1. This is an appeal filed by Dredging Corporation of India Ltd., Visakhapatnam, against the order of the Commissioner (Appeals) for the assessment year 1977-78.
2. The assessee is a Government owned company incorporated on 29-3-1976. It took over from the Government of India dredgers and operated them through Shipping Corporation of India and suffered a loss. Eleven crafts were, thus, taken over at the value of Rs. 22,14,11,000 from the Government of India while the assessee acquired 6 crafts at a cost of Rs. 13,23,87,579. Investment allowance on all crafts and relief under Section 80J of the Income-tax Act, 1961 ('the Act') even on newly acquired crafts, though specifically admissible to ships, were disallowed by the ITO on the ground that a dredger was not a ship. He alternatively took the view that these crafts were previously owned by the Government of India and that also, according to him, disentitled the assessee to the allowances. He rejected an alternative claim for higher depreciation also on these dredgers.
3. In first appeal, these decisions were contested and an additional ground claiming total immunity from taxation was also put forward. The claim for immunity was rejected by the first appellate authority following the decision of the Supreme Court in Andhra Pradesh State Road Transport Corporation v. ITO [1964] 52 ITR 524. He, however, found that dredger was also a ship for reason which included the opinion of the Ministry of Law, Justice and Company Affairs, in the assessee's favour. He, therefore, found that there could be no objection to relief under Section 80J and investment allowance to dredgers newly acquired by the assessee. As for the eleven crafts taken over from the Government of India, he was of the view that investment allowance could not be allowed. The definition of new ship under Clause (1) of Explanation to Section 32A(2) of the Act has the same meaning as Explanation to Clause (vi) of Sub-section (1) of Section 32 of the Act.
A new ship or a new aircraft includes thereunder 'a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India'. He noticed that the previous 'use in territorial waters' did not ipso facto, disqualify the assessee from the benefit of investment allowance. All the same, he was of the view that since the eleven crafts were owned by the Government of India, the assessee was eligible neither for investment allowance nor relief under Section 80J in the view that the Government of India was a 'person resident in India'. In this view, he confirmed the disallowance of investment allowance claimed at 25 per cent on Rs. 22,14,11,000 and relief under Section 80J on these crafts while directing allowance of both on crafts newly acquired at Rs. 13,23,87,579. He referred to certain other provisions under the Act where transactions with the Government or the Government company were contemplated. He, therefore, concluded that the Act contemplates the Government to be a person and that the decisions to the contrary under constitutional law cannot help the assessee. He confirmed depreciation, as allowed by the ITO, but limited relief under Section 80J to own capital excluding borrowed capital in respect of newly acquired crafts.
4. The assessee is in second appeal. The grounds of appeal repeat the claim regarding immunity from taxation. It was contended that the assessee was eligible for investment allowance and relief under Section 80J on crafts taken over from the Government of India as 'person' contemplated under the Act is a person who is liable under the Act as is evident from the test of residence going with it. There were further grounds questioning computation of relief under Section 80J on the basis of computation of capital as on computation date without reckoning borrowed capital as well.' The higher claim for depreciation was also repeated.
5. The learned counsel for the assessee confined his arguments to the claim for investment allowance" and 'proper' computation of relief under Section 80J. He took us over the history of investment allowance on its various phases as initial depreciation development rebate, etc., with particular reference to ships. He also pointed out to various circulars which sought to enlarge the scope of relief till such time as statute itself incorporated such liberalised relief. He also pointed out to the special treatment for ships apparently vis-a-vis other plant and machinery in view of the boost which the Parliament wanted to give to this important industry. He sought to derive the fact that only condition now is that the assessee should be the first Indian assessee in shipping business. What is contemplated is that the first owner who becomes assessable in India should get the benefit. The narrow view, as canvassed by the authorities, it was claimed, will frustrate the very object of the relief. 'Person resident in India' is, it was pointed out, a technical phrase in a tax statute and should be given the same meaning as in the statute. Dictionary meaning cannot be glibly assigned so as to enlarge the meaning. Authorities from the works of Maxwell, Craes and Bindra were cited for this well accepted proposition. This is known as primary rule, Rule of Interpretation. 'Context Rule' also pointed out to the previous owner being a 'resident' assessee. He read an extract from Justice Subba Rao, C.J. in State of West Bengal v.Union of India AIR 1963 SC 1241 SC (sic), wherein it was pointed out that the statute would have specifically included the Government of India if the intention were to include the same. This observation, it was pointed out, was not dissented by other judges and had, therefore, the authority of law as laid down by the Supreme Court. Even otherwise, it was claimed that neither the provisions of the General Clauses Act, 1897, nor the decisions mentioned by the ITO supported the patently erroneous description of the Government of India as a 'person resident in India' in the context of the entire tax laws with particular reference to the provisions relating to the relief. He also stressed the points taken in grounds of appeals, regarding computation of relief under Section 80J.6. The learned departmental representative claimed that the shipping tonnage did not increase merely by transfer of some crafts from the Government to a Government corporation. He, therefore, contended that denial of relief in this case is more consistent with the object of the relief. He pointed out that the word used is not 'assessee', though in many other contexts such a word is used. He, therefore, claimed that there is no warrant for the proposition that the first assessee is automatically entitled to relief. He claimed that 'context rule' favoured the revenue's interpretation. He relied upon the other points made in the orders of authorities below.
7. The learned counsel disputed the proposition that there is no benefit in the mere transfer of tonnage. This argument overlooks the increase of shipping potential by way of replacement enabled by the grant of investment allowance which necessitates creation of reserve and subsequent use thereof for replacement.
8. We have carefully considered the facts as well as the arguments. The main point for consideration is whether the Government of India could be. considered to be a 'person resident in India' within the meaning of Explanation to Clause (vi) of Sub-section (1) of Section 32 made applicable to Section 32A dealing with investment allowance. If it could be so treated, the assessee admittedly will not be eligible for relief. We find it difficult to accept the arguments of the revenue that the Government of India could be treated as a 'person resident in India'. We are in substantial agreement with the arguments of the learned counsel. We do not consider it necessary to repeat them. The argument of the revenue appears to be far-fetched for more than one reason : (i) Section 2(31) of the Act, no doubt, gives an 'inclusive' definition of 'person' as including 'an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, whether incorporated or not, a local authority and every artificial juridical person, not falling within any of the preceding sub-clauses'. If the intention were to include the Government of India, it would have deserved a separate mention and would have been separately included. The attempt to bring the Government of India as an AOP, body of individuals (BOI) or artificial juridical person is itself highly artificial.
(ii) The ITO is not justified in drawing support from Section 3(42) of the General Clauses Act even on the ground that this definition cannot apply to the Act which has its own definition of 'person'.
Hence, the decisions cited by him cannot really help him. Again the definition of 'person' under the General Clauses Act is not materially different and we are not persuaded that there is any decision to support the view that a 'person' wherever used will encompass a Government whatever be the context.
(iii) Similarly, 'resident' has also some specific connotation under the Act. Section 2(42) defines 'resident' as a 'person who is resident in India within the meaning of Section 6 of the Act'.
Section 6 defines residence with reference to physical stay in India or with reference to the place where control and management are located. Both these broad categories of residence with further classification as between 'not ordinarily resident' and otherwise could hardly apply to the Government. If the Government of India or any State Government were to be included as a 'person', certainly tests of residence would not have been framed in this manner.
(iv) Above all, it is not correct to find out the meaning of the word 'person' and 'resident' separately when what is contemplated is a 'person resident in India'. When this phrase is read as a whole, as it ought to be read, this can hardly mean a Government. Hence, on our inference that the words 'person' and 'resident', if even considered separately, cannot include the Government, our conclusion gets fortified when they are read together.
(v) The learned Commissioner (Appeals) referred to certain provisions where 'Government' has been reckoned as a person in Section 2(18)(b)(B)(iii). But such a reference only fortifies our inference that the statute has always chosen to refer to the Government wherever it wanted to do so.
(vi) Since we are of the view that the statute is clear that the allowance is barred only where the purchase is from 'a person resident in India' and that the Government of India is not a person and at any rate such a person, we do not have to deal with the lengthy arguments as to the intention of the concession and on the further question whether such intention would be ratified by the grant of the allowance or by denial of the same. Even if we were to consider the intention, we have no doubt that the object of restricting the allowance only to purchase of ships from person other than 'a person resident in India' is to avoid the grant of such allowance on a ship more than once. In other words, it should not be possible for the same ship to get this allowance more than once by mere change of hands. Prior use in Indian waters by itself is not barred. The object is obviously to encourage shipping industry. We, therefore, find that this allowance to the assessee even in respect of acquisition from the Government of India is quite in accord with the intention of the statute.
9. We have, therefore, to accept the assessee's contention on this point and direct investment allowance on acquisition of crafts from the Government of India on Rs. 22,14,11,000, subject to the ITO's satisfaction regarding other conditions, like creation of reserve, etc.
10. It follows from our above inference that the ships were 'not owned and used in Indian territorial waters by a person resident in India within the meaning of Section 80J(5)', since they were used only by the Government of India. Hence, the mere previous ownership by the Government of India and use by it in Indian territorial waters could not disentitle the assessee from relief under Section 80J for the reasons stated in the immediately preceding paragraphs. Hence, the claim under Section 80J will be considered afresh and allowed if the other conditions relating to relief under Section 80J are satisfied by the assessee.
11. Another question relates to the depreciation claim on these crafts at 30 per cent as earth moving machinery. Once it is conceded that these crafts are ships as canvassed by the assessee, they could not also be plant and machinery. The rules themselves, as pointed out by the first appellate authority, prescribed rates for plant and machinery 'other than ships'. Even otherwise, the claim of the assessee that it is a ship (a claim now conceded) is inconsistent with the claim that it is also plant and machinery 'other than ships'. This contention fails.
12. The last question relates to the claim that borrowed capital should be treated as part of capital base in reckoning relief under Section 80J. By the Finance (No. 2) Act, 1980, with effect from 1-4-1968, Section 80J has been amended retrospectively. But the retrospective nature of the amendment is pending adjudication before the Supreme Court. In such cases, we are sending back the issue for a fresh determination in accordance with the decision of the Supreme Court.
This line of disposal is in accord with the view of the Gujarat High Court in CIT v. Surat District Cooperative Milk Producers' Union Ltd. [IT Application No. 81 of 1982, dated 28-3-1983]. The issue is, therefore, remitted back to the ITO for a fresh decision in accordance with law that may be laid down by the Supreme Court.