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Judgment
Divan, C.J.—In this case, at the instance of the revenue, the following question has been referred to us for our opinion :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the order of the Income Tax Officer u/s
143(3) dated March 28, 1968, granting set-off of unabsorbed development rebate relating to assets installed prior to 1st January, 1958, by Hind
Mills Ltd., was not liable to rectification u/s 154 of the Act as it was not a mistake apparent from the recor ?
The following facts leading to this reference are as follows : The assessee before us is a limited company. With effect from July 1, 1962, another
limited company, Messrs. Hind Mills Ltd., was amalgamated with the assessee-company. Messrs. Hind Mills Ltd. had certain development rebate
which was unabsorbed and carried forward as per the order in that company''s case for the assessment year 1962-63. We are concerned in the
instant case with the assessment year 1963-64. The ITO in the original order passed in the case of the assessee-company allowed the set-off of
the entire amount of development rebate. Later on, by an order of rectification under s. 154 of the I. T. Act, 1961, the ITO made a distinction
between development rebate which remained unabsorbed in the case of Messrs. Hind Mills Ltd. prior to January 1, 1958, and development
rebate subsequent to January 1, 1958. The ITO held that development rebate on assets installed prior to January 1, 1958, could not be set off and
the set-off of that development rebate was allowed by mistake and, therefore, withdrew the set-off of development rebate to the tune of Rs.
4,86,525. Against this order of the ITO under s. 154, the assessee went in appeal. The AAC cancelled the order of the ITO and thereafter the
revenue took the matter in appeal to the Tribunal. The Tribunal held that under s. 33 as it stood at the relevant time by sub-s. (1) there was no
distinction between development rebate prior to January 1, 1958, and subsequent to January 1, 1958, and by sub-s. (3) of s. 33 as it stood in
1963, there was no distinction between development rebate prior to January 1, 1958, and subsequent to January 1, 1958. Sub-section (3)
provided that on amalgamation where a company sold or otherwise transferred to the amalgamated company any ship, machinery or plant in
respect of which development rebate had been allowed to the predecessor under sub-s. (1), the balance of development rebate, if any, still
outstanding to the predecessor in respect of such ship, machinery or plant had to be allowed to the successor in accordance with certain provisions
of law. The Tribunal observed that they did not like to give a final decision whether on amalgamation an amalgamated company was entitled to
development rebate prior to January 1, 1958, which was outstanding in the predecessor company but the only purpose of reference to s. 33(1)
and s. 33(3) as it stood in 1963 was to indicate that there was scope for interpreting that the entire unabsorbed development rebate even relating
to a period prior to January 1, 1958, would qualify for allowance in the case of the amalgamated company. Even if there was a mistake, in the
view of the Tribunal, this was not a mistake apparent from the record which could be rectified under s. 154. The Tribunal declined to express any
opinion beyond that stage and for this reason it held that the revenue''s appeal must fail and, accordingly, the Tribunal dismissed the appeal.
In order to appreciate the contentions which have been urged in this case before us, it is necessary to bear in mind the history of the provisions
relating to development rebate. Under the Indian I. T. Act, 1922, the concept of development rebate was introduced by s. 10(2) (vib). This clause
was inserted by the Finance Act, 1955. It granted development rebate in respect of a new ship acquired or new machinery or plant installed after
the 31st day of March, 1954, which was wholly used for the purposes of the business carried on by the assessee. This development rebate was at
the rate of 25 per cent. It must be pointed out that, as originally enacted in 1955, there was no provision in s. 10(2) (vib) for carry forward of
unabsorbed development rebate. It was only by the Amendment Act of 1958 the Expln. 1 was added to s. 10(2) (vib). By that Explanation it was
provided that in the case of a ship acquired or machinery or plant installed after the 31st day of December, 1957, where the total income of the
assessee for the year of acquisition or installation (the total income for this purpose being computed without making any allowance under the
clause) is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under this clause, (i) the sum to be
allowed by way of development rebate for that year under this clause shall be only such amount as is sufficient to reduce the said total income to
nil; and (ii) the amount of the development rebate, to the extent to which it has not been allowed, shall be carried forward to the following year, and
the development rebate to be allowed for the following year shall be such amount as is sufficient to reduce the total income of the assessee for that
year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the
following year and so on, so, however, that no portion of the development rebate shall be carried forward for more than eight years. Thus, there is
a clear distinction in respect of development rebate in respect of plant or machinery installed prior to January, 1, 1958, and plant or machinery
installed subsequent to January 1, 1958. For all machinery installed between the period April 1, 1954, and December 31, 1958, there was no
provision for carry forward of unabsorbed development rebate. It was only by Expln. 1 to s. 10(2) (vib) that carry forward of unabsorbed
development rebate came into existence.
When the I. T. Act of 1961 was enacted in 1961, sub-s. (2) of s. 33 as originally enacted provided for carry forward of the development rebate
and it reproduced the wordings of Expln. 1 to s. 10(2) (vib) and in terms it provided that in the case of a ship acquired or machinery or plant
installed after the 31st day of December, 1957, where the total income of the assessee assessable for the assessment year relevant to the previous
year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be, is nil or is
less than the full amount of the development rebate calculated at the rate applicable thereto under sub-s. (1), as the case may be the provision for
carry forward was in the same lines as under the 1922 Act for the period between January 1, 1958, and April 1, 1961.
Under sub-s (3) of s. 33 as it stood prior to the amendment by Finance (No. 2) Act of 1967, where, in a scheme of amalgamation the
amalgamating company referred to in the rest of the provisions of the Act as ""the predecessor"" sold or otherwise transferred to the amalgamated
company referred to as ""the successor"", and ship, machinery or plant in respect of which development rebate has been allowed to the predecessor
under sub-s. (1), the successor shall continue to fulfil the conditions mentioned in sub-s. (3) of s. 34 in respect of the reserve created by the
predecessor and under clause (b) of s. 33(3), the balance development rebate, if any, still outstanding to the predecessor in respect of such ship,
machinery or plant shall be allowed to the successor in accordance with the provisions of sub-s. (2), so, however, that the total period for which
the balance of development rebate shall be carried forward in the assessment of the predecessor and the successor shall not exceed the period of
eight years. So, even in the case where there is an amalgamation, the successor-company in entitled only to the carry forward of unabsorbed
development rebate is accordance with s. 33(2). A reference to s. 33(2) clearly indicates that the carry forward is available only in respect of
machinery installed after January 1, 1958.
One has only to read these different dates and bear the history of the legislation on this point in mind to realise that even Hind Mills Ltd. itself
was not entitled to any carry forward of development rebate in respect of machinery installed prior to January 1, 1958, and if the predecessor-
company was not entitled, the successor-company, namely, the assessee before us, was certainly not entitled to carry forward unabsorbed
development rebate in respect of machinery installed prior to January 1, 1958. With respect to the Tribunal, the provision in s. 33(3)(b) as it stood
at the relevant time, that is, in respect of the assessment year 1963-64, has been lost sight of by the Tribunal because all that the ITO has to do
when he started the rectification proceedings and passed the rectification order was to bear in mind these different provisions and the different
dates as set out from the legislation and realise that there was an error apparent on the face of the record inasmuch as carry forward of unabsorbed
development rebate in respect of machinery installed by Hind Mills Ltd. prior to January 1, 1958, had been allowed though under the Expln. 1 to
s. 10(2) (vib) of the 1922 Act and under s. 33(2) of the 1961 Act no carry forward of unabsorbed development rebate was permissible in respect
of machinery installed prior to January 1, 1958. This was clearly an error apparent on the face of the record. No controversy or no debate was
open so far as these dates and clear-cut legal provisions are concerned. Under these circumstances, the Tribunal was in error when it held that the
power of rectification under s. 154 was wrongly exercised by the ITO as in the view of the Tribunal there was scope for debate and scope for
interpretation. In our view, once the whole history of the legislation on this point and the legislation as it stood at the relevant time is borne in mind,
there is no scope even for interpretation. One has only to look to the dates and hold that Hind Mills Ltd. was not entitled to carry forward of
unabsorbed development rebate in respect of machinery installed prior to January 1, 1958. That was precisely what was done by the rectification
order. The Tribunal''s conclusion was, therefore erroneous.
In the light of the above discussion, we hold that the Tribunal was not right in law in holding that the order of the ITO under s. 143(3) dated
March 28, 1968, granting set-off of unabsorbed development rebate relating to assets installed prior to January 1, 1958, by Hind Mills Ltd. was
not liable to rectification under s. 154.
Under these circumstances, we answer the question referred to us in the negative, that is, in favour of the revenue and against the assessee.
There will be no order as to costs.