Premier Cable Co. Ltd. v. Commissioner Of Income-Tax.

Income-tax Referred Cases Nos. 417 of 1982 and 375 of 1985

Decided on May 3, 1991

The Judgment of the Court was delivered by

K.S Paripoornan, J.:— At the instance of an assessee—a public limited company—the Income-tax Appellate Tribunal (in short, “the Tribunal”) has referred the following five questions of law for the decision of this court under section 256(1) of the Income-tax Act, 1961, in I.T.R No. 417 of 1982:

“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Commissioner of Income-tax had jurisdiction under section 263 of the Income-tax Act to revise the order of the Income-tax Officer passed after obtaining directions from the Inspecting Assistant Commissioner under section 144B of the Act?

(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessment year 1975-76 is the eighth assessment year immediately succeeding the assessment year 1967-68 for the purpose of carry forward and set off of unabsorbed development rebate under section 33(2)(ii) of the Act and not the assessment year 1976-77?

(iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that, for the purpose of carry forward of section 80J relief, the assessment year 1975-76 is the fourth assessment year immediately succeeding the assessment year 1971-72 and not the assessment year 1976-77?

(iv) Whether the Tribunal was right in holding that, as far as the assessee was concerned, it Cannot be said that the assessment year 1975-76 did not exist or was not there?

(v) Whether the Tribunal was right in holding that the applicant is not entitled to deduction of the provision for gratuity ?”

2. The assessee-company is engaged in the business of manufacture and sale of cables and wires. The respondent is the Revenue. We are concerned herein with the assessment year 1976-77. Up to the assessment year 1974-75, the assessee was following the financial year as its accounting year. After March 31, 1974, the assessee requested the Revenue for changing the accounting year from the period ending March 31, to the year ending on September 30. The Income-tax Officer allowed the said request subject to the condition that the profits for the 18 months from April 1, 1974, to September 30, 1975, will be assessed in the first year of change—assessment year 1976-77. This is for computing the business income of the assessee. The said order is dated April 21, 1975 (page 14 of the paper book). The assessment for the year was completed on September 22, 1979, on a total income of Rs. 1,12,23,424. The Income-tax Officer adjusted against the said income the losses and depreciation carried forward from earlier years. He adjusted the outstanding development rebate, carried forward from 1967-68 to 1971-72 in the sum of Rs. 35,67,073. This amount included a sum of Rs. 33,16,297, which represented the development rebate relating to the assessment year 1967-68, which was not allowed in that year since the assessment resulted in a loss. The Income-tax Officer also made adjustment by way of deduction under section 80J of the Act. A winding wire and strip unit, a new industrial undertaking, came into existence and started manufacture during the previous year relevant to the assessment year 1971-72. The assessee did not furnish details regarding the liabilities and profits derived from this new unit. The assessing authority stated that the deduction under section 80J would be considered when the assessee furnished such details. When such details were furnished, the Income-tax Officer, while making the assessment for the year 1976-77, granted relief initially in a sum of Rs. 99,102, which was enhanced to Rs. 1,48,653 by order dated October 23, 1980. The said relief was afforded under section 80J(2) of the Act. Besides the above two adjustments by way of deductions, the Income-tax Officer allowed a sum of Rs. 2,54,452 being the provision made for payment of gratuity even though there was no approved gratuity fund in existence during the previous year relevant to the assessment year, i.e, the 18 months ending on September 30, 1975. The gratuity fund itself was created on December 30, 1975, and the application was made to the Commissioner on the same day, December 30, 1975. The variation between the income returned by the assessee and the income that was proposed to be assessed by the Income-tax Officer was more than rupees one lakh. So, in accordance with section 144B of the Income-tax Act, as it stood then, a draft assessment order was sent to the Inspecting Assistant Commissioner of Income-tax. After hearing the assessee's objections, the Inspecting Assistant Commissioner of Income-tax issued directions to the Income-tax Officer. The order of assessment dated September 22, 1979, was passed thereafter. The above assessment order was the subject-matter of the suo motu revisional proceedings of the Commissioner of Income-tax. On a perusal of the relevant files, the Commissioner of Income-tax took the view that the order of the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue on the four following aspects:

(i) Section 33(2) of the Income-tax Act permits the carry forward of outstanding development rebate only for eight assessment years immediately succeeding the relevant assessment year. A sum of Rs. 33,16,297 permitted to be carried forward as development rebate related to the assessment year 1967-68 and the 8th assessment year for the year 1967-68 was the assessment year 1975-76. So the set off allowed for the same against the income for the assessment year 1976-77 was erroneous and prejudicial to the interests of the Revenue.

(iii) Deduction under section 80J is permissible only for the initial assessment year (in this case 1971-72) and each of the four assessment years immediately succeeding the initial assessment year as per section 80J(2) of the Act. The fourth assessment year immediately succeeding the initial assessment is the assessment year 1975-76. The order granting deduction under section 80J for the assessment year 1976-77 was erroneous and prejudicial to the interests of the Revenue.

(iii) The Income-tax Officer allowed the sum of Rs. 2,54,452 as “provision” for payment of gratuity. There was no approved gratuity fund in existence during the relevant previous year ended on September 30, 1975. It was created on December 30, 1975, and the application was made only on December 30, 1975. It came into existence on January 1, 1976. The trust deed stated that it shall be deemed to have come into existence on January 1, 1976. So section 40A(7)(b)(i) will not apply. The deduction allowed by the Income-tax Officer was not in conformity with the provisions of section 40A(7)(b)(ii) of the Act either, since the said provision applies only for the assessment, years 1973-74 to 1975-76.

(iv) The salary and perquisites of some of the employees exceeded the mandatory limits prescribed by section 40A(5) of the Act. The allowance of the full amount without restricting the deduction under section 40A(5) of the Act was erroneous. This was quantified in the sum of Rs. 47,170.”

3. On the above four grounds, the order of assessment dated September 22, 1979, was set aside by the Commissioner of Income-tax by order dated September 19, 1981, and the assessment was directed to be enhanced accordingly. The assessee assailed the order passed by the Commissioner of Income-tax in suo motu revision proceedings, by filing an appeal before the Tribunal (Cochin Bench) as I.T.A No. 496/(Coch.) of 1981. In particular, the jurisdiction of the Commissioner of Income-tax to revise the order passed by the Income-tax Officer and also the four grounds on the basis of which the assessment order was varied were attacked before the Tribunal. After considering the matter in great detail, the Tribunal, by its order dated March 20, 1982, dismissed the appeal filed by the assessee. It upheld the jurisdiction of the Commissioner of Income-tax to pass the suo motu order of revision and also upheld the variation in the assessment order on four specific grounds stated by the Commissioner. It is thereafter at the instance of the assessee, that the Tribunal has, under section 256(1) of the Income-tax Act, referred the five questions of law, formulated hereinabove in paragraph 1 of the judgment, for the decision of this court. At the motion of the assessee, in O.P No. 4532 of 1983, this court directed the Tribunal to refer four further questions of law in order to enable this court to focus better, for detailed consideration of the various aspects that arose for consideration before the Tribunal when it disposed of I.T.A No. 496/(Coch.) of 1981 by order dated March 20, 1982. The Tribunal has referred the following four questions of law also for the decision of this court which is the subject-matter of the connected I.T.R No. 375 of 1985. They are as follows:

(i) Whether, on the facts and in the circumstances of the case, 1975-76 could be regarded as one of the relevant assessment years for the purpose of development rebate relating to the assessment year 1967-68 and relief under section 80J when the applicant had no previous year for the assessment year by virtue of the change of previous year allowed by the Income-tax Officer?

(ii) Whether the Tribunal was right in holding that there may not be a previous year for an assessment year but it cannot be said that there is no assessment year in any year?

(iii) Whether the claim of the assessee that, in counting eight years and four years, respectively, for the purpose of development rebate and relief under section 80J, assessment year 1975-76 should not be taken into account because there could be no assessment for that year in respect of profits or gains of business carried on by the assessee, has been rightly rejected by the Tribunal?

(iv) Whether, on the facts and in the circumstances of the case, even if there was no approved gratuity fund in existence during the accounting year, the assessee was not entitled to deduction of gratuity by virtue of the provision made by them and the subsequent transfer of the same to the trust fund created for that purpose in accordance with law?

4. We should immediately state that questions Nos. 1, 2 and 3 in Income-tax Reference No. 375 of 1985 are various aspects which will arise for consideration in answering questions Nos. 2, 3 and 4 in Income-tax Reference No. 417 of 1982. We propose to consider questions Nos. 2, 3 and 4 in Income-tax Reference No. 417 of 1982 along with the various aspects stressed as different questions —questions Nos. 1, 2 and 3 in Income-tax Reference No. 375 of 1985. Question No. 4 in Income-tax Reference No. 375 of 1985 is an aspect involved while considering question No. 5 in Income-tax Reference No. 417 of 1982, and we will consider them together.

5. We heard counsel for the applicant-assessee as also counsel for the respondent-Revenue. For a proper understanding of the controversy raised in this case, it will be useful to quote sections 33(1)(a) and 33(2), section 80J(1) and (2) and section 144B(1) and (4) of the Income-tax Act. They are as follows:

“33. Development rebate. —(1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b)…

(2) 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 asses-see 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, (the total income for this purpose being computed without making any allowance under sub-section (1) or sub-section (1A) of this section or sub-section (1) of section 33A or any deduction under Chapter VI-A or section 280-O) is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under sub-section (1) or sub-section (1A), as the case may be,—

(i) the sum to be allowed by way of development rebate for that assessment year under sub-section (1) or sub-section (1A) 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 as aforesaid, shall be carried forward to the following assessment year and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment 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 assessment; year and so on, so, however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding 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.”

“80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases. — (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the deduction if any, admissible to the assessee under section 80HH) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year):

Provided that in relation to the profits and gains derived by an asses-see, being a company, from an industrial undertaking which begins to manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first brought into use after that date, or from the business of a hotel which starts functioning after that date, the provisions of this sub-section shall have effect as if for the words ‘six per cent.’, the words ‘seven and a half per cent’ had been substituted.

(2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning (such assessment year being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year.

“144B. Reference to Inspecting Assistant Commissioner in certain cases. — (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee…

(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment:

Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard.

(5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income-tax Officer.”

6. Though many aspects arise for consideration in these references, the main controversy mooted before us centre round the interpretation of section 33(2)(ii) and section 80J(2) of the Income-tax Act, 1961. Under section 33(2)(ii), unabsorbed development rebate relating to an assessment year is permitted to be carried forward to the following assessment year and so on, for eight assessment years, immediately succeeding the assessment year, relevant to the previous year in which the machinery or plant was installed. Under section 80J(2) of the Act, the deduction is permitted to be made in the initial assessment year and each of the four assessment orders immediately succeeding the initial assessment year. In this case, the outstanding development rebate in the sum of Rs. 33,16,297 relating to the assessment year 1967-68 was adjusted against profits of the year 1976-77 under section 33(2)(ii) of the Act. Similarly, the deduction under section 80J of Act, not allowed for the assessment year 1971-72, was adjusted and deduction given for the assessment year 1976-77. At this juncture, we should notice two important aspects. The first is that, from the year 1967-68, till 1976-77, the assessee-company was only incurring loss. For the assessment year 1975-76, there was no previous year. The Income-tax Officer had closed the proceeding in the order sheet as “N.A” (nil assessment). The succeeding year for the assessment year 1974-75 in this case happened to be the assessment year 1976-77, since, at the request of the assessee, the Income-tax Officer permitted a change of the accounting year from the year ending March 31, to the year ending September 30, subject to the condition that the profits for the 18 months from April 1, 1974, to September 30, 1975, will be assessed for the assessment year 1976-77— vide order of Income-tax Officer dated April 21, 1975—page 14 of the paper book.

7. Though five different questions have been formulated in Income-tax Reference No. 417 of 1982 and four different questions in Income-tax Reference No. 375 of 1985 for the decision of this court, broadly, three points arise for consideration:

Point No. 1.—Whether the Commissioner of Income-tax had jurisdiction under section 263 of the Act to revise the order of the Income-tax Officer, since it was subjected to scrutiny by the Inspecting Assistant Commissioner under section 144B of the Act?

(Question No. 1 in Income-tax Reference No. 417 of 1982).

Point No. 2.—Whether the adjustment of development rebate relating to the assessment year 1967-68 and the relief under section 80J relating to the assessment year 1971-72 could have been allowed for the assessment for the year 1976-77.

8. The question that arises for consideration in respect of the above two claims is whether 1975-76 would be the 8th/4th immediately succeeding assessment year or 1976-77 is the 8th/4th immediately succeeding assessment year.

9. In considering the above plea, incidentally the question arises as to whether the assessment year 1975-76 existed or was there, so far as the assessee is concerned.

(Questions Nos. 2, 3 and 4 in Income-tax Reference No. 417 of 1982 and questions Nos. 1, 2 and 3 in Income-tax Reference No. 375 of 1985 go together).

Point No. 3. —Whether the claim for deduction of the provision of gratuity was permissible. For the assessment year 1976-77, the claim could be considered only under clause (i) of sub-section (b) of section 40A(7) of the Income-tax Act and not under section 40A(7)(b)(ii) which will be relevant only for 1973-74 to 1975-76.

(Question No. 1 in Income-tax Reference No. 417 of 1982 and question No. 4 in Income-tax Reference No. 375 of 1985 go together).

10. We shall consider the above aspects seriatim:

Under section 263 of the Income-tax Act, the Commissioner can revise an order passed by the Income-tax Officer, if he considers that any order passed by the Income-tax Oficer is erroneous in so far as it is prejudicial to the interests of the Revenue. In this case, the Commissioner of Income-tax, in exercise of the powers vested in him under section 263(1) of the Income-tax Act, revised the order passed by the Income-tax Officer dated September 22, 1979. The said order was passed by the Income-tax Officer after taking into account the instructions issued by the Inspecting Assistant Commissioner under section 144B(4) of the Income-tax Act. The objection taken in this behalf is that the order passed by the Income-tax Officer is really one passed at the instance of the Inspecting Assistant Commissioner and, for all intents and purposes, the final order passed by the Income-tax Officer giving effect to the directions of the Inspecting Assistant Commissioner cannot be said to be an order passed by the Income-tax Officer. The Tribunal, for the detailed reasons given by it in paragraph 21 of its order, repelled the plea, holding that the assessment order in question is an order passed by the Income-tax Officer and that the Commissioner of Income-tax cannot be denied the jurisdiction under section 263 on the ground that the assessment order was made on the basis of the directions issued by the Inspecting Assistant Commissioner under section 144B of the Act. We are of the view that the Tribunal was justified in holding so. In cases where the variation between the income returned by the assessee and the income that was proposed to be assessed by the Income-tax Officer was more than one lakh rupees during the relevant time, the Income-tax Officer was obliged to send a draft assessment order to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner was enabled to issue directions to the Income-tax Officer. Even so, the final order is one to be passed by the Income-tax Officer. We are of the view that the final order, so passed by the Income-tax Officer, does not cease to be an order passed by him and so, it does not cease to be revisable by the Commissioner, merely because it was passed with the approval of the Inspecting Assistant Commissioner.—See CIT v. Vithal Textiles, [1989] 175 ITR 629 (MP), CIT v. Satishkumar and Co., [1990] 181 ITR 57 (MP), CIT v. East Coast Marine Products (P.) Ltd., [1990] 181 ITR 314 (AP) and CIT v. Christian Mica Industries Ltd., [1979] 120 ITR 627 (Cal). We, therefore, hold that the Commissioner of Income-tax has jurisdiction under section 263 of the Act to revise the order passed by the Income-tax Officer, though it was subjected to proceedings under section 144B of the Inspecting Assistant Commissioner. We answer question No. 1 in Income-tax Reference No. 417 of 1982 in the affirmative, against the assessee and in favour of the Revenue. Point No. 1 is answered accordingly.

Point No. 2.—Point No. 2 posed by us in paragraph 7 supra has many facets. We should bear in mind that, from the assessment year 1967-68 till 1976-77, the assessee-company was incurring only loss. The development rebate in the sum of Rs. 33,16,237 related to the assessment year 1967-68. So also, the new industrial undertaking came into existence and started manufacture during the previous year relevant to the assessment year 1971-72. The details therefor were furnished and relief under section 80J(2) was given for the same in the assessment year 1976-77. The next important aspect to be borne in mind is that, on motion by the assessee, the Income-tax Officer permitted the change of the accounting year from the year ending on March 31, to the year ending on September 30, subject to the condition that the profits for the 18 months from January 1, 1974 to September 30, 1975, will be assessed for the assessment year 1976-77. For the assessment year 1975-76, there was no previous year. The Income-tax Officer had closed the proceedings for 1975-76, in the order sheet as N.A (nil assessment). So, in this case, so far as the assessee is concerned, after the assessment year 1974-75, the next assessment year was 1976-77. For the intermediate year 1975-76, there was no previous year and the Income-tax Officer had closed the proceeding as N.A (nil assessment). The question regarding adjustment of the development rebate relating to the assessment year 1967-68 and the relief under section 80J of the Act relating to the assessment year 1971-72 depends upon the construction of the words “immediately succeeding” appearing in section 33(2) and section 80J(2) of the Act Under section 33(2)(ii), the development rebate that is to be carried forward should not be carried forward for more than eight assessment years immediately succeeding the relevant assessment year. Under section 80J(2), the unabsorbed or unadjusted relief cannot be carried forward for more than four assessment years immediately succeeding the relevant assessment year which is specified in this provision as the initial assessment year. So, to resolve the controversy, the question that arises for consideration is whether, in respect of the two claims, 1975-76 would be the 8th/4th immediately succeeding assessment year or 1976-77 is the 8th/4th immediately succeeding assessment year. We are concerned in these references with the assessment year 1976-77. The adjustment of the development rebate related to the assessment year 1967-68. The relief under section 80J related to the assessment year 1971-72. The relief under section 33(2) can be carried forward to eight assessment years immediately succeeding the assessment year relevant to the previous year in which the machinery or the plant was installed. — (section 33(2)(ii)). The deduction under section 80J(2) can be allowed in respect of an assessment year and each of the four assessment years immediately succeeding the initial assessment year. So, for relief under section 33(2)(ii) relating to the assessment year 1967-68, 1975-76 will be the 8th assessment year. Similarly, for relief under section 80J(2), the last assessment year will be 1975-76. This is by applying the normal arithmetical rule of calculation of eight and four years respectively. If 1975-76 happened to be the last assessment year for both the above reliefs, the assessee will not be entitled to the deductions as held by the Commissioner of Income-tax and the Tribunal. But the plea of the assessee's counsel is that this arithmetical of mechanical rule regarding the 8th/4th immediately succeeding the assessment year should not be applied, since there was no assessment for the assessment year 1975-76 in the case of the assessee. It is true that there was no previous year for the assessment year 1975-76, so far as the assessee is concerned. This position resulted due to the option exercised by the assessee, requesting for changing the accounting year which was allowed by the Income-tax Officer by proceedings dated April 21, 1975. The plea for changing the accounting year ending on March 31, to the year ending on September 30, was allowed subject to the condition that the profits for the 18 months from April 1, 1974, to September 30, 1975, will be assessed for the assessment year 1976-77. The assessee himself invited this position. So, the income from April 1, 1974 to September 30, 1975, was assessed, taking into account the income of the entire period, as the first accounting year, after the change in the previous year so allowed. No income was or could be assessed in the hands of the assessee for the assessment year 1975-76. But that will not, in any way, lead to the position that there was no assessment year 1975-76. Moreover, it is on record that, for the year 1975-76, though the Income-tax Officer initially issued a notice under section 139(2) of the Act, the proceeding was subsequently closed as nil assessment on the ground that the assessee had no previous year. Because the proceedings were so closed, it cannot be said that there was no assessment on the assessee for the year 1975-76. The proceeding recording nil assessment is a valid order. That is a valid order of assessment. — See Esthuri Aswathiah v. Income Tax Officer, Mysore State, [1961] 41 ITR 539 (SC) —Kanga and Palkhivala's “The Law and Practice of Income Tax” 8th Edn., page 1204. So, it cannot be said that there was no assessment year 1975-76 or assessment order for the year 1975-76. But, so far as the assessee is concerned, no income could be assessed for the year 1975-76. That is all. That will not in any way result in a situation of skipping over or otherwise not giving effect to the assessment year 1975-76. The assessment year 1975-76 cannot be said to be irrelevant, nor can it be ignored so far as the assessee is concerned. The plea of the assessee that, in the peculiar circumstances, so far as the assessee is concerned, there was no assessment year 1975-76 and the immediately succeeding assessment year for the year 1974-75 should be considered to be 1976-77 ignores the factual and legal position aforesaid. There was no income in the hands of the assessee for the year 1975-76. Due to peculiar reasons, it cannot be said that there was no assessment year 1975-76 so far as the assessee is concerned, nor is it proper to contend that, for counting the immediately succeeding 8th/4th assessment year, in the statute, anything other than an arithmetical calculation is permissible. We are of the view that, regard being had to the language of section 33(2)(ii) and section 80J(2) of the Act, the words “eight assessment years” immediately succeeding the assessment year relevant to the previous year and each of the four assessment years immediately succeeding the initial assessment year should be taken in the natural sequence without any reference to a particular assessee or a particular situation. In this view, for the relief under section 33(2)(ii) of the Act, the 8th assessment year immediately succeeding the year will be 1975-76. Similarly, for the relief under section 80J(2), the 4th assessment year immediately succeeding the initial assessment year will be 1975-76. Both the reliefs cannot be claimed in this assessment year, with which we are concerned, 1976-77. The Tribunal was justified in taking the said view. We concur with the following observations of the Tribunal.

“It is, therefore, clear that even for the assessee here, the last assessment year in which the unadjusted development rebate and the unadjusted relief under section 80J relating to the assessment year, 1967-68 and 1970-71, respectively, is the assessment year 1975-76 and not 1976-77. In fact, the words ‘immediately succeeding’ occurring in both these provisions, namely, section 33(2) and section 80J(2) should be given their natural meaning. If it is merely the word ‘succeeding’, then the position might be different. The use of the word ‘immediately’ before the word ‘succeeding’ clearly shows that the succession of the assessment years should be without any break or discontinuity.”

11. In this connection, the Bench decision of the Madras High Court in Rockweld Electrodes India Ltd. v. CIT, [1990] 185 ITR 62 is very relevant. Construing sections 80J and 80J(2), the Madras High Court held that the concept of “assessment year” must be understood in the manner prescribed under the provisions of the Income-tax Act and not with reference to a particular asses see. Whenever the assessee is permitted to get relief for a specified number of consecutive assessment years, the assessment years should be taken in the natural sequence. The reasoning and conclusion of the Tribunal is in accord with the above Bench decision of the Madras High Court. We concur with the said view. We hold that the assessee is not entitled to the relief under section 33(2)(ii) and section 80J(2) of the Act for the assessment year 1976-77. We answer questions Nos. 2, 3 and 4 in Income-tax Reference No. 417 of 1982 in the affirmative, against the assessee and in favour of the Revenue. Similarly, we answer questions Nos. 1, 2 and 3 in Income-tax Reference No. 375 of 1985 in the affirmative, against the assessee and in favour of the Revenue.

12. Point No. 3.—This point is the claim for deduction of the provision for gratuity. The assessee had made a provision for payment of gratuity in the sum of Rs. 2,54,452. The fund itself was created only on December 30, 1975. The application was made to the Commissioner on the same day, December 30, 1975. We are concerned with the previous year ending on September 30, 1975. Admittedly, there was no approved gratuity fund in existence during the relevant previous year. Even according to the assessee, the trust came into existence only on January 1, 1976 (see order of the Commissioner of Income-tax, paragraph 5). For the assessment year 1976-77, section 40A(7)(b)(i) alone is applicable. Under the said provision, the gratuity trust should be in existence during the relevant previous year. It is not so in this case. So, the assessee is not entitled to the claim for deduction. We should state that section 40A(7)(b)(ii) will be relevant only for the assessment years 1973-74 to 1975-76. This is not relevant in this case. The Tribunal was justified in holding that the assessee is not entitled to the claim for deduction of the provision made for gratuity. We answer question No. 5 in Income-tax Reference No. 417 of 1982 in the affirmative, against the assessee and in favour of the Revenue. By the same token, since the claim for deduction of gratuity for the assessment year 1976-77 could be considered only under section 40A(7)(b)(i) of the Act, the subsequent transfer to the trust fund is of no consequence. We answer question No. 4 in Income-tax Reference No. 375 of 1985 against the assessee and in favour of the Revenue. All the questions referred to this court in Income-tax Reference No. 417 of 1982 and Income-tax Reference No. 375 of 1985 are answered against the assessee and in favour of the Revenue.

13. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.