For the purpose of development rebate under Section 33 of the Income Tax Act, 1961, the actual cost of machinery or plant to the assessee is to be determined in accordance with the definition in Section 43(1), and any change in the rate of exchange of currency is not to be taken into account as per Section 43A(2).

M.R.Sharma, J.

1. The assessee is a registered firm deriving income from the manufacture and sale of shoddy yarn. It agreed to purchase one woollen card, one woollen ring spinning frame and one willow machine with spares from a Japanese company. The payment was to be made in foreign currency and on instalment basis. For the assessment year 1969-70, the assessee claimed development rebate on a sum of Rs. 9,89,017 spent towards the price of the machinery acquired during the relevant accounting period. The ITO while framing the assessment deducted a sum of Rs. 2,63,688 from this amount representing the cost of the machinery on account of devaluation and allowed the rebate on a sum of Rs. 7,25,329 only. The plea raised by the assessee that under Section 43A(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), the increase in price on account of devaluation should be taken into consideration for development rebate, was negatived by the ITO and the AAC. It, however, prevailed with the Income-tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as "the Tribunal"), which gave the assessee the necessary relief.

2. At the instance of the revenue, the following question of law has been referred to us for our opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the actual cost of the new machinery to the assessee was a sum of Rs. 9,89,017 on which development rebate was admissible ?"

3. We have heard the learned counsel for the parties.

4. Under Section 33 of the Act, deduction on account of development rebate has to be worked out on the basis of a certain percentage of "the actual cost of machinery or plant to the assessee". The words "actual cost" are defined in Section 43(1) of the Act. Section 43A(1) of the Act lays down that a change in the rate of exchange of currency has to be taken into consideration for determining the cost. Sub-section (2) of this section, however, makes a departure from the normal rule and lays down that such a change shall not be taken into account in computing the actual cost of an asset for the purpose of the deduction on account of development rebate under Section 33 of the Act. In view of this provision, the Tribunal, in our opinion, correctly came to the conclusion that the assessee was entitled to the relief claimed.

5. The view taken by us is supported by a Division Bench judgment of the Madras High Court in Addl. CIT v. Kwality Spinning Mills (P.) Ltd. [1977] 109 ITR 646 and another Division Bench judgment in Arvind Mills Ltd. v. CIT [1978] 112 ITR 64 (Guj).

6. Mr. Awasthy, the learned counsel for the revenue, however, relied upon another Division Bench judgment of the Madras High Court in South India Shipping Corporation Ltd. v. Addl. CIT [1979] 116 ITR 819 for the contrary proposition. In that case, however, the devaluation took place later and the assessee had, on the basis of the mercantile system followed by it, entered in its books of account the cost of the machinery incurred prior to the devaluation. As a matter of fact, the court distinguished South India Shipping Corporation Ltd.s case [1979] 116 ITR 819 and Arvind Mills Ltd.s case [1978] 112 ITR 64 (Guj) on this very basis.

7. For the reasons aforementioned, we answer the question of law referred to us for our opinion in the affirmative, i.e., against the revenue and in favour of the assessee. No costs.

B.S.Dhillon, J.

8 I agree. Appendix EXTRACT FROM THE STATEMENT OF THE CASE * * *

9. In coming to the above conclusion, the Tribunal observed as under :

"10. We have gone through the record and heard the learned representatives of the parties and, in our opinion, the assessee deserves to succeed. Section 33 of the Income-tax Act, 1961, provides that in respect of new machinery or plant which is owned by the assessee and is wholly used for the purpose of the business carried on by him, there shall be allowed a deduction, in respect of the previous year in