Development rebate depends on statutory conditions; admitted sale within the prohibited period bars allowance at assessment stage.

Development rebate under the Indian Income-tax Act, 1922 depended on satisfaction of the statutory proviso, including the condition that the machinery not be sold to a person other than the Government within the prescribed period. Where the sale within that period was already admitted at the time of assessment, the assessee was not entitled to the rebate at all. Section 35(11), which addresses rectification after an allowance has been made, was not meant to compel the assessing officer to grant a rebate in conscious breach of the condition and then withdraw it later, particularly where limitation could bar rectification.

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Issues: Whether development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922 had to be allowed first and then withdrawn under section 35(11) when the assessing authority knew at the time of assessment that the machinery had already been sold within the prohibited period.

Analysis: The allowance of development rebate was held to depend upon fulfilment of the conditions in the proviso to section 10(2)(vib). One of those conditions was that the machinery should not be sold to a person other than the Government before the expiry of the prescribed period. Where, at the time of assessment, it was already admitted that the buses had been sold within that period, the assessee was not entitled to the rebate in the first instance. Section 35(11), dealing with rectification of a mistake after an allowance has already been made, was not intended to require the Income-tax Officer to grant a rebate knowingly in breach of the statutory condition and then withdraw it later, especially when limitation might defeat rectification.

Conclusion: The rebate was not required to be first allowed and then withdrawn under section 35(11); the assessee was not entitled to the allowance at the assessment stage. This issue was decided against the assessee and in favour of the Revenue.

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