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Income-tax Act, 1961 · Chapter IV: Computation of Total Income · D.—Profits and gains of business or profession

Section 34: Conditions for depreciation allowance and development rebate

The Income-tax Act, 1961 was repealed by the Income-tax Act, 2025 from 1 April 2026. The text is kept here because the judgments below apply it.

In plain words

This section sets conditions for the development rebate allowed under section 33. The rebate was available only if a reserve was created and the asset was kept for a minimum period.

  • An amount equal to seventy-five per cent of the rebate had to be debited to the profit and loss account and credited to a reserve.
  • The reserve had to be used for the business for eight years and could not be paid out as dividends or profits or sent outside India.
  • If the ship, machinery or plant was sold or transferred within eight years, the rebate was treated as wrongly allowed and could be taken back.
  • Transfers to the Government, a local authority, certain corporations, or on amalgamation or succession were excluded from this rule.
  • Assets acquired or installed before 1 January 1958 were outside these conditions.

A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.

Official text

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(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 [any previous year in respect of which the deduction is to be allowed under sub-section (2) of that section or any earlier previous year (being a previous year not earlier than the year in which the ship was acquired or the machinery or plant was installed or the ship, machinery or plant was first put to use)] 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.]

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(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 section 33or 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 section 155shall apply accordingly:

Provided that this clause shall not apply—

(i) where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958; or

(ii) where the ship, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); or

(iii) where the sale or transfer of the ship, machinery or plant is made in connection with the amalgamation or succession, referred to in sub-section (3) or sub-section (4) of section 33.

Source: India Code (Legislative Department), the text of the Act as it stood before its repeal. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.

Supreme Court judgments citing the section 34