Income-tax---

----Reference---Question of law---Development rebate---Available in respect of plant and machinery installed after 31-5-1974 but before 1st day of June, 1975, if evidence furnished by assessee that he had purchased such plant or machinery or had entered into a contract for purchase of such machinery with manufacturer, owner or dealer before 1-12-1973---Agreement, for supply of plant and machinery entered into on 28-12-1973---Tribunal allowing claim of assessee for development rebate---Whether justified---Question of law arises for reference---Indian Income Tax Act, 1961, Ss.33 & 256(2).

For the assessment year 1975-76, the Assessing Officer disallowed the claim of the assessee for development rebate under section 33 of the Income Tax Act, 1961, on the ground that there was no valid contract for supply of machinery prior to December 1, 1973. On appeal, the (N. K. Jain, J) Commissioner (Appeals) confirmed the disallowance. The Tribunal allowed the claim of the assessee and held that it is a well-accepted principle in company law that a promoter cannot 'act on behalf of the company under incorporation and the company soon after its incorporation has to ratify such actions of the promoters, that the promoter, in the instant case, had only acted on behalf of the company and such contract having been ratified by the company, became the contract of the company and was enforceable against the company by third parties and that, therefore, the Department should have accepted the assessee's claim for development rebate. The Tribunal directed the Assessing Officer to grant development rebate to the assessee. The Revenue filed an application under section '256(1) of the Act for referring a question of law, which was rejected by the Tribunal. On an application filed under section 256(2) for directing the Tribunal to refer a question of law, the Revenue contended that the scheme of development rebate was discontinued in-respect of plant and machinery installed after May 31, 1974:

Held, that section 16 of the Finance Act, 1974, provided that the benefit of the scheme of development rebate would be available in exceptional cases even in respect of plant and machinery installed after May 31, 1974, but before the 1st day of June, 1975, if the assessee furnished evidence to the satisfaction of the Income-tax Officer that before the 1st day of December, 1973, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or dealer, in, such machinery or plant before December 1, 1973. In the instant case, the Revenue pointed out that the agreement for supply of plant and machinery was made on December 28, 1973. Therefore, the question, whether the Tribunal was justified in allowing development rebate on the plant and machinery for which the agreement to supply was entered into on December 28, 1973, had to be referred to the High Court.

J.N. Sharma for the Commissioner.

S.S. Samvatsar for the Assessee

JUDGMENT

N.K. JAIN, J.---The Commissioner of Income-tax, Bhopal, has made an application under section 256(2) of the Income Tax Act, 1961 (for short, "the Act"), seeking a direction to the Income-tax Appellate Tribunal, Indore Bench, Indore, to state the case and refer the undernoted question said to be of law for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing development rebate on plant and machinery for which agreement to supply was entered into on December 28, 1973?"

The assessment year involved is 1975-76. The Assessing Officer disallowed the claim of the respondent-assessee for development rebate on' the ground that there was no valid contract for supply of machinery prior to December 1, 1973. In appeal, the Commissioner of Income-tax (Appeals) confirmed the disallowance. However, in second appeal (I.T.A. No.662/Ind of 1988), the Tribunal vide its order, dated September 17, 1993, allowed the claim of the assessee observing:

"We have carefully perused the records and considered the rival submissions. It is a well-accepted principle in company law that a promoter cannot act on behalf of the company under incorporation and the company soon after its incorporation has to ratify such actions of the promoters. This is an accepted mode of transacting in the case of the company and we have, no doubt, in our mind that the promoter in this case has only acted on behalf of the company and such contract having been ratified by the company becomes the contract of the company and is enforceable against the company by the third parties. This being the legal position, in our view, the Department should have accepted the assessee's claim for development rebate. We, therefore, direct that the assessee shall be given the development rebate in accordance with law. We further direct the assessing authority to withdraw the initial depreciation if any allowed by applying the other provisions of the Act alternate to development rebate. The Assessing Officer is directed to modify his order and also carry out the consequences of the same."

The Revenue was not satisfied with the decision of the Tribunal. It, therefore, made an application under section 256(1) of the Act seeking a reference to this Court. The Tribunal vide its order, dated September 1, 1994, passed in R.A: No.294/Ind of 1993, declined the prayer holding that the order of the Tribunal is based on appreciation of facts and no referable question of law, therefore, arises. The Revenue has, therefore, approached this Court under section 256(2) of the Act.

We have heard Shri N.J. Sharma, Income-tax Officer, appearing for the Revenue, and Shri S.S. Samvatsar, learned counsel for the non-?applicant/assessee.

It is pointed out by the Revenue that the scheme of development rebate was discontinued through a notification, dated May 25, 1971, in respect of plant and machinery installed after May 31, 1974. Section 16 of the Finance Act, 1974, however, provided that the benefit of the scheme would be available in some exceptional cases even in respect of plant and machinery installed after May 31, 1974. The relevant clause of section 16 of the Act of 1974, thus, reads as under (see (1974) 94 ITR (St.) 46):

"(c) any machinery or plant (not being machinery or plant referred to in clause (b)) installed by any assessee after the 31st day of May, 1974, but before the 1st day of June, 1975, if the assessee furnishes evidence to the satisfaction of the Income-tax Officer that before the 1st day of December, 1973, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner, of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant."

It would be thus seen that in order to get development rebate on a plant and machinery installed after May 31, 1974, the assessee was required to furnish evidence that he had entered into a contract for purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant before December 1, 1973. In the instant case, pointed out the Department, the agreement for supply of plant and machinery was in fact made on December 28, 1973, as is clear from clause (XI) of para. 2 of the order of the Tribunal itself.

We refrain from expressing any opinion on the merits of the case as we propose to allow the application. We are, however, satisfied that a case is made out to direct the Tribunal to state the case and refer the above noted question for the opinion of this Court. We order accordingly.

The application, thus, stands disposed of as aforesaid but without any order as to costs. A copy of the order to be transmitted to the Tribunal for doing the needful within nine months from today.

M.B.A./3104/FC???????????????????????????????????????????????????????????????????? ??????? Application disposed of.