JUDGMENT

Sen, J.-The appellant is a public limited company. The assessment years involved are 1972-73, 1973-74 and 1974-75. In regard to the above assessment years, in the returns of Income filed by the appellant before the assessing authority, a claim towards allowance of development rebate under Section 33 of the Income-tax Act, 1961 (hereinafter referred to as the Act ) was made. The assessing authority allowed the claim as made by the company. Subsequently, the assessing authority noticed from the balance sheet of the appellant company that the company had made a transfer of sums from the development rebate reserve to share capitalisation account by issue of bonus shares. The assessing authority concluded that the issuance of bonus shares amounted to distribution of profits by capitalisation and thus the assessing authority was of the view that the provisions of Section 155(ii)(a) of the Act applied to the instant case, as the development rebate reserve has been utilised for distribution by way of dividend or profits. Accordingly, the assessing authority passed an order under Section 154 of the Act wihdrawing the development rebate claim allowed earlier.

2. The Company went up on appeal. The appellate authority allowed its appeal. The claim of the appellant for development rebate was sustained.

3. The Appellate Tribunal on the Revenue s appeal concurred with the view taken by the first appellate authority and concluded that there was no distribution by way of dividend or profits in the issue of bonus shares.

Thereafter, on the application by the Commissioner of Income-tax, the following questions of law were referred to the High Court :

"(a) whether on the facts and in the circumstances of the case the ITAT is right in law in holding that issue of bonus shares from out of the development rebate reserve did not amount to distribution of profits within the meaning of Section 34(3)(a)(i)?

(b) whether on the facts and in the circumstances of the case the ITAT is right in law in holding that the ITO is not justified in withdrawing the development rebate?"

4. The High Court after examining the provisions of Section 34(3)(a)(i) and Section 155(5)(ii)(a) of the Income Tax Act held that the issue of bonus shares resulted in distribution of profits and therefore, the statutory requirement of Section 34(3)(a)(i) of the Act had been violated. The High Court answered both the questions in the negative and in favour of the Revenue. The assessee has come up on appeal to this Court.

5. Section 33 of the Act deals with allowance of development rebate in respect of a new ship or new machinery or plant owned by the assessee, if it was wholly used for the purpose of business carried on by him. The allowance is given subject to a number of conditions. We are concerned in this case with the condition laid down in Section 34, which is as under :

"34(3)(a). The deduction referred to in Section 33 shall not be allowed unless an amount equal to seventy five per cent 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 purpose of the business of the undertaking, other than-

(i) for distribution by way of dividends or profits."

Section 155(5)(ii)(a) which is also relevant in this case is as under :

"(5) Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant installed after the 31st day of December, 1957 in any assessment year under Section 33 of the Indian Income-tax Act, 1922 (XI of 1922), and subsequently-

(i) xx xx xx xx

(ii) at any time before the expiry of the eight years referred to in sub-section (3) of Section 34, the assessee utilised the amount credited to the reserve account under clause (a) of that sub