M.N. CHANDURKAR C.J.

The two questions which have been referred to this court at the instance of the Revenue under section 256(1) of the Income-tax Act, 1961, are as follows.

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to development rebate under section 33(1)(b) for the assessment years under review and that it should be carried forward to the subsequent years for allowance though no reserve was created by the assessee in the previous years as provided in section 34(3)(a) of the Income-tax Act, 1961 ?

2. Whether the Tribunal's view that for the purpose of the allowance of development rebate under section 33, no reserve need be created by the assessee if the assessee did not have any assessable profits (luring the year of account is sustainable in law ?

It is not necessary to refer to the facts on which these, questions have been framed in view of the fact that so far as this court is concerned, it is now settled by a decision of this court in Radhika Mills Ltd. v. CIT 1969 (74) ITR 661 , that if there is no total income or if there is a loss, there can be no allowance of development rebate but it has to be, carried forward to the following year. This court has held that carry forward of the development rebate is allowed only if the failure to create a reserve on the part of assessee is on account of the fact that there is no income available in the assessee's hands in the relevant year out of which the requisite reserve or any part of it could actually be created. This decision of this court has been followed by the Bombay High Court in Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO 1973 (92) ITR 241. The Bombay High Court has taken the view that it was not possible to accept the contention of the Revenue that the assessee must create the reserve in the year of installation or use of the plant or machinery, irrespective of any profits, as a condition precedent to the actual allowance of development rebate in the subsequent years in which there are assessed profits and that the assessee was not obliged to create a reserve in order to be eligible for allowance of development rebate if there was no taxable income in the relevant years according to its assessment. This position is accepted in the Circular of the Board of Direct Taxes dated January 30, 1976, reproduced in Law of Income Tax by Sampath Iyengar, Volume 11, page 1380. Inviting reference to the earlier circular of the Board dated October 14, 1965, the circular further states as follows in clause (b):

'In case where the total income computed before allowing the development rebate is a loss, there was no legal obligation to create any statutory reserve in that no development rebate would actually be allowed in that year."

In view

of this settled position of law, the questions referred are answered as follows 1. In the affirmative and in favour of the assessee 2. In the affirmative and in favour of the assessee The assessee would get the costs of this reference from the Revenue. It is fixed at Rs. 500. (one set).