Judgment Nazir Ahmad, J. 1. A consolidated statement of the case has been submitted before the Tribunal, Patna Bench "A", Patna, under Sec.256(1) of the Income-tax Act, 1961 ("the Act"), referring the following common questions of law for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim of development rebate for the assessment year 1962-63 had to be carried forward for consideration in the assessment of the firm for the assessment year 1963-64, and it could not be allocated to the partners of the firm in the assessment year 1962-63 itself ? 2. Whether, on the facts, the Tribunal was right in upholding the cancellation orders of the Income-tax Officer under Sec.154 for the assessment years 1962-63 and 1963-64 ?" 2. The relevant facts of the case can be culled out from the statement of the case. The assessee in the present case is a partnership firm between the N. C. D. C. Ltd. and the Madhya Pradesh Government. This partnership carries on what is called the "Korba Project" regarding coal development. For the assessment year 1962-63, the Income-tax Officer completed the assessment in the status of a registered firm and worked out the loss at Rs. 2,98,398. The Income-tax Officer also observed in the assessment order that development rebate was not allowed to the assessee because the net result of business without development rebate was loss. It was also mentioned that the claim for development rebate could be considered in the next year if there is a profit from the business. While computing the assessment for 1963-64, the Income-tax Officer allowed the development rebate pertaining to the assessment year 1962-63 as it had not been allowed in the earlier year and there was adequate profit in the assessment year 1963-64. Later on, the Income-tax Officer rectified these assessment orders under Sec.154 of the Act as he found that the claim of development rebate for the first year had actually been allowed in the second year and the resultant profit had been allocated between the partners. According to the Income-tax Officer, the unabsorbed development rebate for the assessment year 1962-63 has to be allocated in the hands of the partners and the claim could not be carried forward in the case of the registered firm. According to the Income-tax Officer, the unabsorbed development rebate for the assessment year 1962-63 has to be allocated in the hands of the partners and the claim could not be carried forward in the case of the registered firm. He, therefore, held that the unabsorbed development rebate of Rs. 8,54,916 for the assessment year 1962-63 should be allocated in the hands of the partners and no development rebate should be carried forward in the hands of the assessee-firm. In the assessment year 1963-64, a similar rectification order was passed in which it was observed that as unabsorbed development rebate had to be allocated in the hands of the partners, it could not be considered in the hands of the firm and, therefore, the allowance of development rebate to the extent of Rs. 8,54,916 was withdrawn by the Income-tax Officer. The orders of the Income-tax Officer for the assessment years 1962-63 and 1963-64 have been annexed and marked as annexures "A" and "A-1" forming part of the statement of the case. The orders of rectification under Sec.154 for these two assessment years have been annexed and marked as annexures "B" and "B-l" forming part of the statement of the case. 3. On appeal, the Appellate Assistant Commissioner was of the view that the rebate had to be carried forward not in the hands of the partners but in the hands of the firm. For this purpose, the Appellate Assistant Commissioner relied on the provisions of Sections 33 and 75 of the Act and vacated the orders of the Income-tax Officer passed under Sec.154. The consolidated order of the Appellate Assistant Commissioner has been annexed and marked as annexure "C" forming part of the statement of the case. 4. The Department appealed before the Tribunal. It was submitted on behalf of the Department that the firms resultant profit or loss or unabsorbed depreciation and unabsorbed development rebate has to be allowed in the hands of the partners and in the next year, the firm had nothing to do with the unabsorbed development rebate. The Tribunal considered the facts of the case and found that in the assessment year 1962-63, there was a loss without consideration of the claim for development rebate. The Tribunal considered the facts of the case and found that in the assessment year 1962-63, there was a loss without consideration of the claim for development rebate. The Tribunal referred to the provisions of Sec.33(2), according to which, only that much development rebate could be allowed in an assessment year which reduced the total income to nil and the amount of development rebate which cannot be allowed in that year, has to be carried forward to the following assessment year and the development rebate to be allowed in the following year has to be such amount as is sufficient to reduce the total income of the assessee for that assessment year to nil and later this claim for development rebate can be carried forward up to eight years. The Tribunal also held that this claim of development rebate has to be carried forward in the hands of the assessee and nobody else. According to the Tribunal, unless development rebate is actually allowed, it does not affect the total income of the assessee and in the case of the firm, unless development rebate is actually allowed, it could not affect the income of the firm and it could not be allocated to the partners. According to the Tribunal, the claim of the assessee merely remains alive to be considered in a year when there are adequate profits and when there is satisfaction of the statutory requirements of reserve. The Tribunal further found that in the assessment year 1962-63, the statutory requirements for allowance of development rebate of Rs. 8,54,916 had not been fulfilled by the assessee and, therefore, the Income-tax Officer could not have considered the allowance of development rebate in that assessment year. The Tribunal held that the question of allocation of development rebate in the hands of the partners did not arise at all and it could not be allocated to the partners as it had not yet become a part of the firms income. 5. The Tribunal further held that the claim of development rebate for the assessment year 1962-63 could rightly be considered in the assessment year 1963-64 as the statutory reserve had been created by the assessee in that year. 5. The Tribunal further held that the claim of development rebate for the assessment year 1962-63 could rightly be considered in the assessment year 1963-64 as the statutory reserve had been created by the assessee in that year. According to the Tribunal, the action of the Income-tax Officer was against the provisions of Sec.33(2) and the reference to the provision of Section 75 was not relevant as that pertained merely to losses and not to the claim of development rebate which could not be considered in a particular year. The Tribunal also held that the development rebate is either allowed or is not allowed in a particular year and only the claim of the assessee regarding development rebate remains outstanding to be considered in the subsequent year. The Tribunal, therefore, upheld the order of the Appellate Assistant Commissioner cancelling the orders of the Income-tax Officer under Sec.154. The consolidated order of the Tribunal has been annexed and marked as annexure "D" forming part of the statement of the case. 6. Before I look into the facts of the instant case, it is necessary to refer to various relevant provisions of the Act. Depreciation is allowable under Section 32(1) of the Act relating to buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. 6. Before I look into the facts of the instant case, it is necessary to refer to various relevant provisions of the Act. Depreciation is allowable under Section 32(1) of the Act relating to buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. Section 32(2) lays down that where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners), full effect cannot be given to any allowance under Clause (i) or Clause (ii) or Clause (iv) or Clause (v) or Clause (vi) of Sub-section (1) in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Sub-section (2) of Section 72 and Sub-section (3) of Section 73, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and be deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. Thus, it is evident that for depreciation allowance, no limit has been fixed as to how long it can be allowed and that means that the depreciation allowance can be carried forward for an indefinite period. 7. Thus, it is evident that for depreciation allowance, no limit has been fixed as to how long it can be allowed and that means that the depreciation allowance can be carried forward for an indefinite period. 7. Similar provisions were made in Sec.10(2)(vi) of the Indian Income-tax Act, 1922 ("the 1922 Act"), read with proviso (b) which lays down as follows : "(b) where, in the assessment of the assessee or if the assessee is a registered firm, in the assessment of its partners, full effect cannot be given to any such allowance in any year not being a year which ended prior to the 1st day of April, 1939, owing to there being no profits or gains chargeable for that year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of Clause (b) of the proviso to Sub-section (2) of Sec.24, the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following year and deemed to be part of that allowance, or if there is no such allowance for that year, be deemed to be the allowance for that year, and so on for succeeding years; and..." 8. Thus, it is evident that the provisions relating to depreciation are similar in Sec.32(2) of the 1961 Act and proviso (b) of Sec.10(2)(vi) of the 1922 Act. 9. Section 71 of the Act relates to set-off in respect of business losses. Section 72(1) of the Act relates to the carrying forward of business losses. Section 72(2) provides that where any allowance or part thereof is, under Sub-section (2) of Sec.32 or Sub-section (4) of Sec.35, to be carried forward, effect shall first be given to the provisions of this section. This clearly goes to show that the business loss has to be allowed first before depreciation allowance. Section 72(3) lays down that no loss (other than the loss referred to in the proviso to Sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. Section 72(3) lays down that no loss (other than the loss referred to in the proviso to Sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. Thus, it goes to show that business loss can be carried forward for eight assessment years, but there is no limit provided for carrying forward of depreciation allowance. Section 73 of the Act relates to losses in speculation business. Section 74 of the Act relates to losses under the head "Capital gains". Section 74A of the Act relates to losses from lotteries, etc. Section 75(1) lays down that where the assessee is a registered firm, any loss which cannot be set off against any other income of the firm shall be apportioned between the partners of the firm, and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under Sections 70, 71, 72, 73, 74 and 74A. Section 75(2) lays down that nothing contained in Sub-section (1) of Section 72, Sub-section (2) of Section 73, Sub-section (1) of Section 74 or Sub-section (3) of Section 74A shall entitle any assessee, being a registered firm, to have its loss carried forward and set off under the provisions of the aforesaid sections. Thus, it is evident that a registered firm cannot carry forward its business losses and it has to be apportioned among the partners. 10. Now, let us look at the provisions of development rebate. Sec.33 relates to the development rebate in respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of Sec.34, be allowed a deduction in respect of the previous year in which the ship was acquired or machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in the various provisions of this section. Sec.33(2) lays down as follows : "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 for 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 Sub-section (1A) of this section or Sub-section (1) of Sec.33A or any deduction under Chapter VI-A or Sec.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; (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 and so on, so however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding 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." 11. Sec.33A of the Act deals with development allowance. Thus, it appears that depreciation, development rebate and development allowance are different things. Sec.34(3)(a) of the Act lays down as follows : "(3)(a) The deduction referred to in Sec.33 shall not be allowed unless an amount equal to seventy-five per cent. Sec.33A of the Act deals with development allowance. Thus, it appears that depreciation, development rebate and development allowance are different things. Sec.34(3)(a) of the Act lays down as follows : "(3)(a) The deduction referred to in Sec.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 for the creation of any asset outside India : Provided that this clause shall not apply where the assessee is a company, being a licensee within the meaning of the Electricity (Supply) Act, 1948 (54 of 1948), or where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958 : Provided further that where a ship has been acquired after the 28th day of February, 1966, this clause shall have effect in respect of such ship as if for the words seventy-five, the word fifty had been substituted. Explanation.--For the, removal of doubts, it is hereby declared that the deduction referred to in Sec.33 shall 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 reserve account aforesaid exceeds the amount of the profit of such previous year (as arrived at without making the debit aforesaid) in accordance with the profit and loss account. (b) If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under Sec.33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of Sub-section (5) of Sec.155 shall apply accordingly." 12. It is thus evident that development rebate under Sec.33 can be allowed only when 75 per cent. It is thus evident that development rebate under Sec.33 can be allowed only when 75 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 the reserve account to be utilised by the assessee for a period of eight years for the purposes of the business of the undertaking. It is also evident that if the assessee transfers the ship, machinery or plant, then the development rebate has to be withdrawn. Thus, it is evident that the development rebate is allowed to the assessee only under certain conditions. It is also evident from Sec.33 that no provision has been made similar to the provision in Sec.32(2) where there is a provision that in the case of a registered firm, the assessments of the partners have to be considered. In the circumstances of the case, I have to refer to various decisions. 13. Mr. B.P. Rajgarhia, for the Revenue, has referred to the case of CIT V/s. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555, which is a decision of the Supreme Court. In this decision, the question of depreciation was considered and it was held that the unabsorbed depreciation of past years had to be added to depreciation of the current year and the aggregate unabsorbed and current years depreciation had to be deducted from the total income of the previous year relevant to the assessment year 1952-53. It was also held in this decision that the Act draws no distinction between the various allowances mentioned in Sec.10(2) of the 1922 Act. It has also been held that all these allowances have to be deducted from the gross profits and gains of a business and, according to commercial principles, depreciation would be shown in the accounts and the profit and loss account would reflect the depreciation accounted for in the accounts. If the profits are not large enough to wipe off the depreciation, the profit and loss account would show a loss. It has also been pointed out that the carry forward of depreciation is provided for in Sec.10(2)(vi) and Sec.24(2) of the 1922 Act only deals with losses other than the losses due to depreciation. If the profits are not large enough to wipe off the depreciation, the profit and loss account would show a loss. It has also been pointed out that the carry forward of depreciation is provided for in Sec.10(2)(vi) and Sec.24(2) of the 1922 Act only deals with losses other than the losses due to depreciation. It has also been held in this decision that if the Legislature had not enacted proviso (b) to Sec.24(2), the depreciation allowance would have been deducted first out of the profits and gains in preference to any losses which might have been carried forward under Sec.24, but as the losses can be carried forward only for six years under Sec.24(2), the assessee would in certain circumstances have in his books losses which he would not be able to set off. It has also been held that in proviso (b) to Sec.10(2)(vi), the Legislature clearly assumes that effect can be given to depreciation allowance in the assessment of a partner and that the only way effect can be given in the assessment of a partner is by setting it off against the income, profits and gains under other heads. Their Lordships of the Supreme Court considered the meaning of the expression in proviso (b) to Sec.10(2)(vi), "in the assessment of the assessee or if the assessee is a registered firm, in the assessment of the partners, full effect cannot be given to any such allowance in any year". Their Lordships also held that taking the case of the partners of a registered firm, the assessment must be their individual assessments, i.e., assessments in which the profits from the firm and other sources are pooled together. Their Lordships held that the Legislature is clearly assuming that effect can be given to depreciation allowance in the assessment of a partner ; the only way effect can be given in the assessment of a partner is by setting it off against the income, profits and gains under other heads. Their Lordships of the Supreme Court approved the decision in Ambika Silk Mills Co. Their Lordships of the Supreme Court approved the decision in Ambika Silk Mills Co. Ltd. V/s. CIT [1952] 22 ITR 58, which was a decision of the Bombay High Court which understood the effect of proviso (b) to Sec.10(2)(vi) and proviso (b) to Sec.24(2) as follows (p. 65): "If a business was worked at a loss in any particular year, the loss can be set off against any other head under Sec.24(1); if the loss cannot be fully set off, then it can be carried forward to the next year, but then it can be only set off against the profits of that particular business and that set off could be permissible to the assessee for a period of six years only. After six years, the right to set off would come to an end. But in the case of depreciation and to the extent that the loss was caused by depreciation being not fully absorbed, there would be no limit to the carrying forward of that depreciation and that depreciation can be set off at any time so long as the business showed a profit in the future." 14. Their Lordships held that the unabsorbed depreciation allowance is carried forward under proviso (b) to Sec.10(2)(vi) and the method of carrying it forward is to add it to the amount of the allowance or depreciation in the following year and deeming it to be part of the allowance ; the effect of deeming it to be part of that allowance is that it falls in the following year within Clause (vi) and has to be deducted as allowance and that if the Legislature had not enacted proviso (b) to Sec.24(2), the result would have been that depreciation allowance could have been deducted first out of the profits and gains in preference to any losses which might have been carried forward under Sec.24, but as the losses can be carried forward only for six years under Sec.24(2), the assessee would in certain circumstances have in his books losses which he would not be able to set off and the Legislature, in view of this, gave a preference to the deduction of losses first. It has also been held in this decision that the carry forward of depreciation having been provided in Sec.10(2)(vi) and in a different manner, Sec.24(2) only deals with losses other than the losses due to depreciation. It has also been held in this decision that the carry forward of depreciation having been provided in Sec.10(2)(vi) and in a different manner, Sec.24(2) only deals with losses other than the losses due to depreciation. Thus, from this decision, it is evident that the depreciation losses and the business losses have to be carried forward and calculated in the case of the firm and then they have to be allocated in the hands of the partners in view of the special provision of proviso (b) to Sec.10(2)(vi) of the 1922 Act and Sec.32(2) of the 1961 Act. Of course, there is an observation in this decision that the 1922 Act draws no express distinction between the allowances mentioned in Sec.10(2) and they all have to be deducted from gross profits and gains of a business, but it cannot be doubted that their Lordships of the Supreme Court were considering only the case of depreciation and not the case of development rebate. Each case has to be decided on its own facts and in that case their Lordships were considering the depreciation allowance. It cannot be doubted that there are other allowances under Sec.10(2), but their Lordships were not considerating Sec.10(2)(vi)(b) where there was a special provision for allowance of development rebate only on the condition that an amount equal to 75 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 him during the period of eight years next following for the purposes of the business of the undertaking with certain exceptions. This special provision was not being considered in the aforesaid Supreme Court decision. 15. In the case of Raj Narain Agarwala V/s. CIT [1970] 75 ITR 1, it was held by the Delhi High Court that in the case of a registered firm, if full effect cannot be given to any depreciation allowance in any past year, then the carried forward unabsorbed depreciation becomes depreciation of the current year in the hands of the partners and if one of such partners is carrying on no other business, such partner can necessarily set off the unabsorbed depreciation against the income under other heads. It has also been observed in this decision that in the language of Sec.10(2)(vi), proviso (b), is implicit the intention of the Legislature that effect can be given to depreciation allowance in the assessment of a partner. Thus, in this decision also, depreciation allowance was being considered. 16. In the case of N. Krishnammal V/s. CIT [1984] 147 ITR 431 (Mad), the assessee was an individual deriving income from interest on securities, house property, lorry business and other sources. She was also a partner in a firm, Pioneer Transports, and for the assessment year 1971-72, the Income-tax Officer determined the profit in respect of the income from the lorry business at Rs. 8,347 after negativing the claim of the assessee for set off of unabsorbed depreciation of Rs. 47,644 in the firm of Pioneer Transports relating to the assessment years 1967-68 and 1968-69, on the ground that the assessee had not satisfied the mandatory requirements of the relevant provisions of the Act to be eligible for the set-off claimed. The question referred before the Madras High Court was whether the Tribunal was right in holding that the assessee was not entitled to set off against the business income of the assessee for the assessment year 1971-72, the unabsorbed depreciation determined in the assessment of the firm, of which the assessee was a partner, for the assessment years 1967-68 and 1968-69, and carried forward. In this decision, it was found that in the firms assessment for the year 1967-68, the assessees share of loss was determined at Rs. 36,333 and for the year 1968-69, her share of loss was determined at Rs. 44,519. In this decision, it was found that in the firms assessment for the year 1967-68, the assessees share of loss was determined at Rs. 36,333 and for the year 1968-69, her share of loss was determined at Rs. 44,519. Up to the assessment year 1968-69, the firm was treated as a registered firm and the allocation of loss was made to the partners on that basis and, in those circumstances, it was held that a reading of Section 32(2) would indicate that if full effect for depreciation provided under Section 32(1) cannot be given owing to there being no profits or no profits chargeable for the previous year or profits being less than the allowance, then the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of allowance for depreciation for the following year and deemed to be part of that allowance and, thus, the allowance for depreciation is allowed to be carried forward for set off against future years profits. It was also held in this decision that it is because of this that the unabsorbed depreciation allowance was carried forward in the assessment of the firm and in the partners assessments full effect of the proportionate carried forward unabsorbed depreciation will have to be given. It was also held that as per Sec.32(2) read with Section 72(2), the unabsorbed depreciation which has been carried forward in the firms assessment has to be given effect to fully in the individual assessment of the partners. It was also held in this decision that once unabsorbed depreciation is allocated to the partners for adjustment, the partner can carry forward and set it off against his other income in subsequent years. 17. There are also other decisions which clearly go to show that the partners of a firm can carry forward depreciation and business loss. It was also held in this decision that once unabsorbed depreciation is allocated to the partners for adjustment, the partner can carry forward and set it off against his other income in subsequent years. 17. There are also other decisions which clearly go to show that the partners of a firm can carry forward depreciation and business loss. It has been held in the case of K.T. Wire Products V/s. Union of India [1973] 92 ITR 459 (All), that in the case of registered firms, the net loss including depreciation allowance, if any, is allocated to the partners, who alone are entitled to set off the loss allocated to them in their individual assessments and to carry forward any loss which remained unabsorbed, as provided in Sections 32(2) and 75(2) and that the firm as such is not entitled to carry forward the losses determined in its assessment. 18. It has been held in the case of CIT V/s. Garden Silk Wvg. Factory [1975] 101 ITR 658 by the Gujarat High Court that in the case of an assessee which is a registered firm, where full effect cannot be given to depreciation allowance in the assessment of individual partners, the registered firm is not entitled to carry forward the unabsorbed depreciation allowance to the next year and set it off against its business income and that such unabsorbed depreciation allowance is allocated amongst the partners of the firm and when such allocation is made either of business loss or of depreciation allowance, it is the partners who would be entitled to carry forward that loss or depreciation allowance and set it off against other income. It has also been held in this decision that once allocation is made, there remains nothing with the firm which is to be carried forward on account of either there being no income or the income being insufficient to absorb the depreciation allowance. In coming to this finding, the Gujarat High Court considered the effect of proviso (b) to Section 10(2)(vi). The Gujarat High Court not only considered the effect of Section 32(2) of the 1961 Act but also the effect of proviso (b) to Sec.10(2)(vi) of the 1922 Act, where similar provisions were there relating to a registered firm and its partners. 19. In the case of Sankaranarayana Construction Co. The Gujarat High Court not only considered the effect of Section 32(2) of the 1961 Act but also the effect of proviso (b) to Sec.10(2)(vi) of the 1922 Act, where similar provisions were there relating to a registered firm and its partners. 19. In the case of Sankaranarayana Construction Co. V/s. CIT [1984] 145 ITR 467, the Karnataka High Court has observed that Sec.32(2) deals with unabsorbed depreciation allowance of firms and other assessees. It does not provide for the assessment of firms. It has also been held that the income of a firm has to be computed in the manner provided by Sections 182 and 183 of the Act and not under Sec.32(2). It has also been held that it, however, specifically provides for the assessment of partners in regard to unabsorbed depreciation allowance and generally the benefit of the unabsorbed depreciation allowance would be available to the assessee who is the owner of the depreciable assets, but Sec.32(2) makes an exception to this rule so far as the partners of a firm are concerned. It has also been observed that the language of Sec.32(2), so far as it pertains to the partners of a firm, viz., "Where, in the assessment of the partners of a registered firm or an unregistered firm assessed as a registered firm, full effect cannot be given to any allowance in any previous year", clearly indicate that the assessments must be individual assessments of the partners and effect can be given to the depreciation allowance in their assessments by setting it off against the income. It was also observed in this decision that the Legislature had intended that the only way by which effect can be given to unabsorbed depreciation allowance is in the assessment of a partner by setting it off against his income under other heads. It was also observed by the Karnataka High Court that when such is the intention of the Legislature, it cannot be assumed that the partners have no right to carry forward the unabsorbed depreciation when full effect could not be given in any previous year. It was also observed by the Karnataka High Court that when such is the intention of the Legislature, it cannot be assumed that the partners have no right to carry forward the unabsorbed depreciation when full effect could not be given in any previous year. It has also been held in this decision that the judicial interpretation should be close to the legislative intent and when a partner receives unabsorbed depreciation allowance from the firm with a right to have it set off against his other income, the depreciation allowance left unabsorbed in the hands of that partner could not be brought back to the account of the firm in the next year in the absence of any express provision to that effect and that the partner is entitled to receive the unabsorbed depreciation allowance from the firm as of right and is entitled to have it set off in his individual assessment like any other assessee and also entitled to have the unabsorbed depreciation allowance carried forward if there is no law to the contrary. It has also been held in this decision that Sec.32(2) is a complete code providing for unabsorbed depreciation allowance and it does not contain any provision for recycling such an unabsorbed depreciation allowance back to the firm. 20. Mr. B.P. Rajgarhia, on the basis of the aforesaid decisions, has submitted that the depreciation allowance and business loss if not set off in the hands of the firm out of its profits, then these have to be allocated in the hands of the partners of the firm and it is only the partners who will be entitled to carry forward the business loss and the depreciation allowance. 21. However, there are some decisions to the effect that if the depreciation loss is not set off in the hands of the partners, then in the next year this has to be carried forward by the firm. 21. However, there are some decisions to the effect that if the depreciation loss is not set off in the hands of the partners, then in the next year this has to be carried forward by the firm. In this connection, it has been held in the case of CIT V/s. Nagapatinam Import & Export Corporation [1979] 119 ITR 444 (Mad) that the language of Sec.32(2) makes it clear that, in the case of a registered firm, either the whole of the depreciation allowance or any part thereof for which effect had not been given by adjustment in the hands of the partners, will have to be added to the amount of the depreciation in the following years and be deemed to be part of the allowance for the latter year and can be considered for set off or adjustment in the hands of the firm. It has been pointed out in this decision that after the income of the firm is arrived at, it is distributed or allocated among the partners in accordance with their respective shares as shown by the instrument of the partnership so that the income so allocated is added to the other income, if any, in the partners hands and assessed to tax accordingly and where the result of the computation in the hands of the firm is a loss, then Section 75 provides that the loss also should be apportioned among the partners. It has also been held in this decision that depreciation forms part of the loss and that the income of the firm or the loss in the hands of the firm cannot be computed without making allowance for depreciation in case the assessee is eligible for it and has made such claim by complying with the relevant provisions of the Act and if*there is any other loss, apart from depreciation, then that loss will get added to the amount of depreciation allowable to the assessee under Sec.32, read with the Income-tax Rules, 1962. It has also been held that it is the total of this amount which will be allocated among the partners under the provisions of Section 75. It has also been held that it is the total of this amount which will be allocated among the partners under the provisions of Section 75. It has also been pointed out that the Act makes a distinction between the unabsorbed allowance of depreciation and other losses and that Section 72(2) provides that where any allowance or part thereof is under Sub-section (2) of Sec.32 to be carried forward, effect shall first be given to the provisions of Section 72. In other words, Section 72(2) contemplates the loss other than the unabsorbed depreciation being given a priority in the matter of set off, as there is a time-limit within which such loss can be adjusted. It has also been pointed out that under Section 72(3), the loss other than from depreciation is eligible for being carried forward and set off only for a period of eight assessment years immediately succeeding the assessment year for which the loss was first computed; in the case of unabsorbed depreciation allowance, there is no such time-limit. It has also been observed that the Legislature has, therefore, made a specific provision for priority in setting off the loss other than the unabsorbed depreciation allowance so that the unabsorbed depreciation allowance can be carried forward, if necessary, without any time-limit and set off in the appropriate succeeding years and thus there is a separate identity maintained under the statute with reference to the unabsorbed depreciation allowance though at the time of computation, it forms part of loss. It was on the basis of this reasoning that it was held that if there is any surplus out of the unabsorbed depreciation left in the hands of the partners, then the unabsorbed depreciation so left, has to be again transported to the assessment of the firm and treated as a depreciation in the succeeding years and so on. 22. The Madras High Court again took a similar view in the case of CIT V/s. Madras Wire Products [1979] 119 ITR 454, where it was held that the unabsorbed depreciation along with the business loss which cannot be adjusted or set off in the hands of the partners would have to be brought back into the assessment of the firm as contemplated under Sec.32(2) and adjusted in the hands of the firm in the subsequent assessment year. 23. 23. In this decision, development rebate was also considered and it was observed that as far as the development rebate is concerned, the position is somewhat different and that in respect of the plants installed before January 1, 1958, the development rebate was allowed as deduction in the computation of the profits and gains of the assessee and if the profits were not adequate to absorb the development rebate allowed in any year, then it would be added to the business loss and dealt with as such. It has also been pointed out that the scheme of grant of development rebate came to be modified subsequently and that under the law in force from January 1, 1958, the development rebate was granted on a fixed percentage of the actual cost of the new machinery or plant owned by the assessee and wholly used for the purpose of business carried on by him and as a condition precedent to the grant of this allowance, the assessee has to create the reserve to the extent indicated in Sec.33 and where the assessee qualifies himself for allowance of the development rebate by the creation of the reserve, then as to how the development rebate should be allowed is dealt with in Sub-section (2) of Sec.33. It has also been held that the result of Sec.33(2) is that depreciation is to be allowed first and, thereafter, the question of allowability of the development rebate would arise. The allowance of the development rebate can only reduce the total income to nil. It has also been pointed out that Sec.33(2) stands in contrast to what is provided under Sec.32(2) in relation to depreciation. The allowance of the development rebate can only reduce the total income to nil. It has also been pointed out that Sec.33(2) stands in contrast to what is provided under Sec.32(2) in relation to depreciation. It has also been pointed out that in Sec.32(2), the following words, "where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners) full effect cannot be given to any allowance of depreciation" shows that implicit in the statutory provision is the contemplation that the loss arrived at as a result of the depreciation allowance being adjusted against the profits and gains arising to a firm will have to be apportioned among the partners and it is only after this apportionment that the question would arise as to whether full depreciation allowance can be absorbed by the partners and any surplus which has not been absorbed by them will have to be brought back in the assessment of the firm and dealt with as contemplated by Sec.32(2). It has also been pointed out that similar language is absent in Sec.33(2) and Sec.33(2) contemplates the reduction of the total income to nil and that there is no question of apportionment of nil income among the partners and thus the language of Section 33(2) appears to us to show that the development rebate will have to be considered only in the hands of the firm alone. Thus, this decision not only shows that the unabsorbed depreciation along with the business loss which cannot be adjusted or set off in the hands of the partners would have to be brought back in the assessment of the firm as contemplated in Sec.32(2) and adjusted in the hands of the partners in the subsequent assessment year. It also clearly lays down that development rebate has to be considered only in the hands of the firm. 24. In the case of Transport Co. It also clearly lays down that development rebate has to be considered only in the hands of the firm. 24. In the case of Transport Co. (P.) Ltd. V/s. ITO [1964] 51 ITR 82, the Madras High Court held that the proviso to Sec.10(2)(v)(b) prohibiting allowance of development rebate in respect of transport vehicles, which was inserted by the Taxation Laws (Amendment) Act, 1960, is not retrospective in effect and does not mean that if the development rebate had been granted before the date on which the Act came into force, viz., April 1, 1960, and remained unabsorbed against the profits of the previous years, the balance of such unabsorbed development rebate must be treated as extinguished on the date when the Act came into force and that such development rebate remains an integral part of loss and can be adjusted against subsequent profits and can be carried forward for the assessment year 1960-61 and subsequent years. It has also been held in this decision that when once development rebate is granted, it constitutes an allowance which has to be deducted from the gross profits of the business, and in the absence of any special provision like that contained in the proviso to Sec.10(2)(vi) relating to the depreciation allowance, if the unabsorbed development rebate has been included in loss from business and carried forward, the Department cannot claim in a subsequent year that only such portion of the total loss carried forward which represented the business loss could be adjusted against the profits, and that the remaining portion notionally representing the development rebate cannot be adjusted against the subsequent profits or carried forward. In this case, the petitioner was a private limited company carrying on transport business. Thus, this also makes a distinction between development rebate and depreciation. 25. It has been held in the case of CIT V/s. Coromandel Steels Ltd. [1981] 130 ITR 856 by the Madras High Court that in order to earn development rebate, the assessee has to satisfy the conditions prescribed by Sec.34 and, thus, it is not an absolute or unconditional allowance. 25. It has been held in the case of CIT V/s. Coromandel Steels Ltd. [1981] 130 ITR 856 by the Madras High Court that in order to earn development rebate, the assessee has to satisfy the conditions prescribed by Sec.34 and, thus, it is not an absolute or unconditional allowance. It has also been held that the allowance of development rebate is so limited as to reduce the total income to nil and that, in other words, it is not treated as one of the kinds of deduction contemplated by Sections 30 to 43 of the Act and that it stands in a class by itself. It has also been held that the competition in the matter of allowance between the unabsorbed business loss and unabsorbed depreciation was resolved in favour of unabsorbed business loss by Parliament itself. It has also been held that there is, however, no provision made with reference to unabsorbed development rebate, as it stands in a class by itself. In these circumstances, it was held that the unabsorbed development rebate of earlier years would come up for consideration only after the allowance of carried forward business loss and carried forward depreciation. It has also been pointed out that first comes the deduction of depreciation of the current year and then, as between unabsorbed business loss carried forward and unabsorbed depreciation, business loss has priority over unabsorbed depreciation and has to be allowed and that the unabsorbed development rebate comes up for consideration only after these two allowances. Thus, this decision clearly goes to show that the development rebate is a class by itself. 26. It is due to this that it has been held in some decisions that if there is no profit in the year of installation, then no development rebate reserve is to be created and that if no development rebate reserve is created, then the development rebate can be allowed only when it is created. 27. It has been held in the case of Tata Iron & Steel Co. Ltd. V/s. N.C. Upadhyaya [1914] 96 ITR 1 by the Bombay High Court that an assessee is not bound to create development rebate reserve during the year of installation of plant and machinery if there is no profit in that year and it is sufficient if the reserve is created when there is profit and, therefore, development rebate can be actually allowed. 28. 28. It has been held in the case of Addl. CIT V/s. Vishnu Industrial Enterprises [1980] 122 ITR 919 (All), that there is no express provision that the development rebate reserve must be created in the year in which rebate is to be determined and that the reserve may be created only when profits are earned. It has also been held in this decision that Sec.33(2) shows that the allowability of the development rebate is not confined to the first year and it can be carried forward and allowed against the income accruing in the succeeding seven years and that the provision contemplates a carry forward of the rebate in a case where the assessees income is nil and there is no reason why rebate cannot be carried forward in the case of a loss. Sec.34(3)(a) clearly lays down that the deduction under Sec.33 shall not be allowed unless the reserve is created. It has also been held in this decision that before an assessee claims deduction, he should create a reserve by debiting the profit and loss account and crediting the reserve account with the requisite amount of money and this can be done only in the year in which profits are earned. It has also been held in this decision that the proper procedure, therefore, is for the amount of development rebate to be determined in the first year and its actual adjustment will depend on the availability of income and in case of a loss, determination has to be done in the first year and the adjustments are to be actually made in the subsequent years when profits are available. 29. It has been held in the case of CIT V/s. Agro Insecticides and Allied Industries [1981] 127 ITR 796 by the Andhra Pradesh High Court that the controversy which arose as a result of conflicting decisions of various High Courts as regards the allowance of development rebate had been set at rest by the Central Board of Direct Taxes Circular No. 189, dated January 30, 1976, [vide [1976] 102 ITR (Statutes) 90] which clearly says that the assessee is not bound to create the statutory reserve in the year in which he did not make profits and so the assessee could not be denied the benefit of development rebate, merely because reserve was not created during the year of installation of the machinery. 30. 30. However, in the case of CIT V/s. Kamalpur (Assam) Tea Estate (P.) Ltd. [1977] 109 ITR 419, the Gauhati High Court has taken the view that when the statute confers a benefit on the assessee only on the fulfilment of certain conditions and the language is clear and unambiguous, unless the assessee has fulfilled those conditions, there is no justification for straining the language of the statute in favour of the assessee for conferring the benefit. It has also been held that the creation of a reserve as contemplated by Sec.34(3)(a) is a condition precedent for allowing development rebate under Sec.33 and the reserve must be created before finally making up the profit and loss account of the relevant previous year in which the machinery or plant was installed or the ship was acquired and if it is not so created, the benefit of development rebate by way of deduction from income cannot be allowed and once it is found that it cannot be allowed in the year of assessment relevant to the previous year in which the machinery or plant was installed or the ship was acquired it cannot be allowed to be carried forward in any subsequent year. In this case, the assessee purchased a dryer as per bill dated August 14, 1961. The actual cost came to Rs. 1,03,095. The accounting period of the assessee is the calendar year and in the assessment year 1962-63, though the total income of the assessee was calculated at Rs. 4,706 and he had shown net profit as per the profit and loss account at Rs. 5,065, the assessee calculated the development rebate allowable for Rs. 1,03,095 at Rs. 25,774 and the statutory reserve required was 75 percent. which came to Rs. 19,330 and, therefore, in the assessment year 1962-63, the assessee did not create the necessary reserve for the development rebate. In the assessment year 1963-64, the assessee created development rebate reserve to the extent of Rs. 20,000. The assessee thus claimed rebate at least to the extent of Rs. 20,000 minus Rs. 4,706, i.e., the assessee claimed development rebate in the assessment year 1963-64 to the extent of Rs. 15,913 and in those circumstances, it was held that the assessee was not entitled to the development rebate in the assessment year 1963-64. 31. 20,000. The assessee thus claimed rebate at least to the extent of Rs. 20,000 minus Rs. 4,706, i.e., the assessee claimed development rebate in the assessment year 1963-64 to the extent of Rs. 15,913 and in those circumstances, it was held that the assessee was not entitled to the development rebate in the assessment year 1963-64. 31. It has been held in the case of CIT V/s. Orissa Flour Mills (P.) Ltd. [1976] 104 ITR 682 (Orissa) that while Sec.33 lays down that the development rebate is admissible and indicates the manner of calculation, Sec.34(3)(a) imposes a further condition that a reserve should be created before development rebate can actually be allowed and that in view of the statutory provision that development rebate is admissible under certain contingencies and in case it is not set off, it can be carried forward and even if there is no satisfaction of the requirements of Sec.34(3)(a), the rebate has to be computed and has to be carried forward to be allowed in such year when the condition imposed by Sec.34(3)(a) is satisfied. Thus, it is evident that the development rebate under Sec.33 cannot be allowed unless a development rebate reserve, as required under Sec.34(3)(a), has been created. It is under these circumstances that it was held in Coromandel Steels Ltd.s case [I981] 130 ITR 856 (Mad) that the development rebate is a class by itself and so it was held in Madras Wire Products case [1979] 119 ITR 454 (Mad) that the development rebate can be allowed only in the hands of the firm and not in the hands of the partners. 32. In the case of Leader Engineering Works V/s. CIT [1980] 124 ITR 44 (P&H) for the assessment year 1964-65, the Income-tax Officer had allowed to the assessee, a registered firm, development rebate amounting to Rs. 82,542. Later, the Income-tax Officer found that the development rebate reserve amounting to Rs. 61,906 which was created during the accounting period ending December 31, 1963, was distributed by way of profits and credited to the capital accounts of the partners during the accounting period ending December 31, 1971, i.e., before the expiry of eight years, and the assessee had, therefore, infringed the provisions of Sec.34(3)(a) and withdrew the development rebate allowed to the assessee in view of the provisions of Sec.34(3)(a), read with Sec.155(5) of the Act. In those circumstances, it was held that the taxation losses are technical and if a statute provides for a particular contingency, the same has to be fulfilled except in a case where the statute is directory and not mandatory and that the provisions of Sec.34(3)(a), read with Sec.155(5), are mandatory and breach of these provisions cannot be overlooked merely on the ground that the breach was technical. 33. Sec.155(5) clearly lays down that where an allowance by way of development rebate has been made wholly or partly to an assessee in any assessment year under Sec.33 and subsequently at any time before the expiry of eight years referred to in Sub-section (3) of Sec.34, the assessee utilised the amount credited to the reserve account under Clause (a) of that Sub-section for distribution by way of dividends or profits or for any other purpose which is not a purpose of the business of the undertaking, the development rebate originally allowed shall be deemed to have been wrongly allowed and the Income-tax Officer may recompute the total income of the assessee for the relevant previous year and make the necessary amendment and the provisions of Sec.154 shall, so far as may be, apply thereto, the period of four years specified in. Sub-section (7) of that section being reckoned from the end of the previous year in which the money was so utilised. Thus, it is evident that if development rebate reserve is created by a firm and the development rebate is allocated to the partners as a loss and remains in the hands of the partners to be carried forward as loss in the following year and subsequently the development rebate reserve is utilised for purposes other than business purpose, then development rebate cannot be withdrawn because development rebate reserve is created by the firm and development rebate is allowed in the hands of the partners and in such a case, the position will be anomalous. 34. Thus, it is evident that the development rebate is a class by itself and when the development rebate reserve is created by the firm, then it cannot be allocated in the hands of the partners and it has to be allowed in the hands of the firm. 35. 34. Thus, it is evident that the development rebate is a class by itself and when the development rebate reserve is created by the firm, then it cannot be allocated in the hands of the partners and it has to be allowed in the hands of the firm. 35. In the present case before us, the Income-tax Officer has pointed out in the assessment order annexure "A" relating to the assessment year 1962-63 that the development rebate reserve was created to the extent of Rs. 1,33,029. However, depreciation was to the extent of Rs. 11,73,814. The Income-tax Officer allowed depreciation of Rs. 12,33,489 and thus calculated a loss of Rs. 2,98,398. He also mentioned in the assessment order that development rebate is not allowed and it would be considered next year if there is profit from the business. 36. The assessment order for the assessment year 1963-64 in annexure "A-1" shows that the development rebate reserve was created to the extent of Rs. 8,54,916 and he allowed the development rebate and the total income came to Rs. 23,71,406. Subsequently by two rectification orders under Sec.154 withdrew the development rebate allowed. The Income-tax Officer in the rectification order for the assessment year 1962-63 has pointed out that in the original assessment order, development rebate was not allowed by observing that the "development rebate was not allowed" to the assessee because the net result of business without development rebate was loss, and the claim for development rebate would be considered in the next year if there are profits from the business," and in the assessment year 1963-64 as there was profit, development rebate carried forward from this year of Rs. 8,54,916 was set off against the income of this firm. The Income-tax Officer took the view that since the unabsorbed development rebate in the case of partnership firm has to be allocated in the hands of the partners which was not done in this assessment, action was taken under Sec.154 for rectification of the mistake apparent on the record. The assessee took the plea that the Income-tax Officer wanted to change his opinion and so he was not competent to rectify it under Sec.154. The assessee took the plea that the Income-tax Officer wanted to change his opinion and so he was not competent to rectify it under Sec.154. It was also submitted that the unabsorbed development rebate in the case of a firm is not to be allocated in the hands of the partners but it is to be carried forward in the case of the same assessee-firm. The Income-tax Officer took the view that the power of rectification under Sec.154 is limited to the rectification of a mistake which is apparent from the record and that for rectification of a mistake, the Income-tax Officer is competent to examine all the materials available from the record and to decide whether there is, in fact, an error which is obvious and patent. He also took the view that it is a well-settled principle of law by a number of judicial pronouncements that an error apparent from the record is not only confined to an error of fact but may include an error of law. 37. It was argued on behalf of the assessee that there was distinction between the language of Sec.32(2) and the language of Sec.33(2) but the Income-tax Officer did not accept this and held that the unabsorbed development rebate which has been carried forward in the assessment year 1962-63 is allocated in the hands of the partners and nothing is carried forward in the case of the assessee-firm. In the assessment year 1963-64, rectification was only relevant to the depreciation allowance and so that is not material for the purpose of the present case. 38. I have already pointed out above that the decisions relating to the depreciation allowance will not be applicable to development rebate. I have pointed out various decisions which show that development rebate is a class by itself and that the development rebate can be allowed only in the hands of the firm and not in the hands of the partners, as the development rebate reserve has to be created by the firm and it was created by the firm. The Appellate Assistant Commissioner held that the rebate has to be carried forward not in the hands of the partners but in the assessment of the firm and he, therefore, vacated the orders of rectification under Sec.154 for the assessment years 1962-63 and 1963-64 passed by the Income-tax Officer. The Appellate Assistant Commissioner held that the rebate has to be carried forward not in the hands of the partners but in the assessment of the firm and he, therefore, vacated the orders of rectification under Sec.154 for the assessment years 1962-63 and 1963-64 passed by the Income-tax Officer. The Tribunal took the view that development rebate has to be considered in the hands of the firm which is the assessee, as the development rebate has to be allowed reducing the income to nil. 39. From the above discussions, it is evident that Mr. B.P. Rajgarhia relied only on the decisions which related to depreciation allowance. Mr. K.N. Jain has relied on the cases which relate specifically to development rebate. It cannot be doubted that development rebate is a class by itself and it cannot be allowed till the development rebate reserve is created, as required under Sec.33 and Sec.34(3)(a). It also cannot be doubted that the provision in Sec.32(2) specifically mentions about the assessment of the firm and its partners but no such provision has been made relating to Sec.33 which clearly goes to show that development rebate has to be allowed only in the hands of the assessee, who or which creates the development rebate reserve, and it cannot be allowed in the hands of the partners who have not created development rebate reserve. Development rebate reserve is to be maintained for a period of eight years and if the development rebate reserve is used for other than business purposes, then the development rebate has to be withdrawn, which clearly goes to show that it can be withdrawn only when it is in the hands of the assessee-firm and not when it is in the hands of the partners. It was under these circumstances that it has been held in Madras Wire Products case [1979] 119 ITR 454 (Mad) that development rebate can be allowed only in the hands of the firm and not in the hands of the partners. 40. It was under these circumstances that it has been held in Madras Wire Products case [1979] 119 ITR 454 (Mad) that development rebate can be allowed only in the hands of the firm and not in the hands of the partners. 40. In view of my above findings, I hold that the Tribunal was right in holding that the claim of development rebate for the assessment year 1962-63 had to be carried forward for consideration in the assessment of the firm for the assessment year 1963-64, and it could not be allocated to the partners of the firm in the assessment year 1962-63 itself and the Tribunal was also right in upholding the cancellation of the orders of the Income-tax Officer under 154 for the assessment years 1962-63 and 1963-64 relating to development rebate. Both the questions are accordingly answered in the affirmative and in favour of the assessee and against the Revenue. The parties will, however, bear their own costs. Uday Sinha, J. 41 I agree.