S. Ranganathan, J. ( 1 ) THIS income-tax reference arises out of the assessment of a registered firm carrying on business under the name and style of M/s. Markanda Enginearing for the assessment year 1969-70 for which the relevant previous year ended on 31-3-1969. The assessee is engaged in an industry covered by items 20 and 22 of the Fifth Schedule to the Income-tax Act and was as such entitled to development rebate at 35 per cent of the actual cost of the new machinery or plant installed before 1-4-1970 and wholly used for the purpose of business under section 33- ( 1) (b) (B) (i) (a) as against the normal rate of 20 per cent available in the case of other assessees in respect of a like asset under section 33 (1) (b) (B) (iv) (a) of the Act. The deduction towards development rebate is to be allowed in respect of the previous year in which the machinery or plant is installed or where such machinery or plant is first put to use in the immediately succeeding year then in respect of that previous year. The grant of the deduction, however. is subject to the conditions laid down in section 34 (3) of the Act which as it stood at the relevant time read as follows : "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 purposes of the business of the undertaking other than (i) for distribution by way of dividends or profits or (ii) for remittance outside India as profits or tor the creation of any asset outside India: It is necessary to refer to one more provision in this context and that is the provision contained in section 33 (2) which sets out the mode of deduction of the allowance by way of development rebate. This sub-section reads as fol- lows : "33 (2 ). This sub-section reads as fol- lows : "33 (2 ). In the case of a ship acquired or machinery or plant installed after the 31st day of December, 1957, where the total income of the assessee assessable to the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year as the case may be, (the total income for this purpose being computed without making any allowance under sub-section (1) or subsection (1a) of this section or sub-section (1) of section 33a or any deduction under Chapter VIA or section 280-0 is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under sub-section (1) or sub-section (1a ). as the case may be, (i) The sum to be allowed by way of development rebate for that assessment year under sub-section (1) or sub-section (1a) shall be only such amount as is sufficient to reduce the said total income to nil and (ii) the amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is- sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year so on, so, however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding he assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be. "the other provisions of sections 33 and 34 are not relevant for our present purposes. ( 2 ) WE may now revert to the facts of the present case which should be considered in the context of the above provisions. During the previous year which ended on 31-3-1969 the assessee firm installed new machinery, the actual cost of which was Rs. 3,02,461. Since the development rebate was at 35 per cent as already mentioned it would have been eligible for a development rebate of Rs. During the previous year which ended on 31-3-1969 the assessee firm installed new machinery, the actual cost of which was Rs. 3,02,461. Since the development rebate was at 35 per cent as already mentioned it would have been eligible for a development rebate of Rs. 1. 05,863 provided that it created a reserve as contemplated by the provisions above-mentioned. If the entire amount of development rebate attributable to the new plant and machinery which works out to Rs. 1. 05,863 @35 per cent of actual cost of Rs. 3,02,461 were to be allowed to the assesses in the previous year it should have created a reserve of 75 per cent of this amount or Rs. 79,397 under section 34 (3) (a ). The assessee, however, created only a reserye to the extent of Rs. 60,000. ( 3 ) WHILE completing the assessment for the assessment year 1969-70 the Income-tax Officer rejected the assessee s claim for the development rebate straightaway. In his view the assessee should have created a reserve to the extent of Rs. 79,397 but had created a reserve only to the extent of Rs. 60,000 and since the assessee had failed to fulfil one of the statutory conditions necessary to be fulfilled before development rebate can be allowed as a deduction the assessee s claim could riot be entertained in this respect. ( 4 ) THE assessee preferred an appeal to the Appellate Assistant Commissioner. The assessee s representative appears to have thought of a short cut to get out of the difticulty raised by the Income-tax Officer. He seems to have contended before the Appellate Assistant Commissioner that though the assessee was entitled to development rebate 35 per cent it was prepared to waive its rights to the higher rate of development rebate and confine its claim to development rebate at 20 per cent which is available in the case of industries other than those specified in the Fifth Schedule. If the claim for development rebate was thus restricted the development rebate allowable would only be a little over Rs. 60. 000 and it would have been sufficient if the assessee had created a reserve of about Rs. 45,000. It was, therefore. urged that the assessee s claim for development rebats at 20 per cent should be granted as an allowance to that extent was adequately covered by the reserve created by the assessee. 60. 000 and it would have been sufficient if the assessee had created a reserve of about Rs. 45,000. It was, therefore. urged that the assessee s claim for development rebats at 20 per cent should be granted as an allowance to that extent was adequately covered by the reserve created by the assessee. This plea commanded itself to the Appellate Assistant Commissioner who directed the Income-tax Officer to allow development rebate at 20 per cent as claimed by the appellant. ( 5 ) THE Income-tax Officer preferred an appeal to the Appellate Tribunal. It was contended that since the assessee was engaged in a priority industry it was eligible for development rebate at 35 per cent but this could not be allowed because theassessee had failed to create a reserve for an adequate amount which is one of the statutory conditions precedent for the allowance of the claim. It was. therefore, prayer that the Income-tax Officer s order should be restored. The matter came before the Vice-President of the Tribunal who disposed of the matter. ( 6 ) BEFORE the Tribunal the departmental representative pleaded that the issue raised in the appeal was an academic one and that, as a matter of fact, there was no question of any development rebate being allowed for the year in question as the total income before the allowance of development rebate was a negative figure Other hand,, on behalf of the assessee a direction was sought about the carry forward of unabsorbed rebate. He held as follows : "i agree with the Departmental Representative that development rebate could not be acutally allowed for the assessment year 1969-70 for the simple reason that there was no positive income against which the same could be allowed. At the same time, the assessee could not be deprived of the benefit of the reserve that it had created in the year of account. I, therefore. modify the direction of the Appellate Assistant Commissioner by saying that unabsorbed development rebate sufficiently covered by the reserve created by the assessee shall be carried forward and allowed in the year in which there is a positive income. " ( 7 ) SUBSEQUENT to the order of the Tribunal the assessee filed an application under section 254 before the Tribunal. " ( 7 ) SUBSEQUENT to the order of the Tribunal the assessee filed an application under section 254 before the Tribunal. It was pointed out that the total income for the year under assessment was at a loss and, therefore, no reserve for development rebate was required to be created at all in the previous year relevant to the assessment year in question. It was contended that even though a development rebate reserve has been created in this year the carry forward could not be restricted to the extent of development rebate reserve; the entire development rebate calculated in accordance with the provisions of section 33 (1) was law to be carried forward to succeeding assessment year to be set off against the income of the relevant years in which there is a positive total income. It is only in the year in which the development rebate has to be considered for being actually allowed that a reserve to the extent of 75 per cent of the amount to be actually allowed was required to be created. The assessee, therefore, sought an amendment of the order of the Tribunal which allowed the carry forward only of "the unabsorbed development rebate sufficiently covered by the reserve created by the assessee. " This application was however, rejected by the Tribunal. However, on an application preferred by the revenue under section 256 (1) the Tribunal has referred to us the following question for our decision : "whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in giving directions that the unabsorbed development rebate sufficiently covered by the reserves created by the assessee should be carried-forward and allowed u)s 33 (2) (ii) of the Income-tax Act, 1961 in the year in which there was positive income ?" ( 8 ) TO complete the narration of the relevant facts it is necessary to state that in the accounting year in question the assessee s profit and loss account showed a net loss after deduction of depreciation and development rebate of Rs. 75,173. 00. In this context it may be mentioned that the assessee had created development rebate in the books only to the extent of Rs. 60,000. 00 apparently under the impression that it was eligible for a development rebate only at the rate of 25%. 75,173. 00. In this context it may be mentioned that the assessee had created development rebate in the books only to the extent of Rs. 60,000. 00 apparently under the impression that it was eligible for a development rebate only at the rate of 25%. It was apparently not aware that since it was engaged in one of the industries specified in the Fifth Schedule it was eligible for development rebate @25%. The total income for the assessment year 1969-70 was again a negative figure. There was no positive income and a loss of Rs. 12,6851- was determined by the Income-tax Officer.- ( 9 ) LOOKING at the facts in the light of the statutory provisions it appears to us very plain that the assessee is entitled to carry forward the development rebate @ 35% on the actual cost of Rs. 3,02,461. 00 and that the disallowance of this claim of the assessee on the ground that no adequate reserve had been created is not correct. A careful perusal of the provisions of sections 33 and 34 will show that the sections contemplate the allowance of development rebate normally in the previous year in which the asset is installed or in the subsequent previous year if it is brought to use during that year. But development rebate is not a straight deduction like depreciation or other items of expenditure Section 33 (2) (2) restricts the amount of development rebate to be actually allowed in any particular assessment year. It points out that in any particular assessment year the amount of development rebate to be actually allowed should be restricted to the figure of total income determined for that year. It is only that amount which is to be actually allowed in that year. If, as a result of the total amount being either nil or less than the figure of development rebate to which the assessee is entitled the whole or balance of the amount which has not been actually allowed because of the absence of a positive total income or the sufficiency of it has to be carried forward to it to the subsequent years. In each subsequent year the figures of total income and the claim of development rebate which is carried forward should be compared and the treatment will be similar as in the earlier years. In each subsequent year the figures of total income and the claim of development rebate which is carried forward should be compared and the treatment will be similar as in the earlier years. Thus, over a period of eight years the development rebate will be allowed depending upon the total income of the assessee not always in one single year but in some-cases distributed over a period of eight years (or less) depending upon the amount of development rebate and the figures of total income of the assessee in the several relevant assessment years. Section 34 (3) which deals the creation of a reserve is very guarded and careful in its language. It requires an assessee not to create a reserve equivalent in amount to 3/4th of the amount of development rebate to which the assessee is entitled in the year of installation, or the year of user ofthe asset, nor does it say that the reserve should be created in one or the other of the two years above-mentioned. On the contrary it only requires an assessee to create a reserve equal to 75% of the development rebate to which the assessee is entitled in the year of installapointed out, the development rebate may be actually allowed not in one year or two years but over a large number of years it follows on the language of section 34 (3) that it is quite sufficient if the assessee creates a development rebate reserve in respect of each of the years sufficient to cover 3/4th of the amount of actual development rebate which is to be allowed in that year. To illustrate the position by means of an example let us take a case where an assessee has installed machinery worth Rs. 50. 000. 00 on which he is eligible for a development rebate of Rs. 10,000. 00 in the previous year relevant for the assessment year 1969-70. Let us assume that in the assessment year 1969-70 the assessee has only a total income of Rs. 2. 000. 00 then though the development rebate admissible to the assessee is Rs. 10,000. 00 the development rebate that can be actually allowed in the assessment year 1969-70 will only be Rs. 2,0001-, The assessee will have to create a reserve so far as this year is concerned to the extent of Rs. 1. 5001 -. 2. 000. 00 then though the development rebate admissible to the assessee is Rs. 10,000. 00 the development rebate that can be actually allowed in the assessment year 1969-70 will only be Rs. 2,0001-, The assessee will have to create a reserve so far as this year is concerned to the extent of Rs. 1. 5001 -. If such reserve has been created developmrent rebate should be allowed to the extent of Rs. 2,000. 00 in the assessment year 1969-70. The balance of Rs. 8,000. 00 is carried forward to the assessment year 1970-71. Suppose in the assessment year 1970-71 the total income of the assessee is nil then there is no development rebate to be actually allowed to him in that year and it is immaterial whether the assessee creates a reserve in that year or not. The balance of Rs. 8,000 which remains unadiusted will be carried forward to the assessment vear 1971-72. Suppose in that year the assessee has a total income of Rs. 10. 000 carried forward development rebate of Rs. 8. 000 will be set. off to reduce the income to Rs. 2,000 provided the assessee has created a reserve equal to 75 per cent of the amount to be actually allowed, namely, Rs. 8,000. In other words, the assessee should create in the assessment year 1971-72 a reserve to the extent of Rs. 6,000. If all the years are taken together the assessee would become eligible for a development rebate of Rs. 10,000. But he would and should have created reserve of Rs. 7,500 not in one assessment year, but in three years, namely, Rs. 1,500 in 1969-70, nil in 1970-71 and Rs. 6,000 in 1971-72. This appears to be the plain and simple meaning of the statutory provisions. If v. e apply that interpretation for the purposes of the present case it clearly follows that since the assessee s total income for the assessment year 1969-70 was nil the development rebate to be actually allowed s nil and. therefore, the amount of reserve to be created by the assessee is also nil. In other words. the assessee need not have created any reserve at all during the previous year relevant for the assessment year 1969-70 since he is not going to get any deduction in this respect for this assessment year. therefore, the amount of reserve to be created by the assessee is also nil. In other words. the assessee need not have created any reserve at all during the previous year relevant for the assessment year 1969-70 since he is not going to get any deduction in this respect for this assessment year. Therefore, the non-creation of a reserve or the creation of a reserve only at Rs. 60,000 which in the opinion of the Income-tax Officer is inadequate cannot debar the assessee from the claim to development rebate of 35 percent for the fact remains that though nominally the assessee is entitled to development rebate it sets no relief in this assessment year and the amount has only to be carried forward to subsequent years and will be allowed in the various assessment years depending upon the fulfilment of the requirements for the creation of the reserve in the respective previous year (s) in regard to which the development rebate is actually allowed to the assessee. It, therefore, appears to us that the Tribunal erred in giving its direction in two respects. In the first place the Tribunal seems to have proceeded on the footing that the assessee had created a smaller amount of development rebate reserve than it should have. Apparently the Tribunal agrees with the department that the assessee is entitled to a development rebate of about Rs. 1. 05,863 and that it should have created a reserve of Rs. 79,397 during the previous year. The Tribunal has, however, taken the view that though the assessee has created a reserve only to the extent of Rs. 60,000 the consequence should be not to deprive the assessee of development rebate to the extent of Rs. 1,05,863 but only to deprive him of a part of it. Apparently according to the Tribunal the assessee is entitled to development rebate which is sufficiently covered by the reserve that has been created. What perhaps the Tribunal thinks is that since the assessee has created a reserve to the extent of Rs. 60,000 it will be entitled to carry forward only a development rebate to the extent of Rs. 86. 666 (4/3 of Rs. 60,000) which is the amount in the language of the Tribunal "sufficiently covered by the reserve created by the assessee. " Secondly the Tribunal apparently has thought that this unabsorbed development rebate of Rs. 86,666. 60,000 it will be entitled to carry forward only a development rebate to the extent of Rs. 86. 666 (4/3 of Rs. 60,000) which is the amount in the language of the Tribunal "sufficiently covered by the reserve created by the assessee. " Secondly the Tribunal apparently has thought that this unabsorbed development rebate of Rs. 86,666. 00 can be carried forward by the assessee and set off in future years irrespective of whether it creates or does not create a reserve in subsequent years subject only to the limitation that there should be a positive total income in the year in which the amount has to be set off. Both these aspects have been attacked by the department before us and we think rightly. In our view theassessee need not have created any reserve at all so far this assessment year is concerned and therefore, there is no provision in the Act which disentitles the assessee from claiming the development rebate at 35%. This entire amount of Rs. 1,05. 863. 00 can be carried forward by the assessee as the unabsorbed development rebate as no part of it is actually allowed during this previous year. The unabsorbed development rebate so carried forward should be set off against the total income of the assesses in subsequent years where there is a positive figure of total income. The question as to whether the statutory conditions have been fulfilled in respect of each of those assessment years in which the assesse may claim actual allowance of the development rebate need not have been decided by the Tribunal at this stage and should have been left to be decided in the appropriate assessment year depending upon the facts relating to the total income and to the creation of the reserve and other relevant circumstances. We are, therefore, of opinion that we should answer the question referred to us by saying that the Tribunal was not right in saying that the unabsorbed development rebate sufficiently covered by the reserve created by the assessee should be carried forward to be set off in the year in which there is positive income. The Tribunal should have directed that the full unabsorbed development rebate to the extent of Rs. 1. 05,863. The Tribunal should have directed that the full unabsorbed development rebate to the extent of Rs. 1. 05,863. 00 was eligible to be carried forward by the assessee but that it should be set off in future years in which there was positive income subject to the conditions of section 34 (2) being fulfilled in the relevant previous years. ( 10 ) LEARNED counsel for the department invited our attention to a large number of decisions. These decisions have held (a) that the assessee cannot plead as an excuse for the non-creation of a reserve the absence of a positive figure of income according to its profit and loss account, but that the assessee should create the reserve irrespective of whether its books should show profit or loss; (b) that where the amount of reserve created falls short of the amount for which the assessee is eligible as development rebate the assessee would not be entitled to any development rebate at all and the question of allowing him an amount of development rebate proportionate to the amount of the reserve created is inconsistent with the statutory provisions; and (c) that what the Act requires is the creation of a reserve in the year in which the amount is to be actually allowed and that this requirement cannot be said to be fulfilled even if (a) there is already existing in the books of the assessee a development rebate reserve sufficient to cover the amount of the claim made by the assessee in any particular year having been created even in eariler years or (b) the assessee creates. in the particular year in which the allowance is claimed a reserve just sufficient to make up the deficit and to supplement reserve that had been created in the earlier years but which are found to be inadequate. In our opinion, it is not necessary to touch upon any of these aspects for disposing of the reference which has been placed before us. So far as this reference is concerned, the statutory provisions are quite clear. The development rebate actually allowed to the asses- see in the assessment year 1969-70 was nil and therefore the assessee was not under an obligation to create any reserve at all during this period. The assessee is, therefore, entitled to carry forward the unabsorbed development rebate at 35%. The development rebate actually allowed to the asses- see in the assessment year 1969-70 was nil and therefore the assessee was not under an obligation to create any reserve at all during this period. The assessee is, therefore, entitled to carry forward the unabsorbed development rebate at 35%. This has to be carried forward and set off in the subsequent years. Whether and if so in what years the amount can be so set off would depend upon the future assessments of the assessee and no opinion can be expressed at this stage as to when and in what manner the development rebate so carried forward can be allowed to the assessee in future years. ( 11 ) WE answer the question referred to us as already indicated. Since there is no appearance on behalf of the assessee. we make no order as to costs.