JUDGMENT

PATHAK, CJI. :— This appeal by certificate granted by the High Court of Gujarat is directed against the judgment of the High Court on the following questions referred to it by the Appellate Tribunal :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee cannot be denied the benefit of carry forward of development rebate?

2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing that the Income-tax Officer should determine the development rebate and such development rebate should be allowed to be carried forward and set off when profits are available and if, in. that year, the assessee fulfils the necessary requirements for such allowance like creation of adequate reserve?"

2. The assessee is a limited Company. It has a textile mill at Cambay in the State of Gujarat. For the assessment year 1962-63, the previous year being the calendar year 1961, the assessee claimed that a sum of Rs. 1,26,233 should be allowed as development rebate under S. 33 of the Income-tax Act, 1961. The Income-tax Officer rejected the claim on the ground that the assessee had not created a reserve as contemplated by sub-s. (3) of S. 34 of the Income-tax Act, 1961. The Appellate Assistant Commissioner of Income-tax dismissed the appeal filed by the assessee. In second appeal the claim by the assessee found favour with the Income-tax Appellate Tribunal. At the instance of the Revenue the questions set forth earlier were referred to the High Court for its opinion. The High Court has answered the questions in favour of the Revenue and against the assessee. It has held that the assessee had failed to comply with the conditions of sub-s. (3) of S. 34 of the Act.

3. In this appeal by the assessee it is urged that the view taken by the High Court is erroneous and that it is not necessary that a reserve should.. be created in the. previous year during which the machinery or plant was installed.

4. Sub-s. (1) of S. 33 provides that development rebate may be claimed as a deduction in respect of a new machinery or plant installed after 31st March, 1954, which is owned by the assessee and is wholly used for the purposes of the business carried on by him, and that the allowance of the deduction is subject to the provisions of S. 34. Cl (a) of sub-s. (3) of S. 34 provides that the deduction referred to in S. 33 shall not be allowed unless an amount equal to 75 per cent of the development rebate to the 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 for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of added an Explanation to this clause. The Explanation declared that the deduction referred to in S. 33 could not be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the aforesaid reserve account exceeded the amount of the profit of such previous year (as arrived at without making the deposit aforesaid) in accordance with the profit and loss account. The Explanation was inserted with retrospective effect from the commencement of the Act. Before the Explanation was enacted a difference of opinion had existed between the High Courts on the question whether the statute required the creation of a reserve in the previous year in which the new machinery or plant was installed, when the amount of the profit of that previous year was either nil or insufficient for the purposes of enabling the creation of such reserve. It is not necessary to refer to these cases, for it seems clear to us that the Explanation, which applies to the assessment year under consideration before us, removes the doubt altogether. What is contemplated