1. In the assessment of the assessee for the assessment year 1962-63, the relevant accounting period being the year ending 31st December, 1961, the assessee-company had claimed a development rebate of Rs. 1,28,415. In the profit and loss account of the assessee-company, the amount debited to the development rebate reserve was Rs. 96,722, but the actual appropriation of the profit for the said year was only to the extent of Rs. 63,516 because there was an excess provision for the previous year to the extent of Rs. 33,206. Before the ITO, the contention of the assessee was that the excess provision for the earlier year should be taken into account while considering the development reserve created for the assessment year 1962-63. The ITO, however, proceeded to determine the development rebate on the footing that a reserve in the sum of Rs. 63,516 only was created. He, therefore, allowed a proportionate amount of development rebate to the extent of Rs. 84,689.
2. The appeal filed by the assessee was rejected by the AAC who held that the claim for development rebate was allowable only on the basis of the actual reserve created during the year of account.
3. In the appeal filed before the Appellate Tribunal by the assessee, the Tribunal took the view that the assessee had created the requisite development reserve of Rs. 96,722 and that the excess amount of Rs. 33,206 out of the development reserve in the earlier year could be taken into account. The Tribunal, therefore, took the view that the assessee was entitled to the development rebate as claimed by it.
4. On these facts, the following question has been referred to the High Court at the instance of the revenue :
'Whether, on the facts and in the circumstances of the case, the assessee-company is entitled to the full development rebate claimed and contemplated by section 34(3)(a) of the Income-tax Act, 196 ?'
5. The development rebate permissible under s. 33 is subject to the condition laid down in s. 34(3)(a) of the Act, the material part of which reads as follows :
'The deduction referred to in section 33 shall not be allowed unless an amount equal to 75% of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than, -
(i) for distribution by way of dividend or profits; or
(ii) for remittance outside India as profits or for the creation of any asset outside India :...'
6. In view of the provisions of s. 34(3)(a), before an assessee can claim the full amount as development rebate, it must be shown that an amount of 75% of such development rebate is debited to the profit and loss account of the relevant previous year. The only question which, therefore, arises for the purposes of the decision of the question referred to us is whether the assessee had debited the required 75% of the development rebate to the profit and loss account in respect of the assessment year 1962-63.
7. The copy of the profit and loss account for the assessment year 1962-63, which is annex.'B' to the statement of the case, contains an entry as follows :
'Development Rebate Reserve Rs.Provision 1961 96,722Les : Excess provision pr. year 33,206---------63,516'
8. This entry clearly shows that the provision which is made in the accounting year 1961 is to the extent of Rs. 96,722. It is not in dispute that this amount represents 75% of the development rebate of Rs. 1,28,415 claimed by the assessee. This reserve is made up of two items. The provision for reserve is in two parts. One item is of Rs. 33,206 which was the excess provision made in respect of the development reserve for the earlier year and the other item is Rs. 63,516, which is the actual amount which is appropriated out of the profits of the year in question. There is also a corresponding entry of reversal which is on record as annex.'E'. This journal entry shows that there was an excess provision of Rs. 33,205.56 in respect of the development reserve for the year 1960. The provision made in 1960 was Rs. 7,72,000 though the actual provision required for 1960 was Rs. 7,38,794.44. The amount to be reversed was thus Rs. 33,205.56. It is this excess amount of Rs. 33,206 which has been now treated as a part of the development rebate reserve for the assessment year 1962-63.
9. What was material for the purposes of s. 34(3)(a) was that a total amount of 75% of the development rebate to be actually allowed should be debited to the profit and loss account. This requirement, in our view, is completely satisfied in this case and it cannot be said that merely because only Rs. 63,516 out of the profits of the assessment year 1962-63 were appropriated towards the development rebate reserve, the amount appropriated was less than 75% of the development rebate claimed. There was nothing to prevent the assessee-company from taking into account the excess provision of the previous year. It is obvious that a corresponding reversal entry has been made and at the time when the profit and loss account is made, this entry has been given effect to by bringing over the excess provision for the earlier year to be made a part of the development reserve for the assessment year in question. In our view, therefore, the Tribunal was justified in holding that the excess amount in respect of the development rebate reserve for the year 1960 could be taken into account in the assessment year in question and the assessee was, therefore, rightly held to be entitled to the entire claim in respect of the development rebate.
10. In this view of the matter, the question referred to us must be answered in the affirmative and in favour of the assessee. Revenue to pay the costs of this reference.