Atlas Radio and Electronics Pvt. Ltd. vs Commissioner of Income Tax

G.T. Nanavati, J.—At the instance of the assessee, the Income Tax Appellate Tribunal has referred the following question to this court u/s

256(1) of the Income Tax Act, 1961 :

Whether the assessee was entitled to development rebate of Rs. 15,103 in the assessment year 1972-73 ?

During the accounting period relevant to the assessment year 1971-72 the assessee purchased machinery for which Rs. 15,103 became payable

as sales tax. But, during that year, the amount of sales tax was exactly not known and the sales tax liability actually came to be crystallised in the

accounting period relevant to the assessment year 1972-73. The assessee, therefore, claimed development rebate in respect of Rs. 15,103 as the

cost of the machinery went up by that amount.

This claim of the assessee was rejected by the Income Tax Officer on the ground that it was doubtful whether sales tax was really payable on

the purchase of the said machinery and as the assessee was making attempts to get the said amount refunded. He also rejected the claim on the

ground that, as the machinery was installed in the preceding year, the development rebate could only be considered for that preceding year, that is,

assessment year 1971-72.

In the appeal filed by the assessee, the Appellate Assistant Commissioner held that the appellant was entitled to the development rebate for the

assessment year 1972-73 and, therefore, directed the Income Tax Officer to allow the development rebate in that assessment year after the

verifying that necessary conditions regarding creation of development rebate reserves, etc., were satisfied.

The Department challenged the said order passed by the Appellate Assistant Commissioner by filling an appeal before the Tribunal. The

Tribunal held that the it was not correct to say that the liability to pay sales tax did not raise till it was known what amount of sales tax was payable.

It also held that once it was accepted that the liability to pay sales tax raised the costs of machinery, development rebate had to be claimed for the

assessment year in which the machinery was purchased. Taking this view, the Tribunal allowed the appeal and reversed the order passed by the

Appellate Assistant Commissioner. The assessee thereupon moved the Tribunal for referring the abovestated question to this Court.

Learned counsel appearing for the assessee did not dispute the legal position that the liability to pay sales tax arose as soon as the transaction of

sale or purchase was complete. Merely because the seller of the machinery and the assessee were in doubt as to whether the assessee would be

entitled to the exemption under one or other of the exemption notifications issued by the Government, it cannot be said that the liability to pay sales

tax had not arisen. Therefore, even though the amount of the sales tax was paid in the subsequent year, it will have to be stated that the liability to

pay sales tax arose in the accounting period relevant to the assessment year 1971-72. Learned counsel also could not seriously dispute before us

that as the liability to pay sales tax raised the cost of the machinery, development rebate had to be claimed in the assessment year in which the

machinery was purchased. Therefore, in view of the clear position of law, we are of the opinion that the Tribunal was right in the reversing the

order of the Appellate Assistant Commissioner whereby he had directed allowance of the development rebate in the assessment year 1972-73.

The assessee became entitled to development rebate in the assessment year 1971-72. We, therefore, answer the question referred to us in the

negative, that is, against the assessee and in favour of the Revenue.

However, while disposing of this reference, it becomes necessary to observe that, if the assessee applies to the Commissioner u/s 154, to be

just and fair to the assessee, the Commissioner should entertain such an application and grant the development rebate by passing suitable order in

that behalf, if granting of such development rebate is otherwise permissible in law. We hope that the Commissioner will do so without taking any

technical view of the matter.

This reference stands disposed of accordingly with no order as to costs.