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Commissioner Of Income Tax v. Castle Rock Fisheries, Cochin .
Factual and Procedural Background
The assessee, a registered firm engaged in the seafood business, operated from Cochin with a branch in Bombay. During the accounting year relevant to Assessment Year 1969-70, the Bombay branch installed a freezing, cold-storage and ice plant. The plant was temporarily let to a sister concern, and the rental income was nevertheless assessed as the assessee’s business income.
The assessee claimed a 35% development rebate under Section 33(1)(b)(B)(i)(a) of the Income-tax Act, 1961. The Income-tax Officer granted only 20%, reasoning that the plant was not used by the assessee itself. The Appellate Assistant Commissioner (AAC) upheld this view. On further appeal, the Income-tax Appellate Tribunal (ITAT) awarded the full 35% rebate and, under Section 256(1), referred the following question to the Kerala High Court: whether the assessee could claim the higher rebate for the plant it had let out.
By judgment dated 26 February 1980 (Income-tax Reference No. 24 of 1978), the High Court answered the question in the assessee’s favour. The Revenue obtained a certificate under Section 261 of the Act and appealed to the Supreme Court.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the assessee is entitled to a development rebate at 35% under Section 33(1)(b)(B)(i)(a) for a freezing and storage plant that had been temporarily let out.
- Whether the Revenue could belatedly challenge the assessee’s basic eligibility for any development rebate, when that issue had not been contested in earlier proceedings or included within the question referred by the Tribunal.
Arguments of the Parties
Revenue (Appellant)
- The plant and machinery were “temporarily let out” and therefore not “wholly used for the purpose of business carried on by” the assessee, as mandated by Section 33(1)(a). Consequently, the assessee was not entitled to the higher—or possibly any—development rebate.
Assessee (Respondent)
The opinion does not reproduce distinct arguments advanced by the assessee; its stance is reflected only through the findings accepted by the Tribunal and the High Court.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court noted two independent grounds for rejecting the Revenue’s appeal:
- Finality of earlier findings: Both the Income-tax Officer and the AAC had treated the plant’s rental income as the assessee’s business income and had already granted a development rebate (albeit at 20%). Those assessments had become final, and the Revenue neither sought rectification nor challenged eligibility in its appeal to the Tribunal. The High Court therefore assumed that the statutory condition in Section 33(1)(a)—that the plant be wholly used for the assessee’s business—stood satisfied, limiting the dispute only to the appropriate rate of rebate.
- Scope of the referred question: The only question referred by the Tribunal concerned the rate (20% vs. 35%), not basic eligibility. The Supreme Court held that an issue lying outside the terms of a referred question cannot be reopened in an appeal under Section 261.
Because the Revenue’s challenge exceeded the confined scope of the reference and ignored the finality of earlier orders, the Court found no merit in the appeal.
Holding and Implications
APPEAL DISMISSED. No order as to costs.
Immediate Effect: The assessee remains entitled to a 35% development rebate for the Assessment Year 1969-70, as affirmed by the High Court. The order imposes no costs on either party. The decision turns on procedural finality and the limited scope of a reference; it does not establish a new substantive precedent on development rebate eligibility.
Order
1. This appeal by certificate granted under Section 261 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) is directed against the judgment of the Kerala High Court dated 26-2-1980 in Income Tax Reference No. 24 of 1978 which relates to the Assessment Year 1969-70.
2. The assessee is a registered firm dealing in seafoods having its head office at Cochin and a branch at Bombay. During the accounting year relevant to the Assessment Year 1969-70 the assessee had put up a freezing, cold storage and ice plant at their Bombay branch and the same was temporarily let out by them to a sister concern. The income derived by such letting was treated and assessed as the business income of the assessee for the relevant accounting year. The assessee claimed that they were entitled to development rebate in respect of cold storage and ice plant at 35% as provided for under Section 33(1)(b)(B)(i)(a) of the Act. The Income Tax Officer allowed development rebate at the rate of 20% on the ground that the assessee had not been using the plant for processing goods but had actually let it out. The said order of the Income Tax Officer was affirmed in appeal by the Appellate Assistant Commissioner. On further appeal by the assessee, the Income Tax Appellate Tribunal (hereinafter referred to as “the Tribunal”) held that the assessee was entitled to development rebate at the rate of 35%. The Tribunal referred the following question for the opinion of the High Court:
“Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that in respect of the freezing and storage plant let out by the assessee, the assessee can claim development rebate under Section 33(1)(b)(B)(i)(a) of the Income Tax Act, 1961?”
3. On behalf of the Revenue it was contended before the High Court that since the assessee had temporarily let out the plant and machinery in question in its branch at Bombay it cannot be said that the said machinery or plant is “wholly used for the purpose of business carried on by him” as is mandatorily required under Section 33(1)(a) of the Act for the purpose of eligibility for the grant of development rebate and that the Tribunal was not justified in holding that the assessee is entitled to the grant of development rebate at the rate of 35%. The High Court has rejected the said contention urged on behalf of the Revenue on the ground that while making the assessment for the year concerned the Income Tax Officer had proceeded on the explicit basis that despite the fact that the freezing plant etc. in the Bombay branch of the assessee had been let out to a sister concern, the said plant and machinery were nonetheless being used by the assessee for its business and treated the income derived by the assessee by such letting out as a business income of the assessee. The High Court has also observed that the Appellate Assistant Commissioner before whom the matter was carried by the assessee had confirmed the order of assessment made by the Income Tax Officer thereby impressing his stamp of approval on the view taken by the Income Tax Officer that the assessee was entitled to the grant of development rebate under Section 33(1) and that if the Department had a case that no development rebate at all was admissible on the facts and circumstances obtaining in this case, the Department should have taken appropriate action to get the matter rectified either at the Appellate Assistant Commissioner level or by suo motu revision at the hands of the Commissioner, but no such action was taken and the assessment orders were allowed to become final. The High Court has also mentioned that in respect of the Assessment Year 1969-70, the Department had filed an appeal before the Tribunal but no ground was taken at all in the said appeal that the development rebate ought not to have been granted to the assessee. The High Court held that since the grant of development rebate to the assessee as per the orders passed by the Income Tax Officer and the Appellate Assistant Commissioner had become final it must be assumed that in respect of the assessment year in question and the condition laid down in Section 33(1)(a) that the machinery or plant is wholly used for the purpose of business carried on by the assessee is duly satisfied and it is on that basis that the Court had to proceed to determine the rate of rebate that is admissible in this case. Proceeding on that basis, the High Court upheld the view of the Tribunal that the assessee was entitled to grant of development rebate at the rate of 35%.
4. Dr Gauri Shankar, learned Senior Counsel appearing for the Revenue, has sought to raise the question about the eligibility of the assessee for grant of development rebate on the ground that the conditions laid down in Section 33(1)(a) are not satisfied. Apart from the reasons aforementioned given by the High Court for rejecting this contention we are also of the view that the question that was referred by the Tribunal does not comprehend within its scope, the said contention sought to be raised by the learned counsel. We, therefore, do not find any merit in the appeal and the same is accordingly dismissed. But in the circumstances there will be no order as to costs.
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