferred within the specified period. The object of the provision was to deny the rebate where the statutory condition was not satisfied. Although the usual course may be to allow the rebate first and later cancel it under section 35(11) when the disqualifying fact is discovered subsequently, that procedure was unnecessary where, at the time of the fresh assessment, the Income-tax Officer already knew that the buses had been sold within eight years of purchase and the assessee had not fulfilled the condition for claiming the allowance.

Conclusion: The Income-tax Officer was not required to first grant the development rebate and then withdraw it under section 35(11); the rebate could be denied at the stage of de novo assessment. The issue was decided in favour of the Revenue.

Ratio Decidendi: Where the disqualifying fact showing non-fulfilment of a statutory condition for allowance is already known to the assessing authority at the time of assessment, the authority need not first grant the allowance and subsequently withdraw it under the rectification or cancellation provision.

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