Commissioner of Income-tax Vs. H.M.T. Ltd. (No. 1) - Court Judgment

SooperKanoon Citationsooperkanoon.com/377386
SubjectDirect Taxation
CourtKarnataka High Court
Decided OnApr-13-1992
Case NumberI.T.R.C. Nos. 104 and 105 of 1987
JudgeK. Shivashankar Bhat and ;S.P. Bharucha, JJ.
Reported in[1993]203ITR811(KAR); [1993]203ITR811(Karn)
Acts Income Tax Act, 1961 - Sections 28, 29, 30, 31, 32 and 32(1), 33, 34, 35 and 35(1), 36, 37, 38, 39, 40, 41, 43 and 43(1) and 80-I(6), 80J, J(1A), J(1A)(II), M, AB and HH; Income Tax Act, 1922 - Sections 80J and 84
AppellantCommissioner of Income-tax;h.M.T. Ltd. (No. 1)
RespondentH.M.T. Ltd. (No. 1);commissioner of Income-tax
Appellant AdvocateH. Raghvendra Rao and ;M.V. Seshachala, Advs.
Respondent AdvocateK.P. Kumar, Adv.
Excerpt:
- code of civil procedure, 1908. order 7, rule 11 & order 7, rule 14 : [arali nagaraj, j] rejection of plaint -omission on part of plaintiff to produce all documents along with plaint - held, same cannot be a ground for rejection of plaint. -- order 7, rule 11(a) or(d): rejection of plaint - averments in plaint disclosed cause of action held, plaint cannot be rejected on ground that any of reliefs claimed by plaintiff in suit cannot be granted unless there is specific bar under law, for entertaining suit itself in respect of reliefs sought for by plaintiff. - this was the view taken by the commissioner (appeals), as well as by the appellate tribunal and the question before us was argued on the basis that this assumption is factually correct.k. shivashankar bhat, j.1. in these references, five questions are referred for our consideration at the instance of the revenue and the sixth question is referred at the instance of the assessee. the references are under 256(1) of the income-tax act, 1961 ('the act', for short), pertaining to the assessment year 1981-82. the questions read thus :'1. whether, on the facts and in the circumstances of the case, the appellate tribunal is right in law in upholding the order of the commissioner (appeals) who directed the inspecting assistant commissioner to allow depreciation on roads, walls and fences ? 2. whether, on the facts and in the circumstances of the case, the appellate tribunal is right in law in upholding the order of the commissioner (appeals) who directed the inspecting assistant commissioner to allow extra shift allowance on water system and sanitation ? 3. whether, on the facts and in the circumstances of the case, the appellate tribunal is right in law in upholding the order of the commissioner (appeals) who directed the inspecting assistant commissioner to allow depreciation on capitalised loss on account of day-to-day fluctuation in foreign exchange rates ? 4. whether, on the facts and in the circumstances of the case, the appellate tribunal is right in law in allowing the assessee's claim for deduction under 35(1)(iv) of the income-tax act, 1961, in respect of the value of capital work-in-progress, machinery and equipment in transit and under erection at the assessee's research and development division ? 5. whether, on the facts and in the circumstances of the case, the appellate tribunal is right in law in upholding the order of the commissioner (appeals) who held that deduction under 80j has to be computed including the value of capital assets of rs. 44,10,303 and 6. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in law in holding that for purposes of s 80j and 80hh of the act, profits and gains from new undertakings are not commercial profits but such profits as are computed in the manner laid down under the act pursuant to 80ab as if each undertaking was a separate assessee '2. the first four questions need not detain us because they are all covered by one or the other decision of this court.3. the first question is covered by the decision of this court reported in cit v. banglore turf club ltd. : [1984]150itr23(kar) . following the said decision, the question is answered in the affirmative and in favour of the assessee.4. the second question is covered by the decision rendered in the very assessee's case in income-tax reference case no. 272 of 1985 (cit v. h. m. t. ltd. (no. 2) : [1993]203itr818(kar) (infra)) (dated november 28, 1991). following the said decision, the question is answered in the affirmative and in favour of the assessee.5. the third question is covered by the decision of this court reported cit v. motor industries co. ltd. : [1988]173itr374(kar) . following the said decision, the question is answered in the affirmative and in favour of the assessee.6. the fourth question is covered by the decision of this court reported in ravi machine tools (p.) ltd v. cit : [1978]114itr459(kar) . following the said decision, the question is answered in the affirmative and in favour of the assessee.re : question no. 5 :7. the sum of rs. 44,10,303, admittedly, is the value of capital assets relating to scientific research. while working out the deduction under 80j of the act in respect of the watch factory of the assessee, this was sought to be excluded by the revenue on the ground that the term 'actual cost' used in 80j(1a)(ii)(ii) has to be understood in to manner stated in 43(1) and for this purpose explanation 1 to 43(1) also will have to be considered. this explanation in turn refers to 32(1)(ii) which provides for depreciation on buildings, machinery plant or furniture owned by the assessee and used for the purposes of the business after it ceases to be used for scientific research related to that business, the actual cost of the asset to the assessee, when the said asset is used in the business thereafter, will be the value derived after deducting the depreciation granted to the said asset when it was used for scientific research.8. 35 provides for the expenditure on scientific research and as per sub-clause (iv) of 35(1), in respect of expenditure on scientific research, any expenditure of a capital nature on scientific research is allowed when it is related to the business carried on by the assessee and sub- (2) provides for the computation of the deduction. when an assessee uses the assets for scientific research and avails of such deductions according to the revenue, the value of the asset would get reduced to the extent of the deductions by time the asset is diverted for user in the main business of the assessee.9. this contention was not accepted by the appellate tribunal. the tribunal observes that, 'it is not denied that the assets are still being used for scientific research' and, therefore, these assets are not entitled to any depreciation at all but for a deduction under 35(1)(iv). the tribunal further observed that, for the purpose of 80j, the meaning of the term 'actual cost' stated in 43(1) without reference to explanation 1 has to be applied. the tribunal also has noted that it was not the case of the revenue that the assets in question are not used for the business of the industrial undertaking; since these assets are also used for the business of the assessee, they cannot be excluded from the capital of the company. this was the view taken by the commissioner (appeals), as well as by the appellate tribunal and the question before us was argued on the basis that this assumption is factually correct.10. 80j provides for deduction in respect of profits and gains from newly established industrial undertakings, etc. for this purpose, the capital employed in the industrial undertakings of the assessee will have to be computed in the manner specified in sub- (1a), this again takes us to sub-clause (ii) of 80j(1a) (ii). according to this, the value of the assets shall be ascertained thus : 'in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee'. explanation 1 states that, 'in this clause, 'actual cost' has the same meaning as in clause (1) of 43'. there is no dispute that these provisions govern the instant case and, therefore, the only question actually that would survive for consideration will be the scope of the explanation pertaining to the term 'actual cost' which takes us to 43. 43, to the extent it is relevant for our purpose, reads thus :'43. in s 28 to 41 and in this , unless the context otherwise requires - (1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost therefore, if any, as has been met directly or indirectly by any other person or authority : provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of march, 1967, but before the 1st day of march, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees. explanation 1. - where an asset is used in the business, after it ceases to be used for scientific research related to that business and a deduction has to be made under clause (ii) of sub- (1) of 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub- (1) of 35 or under any corresponding provision of the indian income-tax act, 1922 (11 of 1922).' 11. the main provisions of 43(1) are quite clear when it says that the actual cost is that which is incurred by the assessee. to the extent any portion of the cost is met directly or indirectly by any other person or authority, to that extent the actual cost of the assessee gets reduced. a deduction granted under 35 cannot be equated to a situation where a portion of the cost is being met by a third party because 35 provides only a statutory deduction under certain circumstances. learned counsel for the revenue, however, sought to rely on explanation 1. according to learned counsel, when the assets ceased to be used for scientific research and a deduction is to be made under 32(1)(ii), the actual cost of the asset to the assessee would get reduced by the amount of deduction allowed under 35(1)(iv) and according to learned counsel, that is the situation involved here.12. the above contention ignores the scope of this explanation. explanation 1 is attracted only when a deduction has to be made under 32(1)(ii). the applicability of the explanation is confined to the particular situation stated therein. it nowhere extends to other situations wherein actual cost will have to be computed for any other purpose. hence, it is not possible for us to accept the contention of learned counsel. therefore, question no. 5 is answered in the affirmative and in favour of the assessee.re : question no. 6 :13. 80ab was introduced with effect from april 1, 1981, and therefore, it governs the assessment year in question. on this aspect, there is no dispute. the reads as follows :'80ab. where any deduction is required to be made or allowed under any (except 80m) included in this chapter under the heading 'c - deductions in respect of certain incomes' in respect of any income of the nature specified in that which is included in the gross total income of the assessee, then, notwithstanding anything contained in that , for the purpose of computing the deduction under that , the amount of income of that nature as computed in accordance with the provisions of the act (before making any deduction under this chapter) shall alone be deemed to the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.'14. this says that, for the purpose of computing the deduction under any in part-c of chapter vii-a, in spite of that , the amount of income of the nature referred to in that other shall alone be deemed to be the amount of income of that nature. mr. kumar contended that 80-1(6) may be compared with 80ab and pointed out that 80-i(6) is quite clear, elaborate and specific. that may be so, but a different phraseology used in 80ab cannot deprive it of its content and full effect will have to be given to the language used by the , however clumsily it may have been drafted. therefore, the tribunal was justified in holding that, for the purposes of s 80j and 80hh, profits and gains of new undertakings are not commercial profits but only such profits as are computed in the manner laid down under the act in pursuance of 80ab, as if each undertaking was a separate assessee. the question referred to us is answered in the affirmative and in favour of the revenue.15. the references are accordingly answered.
Judgment:

K. Shivashankar Bhat, J.

1. In these references, five questions are referred for our consideration at the instance of the Revenue and the sixth question is referred at the instance of the assessee. The references are under 256(1) of the Income-tax Act, 1961 ('the Act', for short), pertaining to the assessment year 1981-82. The questions read thus :

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner (Appeals) who directed the Inspecting Assistant Commissioner to allow depreciation on roads, walls and fences ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner (Appeals) who directed the Inspecting Assistant Commissioner to allow extra shift allowance on water system and sanitation ?

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner (Appeals) who directed the Inspecting Assistant Commissioner to allow depreciation on capitalised loss on account of day-to-day fluctuation in foreign exchange rates ?

4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in allowing the assessee's claim for deduction under 35(1)(iv) of the Income-tax Act, 1961, in respect of the value of capital work-in-progress, machinery and equipment in transit and under erection at the assessee's research and development division ?

5. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner (Appeals) who held that deduction under 80J has to be computed including the value of capital assets of Rs. 44,10,303 and

6. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that for purposes of s 80J and 80HH of the Act, profits and gains from new undertakings are not commercial profits but such profits as are computed in the manner laid down under the Act pursuant to 80AB as if each undertaking was a separate assessee '

2. The first four questions need not detain us because they are all covered by one or the other decision of this court.

3. The first question is covered by the decision of this court reported in CIT v. Banglore Turf Club Ltd. : [1984]150ITR23(KAR) . Following the said decision, the question is answered in the affirmative and in favour of the assessee.

4. The second question is covered by the decision rendered in the very assessee's case in Income-tax reference Case No. 272 of 1985 (CIT v. H. M. T. Ltd. (No. 2) : [1993]203ITR818(KAR) (infra)) (dated November 28, 1991). Following the said decision, the question is answered in the affirmative and in favour of the assessee.

5. The third question is covered by the decision of this court reported CIT v. Motor Industries Co. Ltd. : [1988]173ITR374(KAR) . Following the said decision, the question is answered in the affirmative and in favour of the assessee.

6. The fourth question is covered by the decision of this court reported in Ravi Machine Tools (P.) Ltd v. CIT : [1978]114ITR459(KAR) . Following the said decision, the question is answered in the affirmative and in favour of the assessee.

Re : Question No. 5 :

7. The sum of Rs. 44,10,303, admittedly, is the value of capital assets relating to scientific research. While working out the deduction under 80J of the Act in respect of the watch factory of the assessee, this was sought to be excluded by the Revenue on the ground that the term 'actual cost' used in 80J(1A)(II)(ii) has to be understood in to manner stated in 43(1) and for this purpose Explanation 1 to 43(1) also will have to be considered. This Explanation in turn refers to 32(1)(ii) which provides for depreciation on buildings, machinery plant or furniture owned by the assessee and used for the purposes of the business after it ceases to be used for scientific research related to that business, the actual cost of the asset to the assessee, when the said asset is used in the business thereafter, will be the value derived after deducting the depreciation granted to the said asset when it was used for scientific research.

8. 35 provides for the expenditure on scientific research and as per sub-clause (iv) of 35(1), in respect of expenditure on scientific research, any expenditure of a capital nature on scientific research is allowed when it is related to the business carried on by the assessee and sub- (2) provides for the computation of the deduction. When an assessee uses the assets for scientific research and avails of such deductions according to the Revenue, the value of the asset would get reduced to the extent of the deductions by time the asset is diverted for user in the main business of the assessee.

9. This contention was not accepted by the Appellate Tribunal. The Tribunal observes that, 'it is not denied that the assets are still being used for scientific research' and, therefore, these assets are not entitled to any depreciation at all but for a deduction under 35(1)(iv). The Tribunal further observed that, for the purpose of 80J, the meaning of the term 'actual cost' stated in 43(1) without reference to Explanation 1 has to be applied. The Tribunal also has noted that it was not the case of the Revenue that the assets in question are not used for the business of the industrial undertaking; since these assets are also used for the business of the assessee, they cannot be excluded from the capital of the company. This was the view taken by the Commissioner (Appeals), as well as by the Appellate Tribunal and the question before us was argued on the basis that this assumption is factually correct.

10. 80J provides for deduction in respect of profits and gains from newly established industrial undertakings, etc. For this purpose, the capital employed in the industrial undertakings of the assessee will have to be computed in the manner specified in sub- (1A), This again takes us to sub-clause (ii) of 80J(1A) (II). According to this, the value of the assets shall be ascertained thus : 'in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee'. Explanation 1 states that, 'In this clause, 'actual cost' has the same meaning as in clause (1) of 43'. There is no dispute that these provisions govern the instant case and, therefore, the only question actually that would survive for consideration will be the scope of the Explanation pertaining to the term 'actual cost' which takes us to 43. 43, to the extent it is relevant for our purpose, reads thus :

'43. In s 28 to 41 and in this , unless the context otherwise requires -

(1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost therefore, if any, as has been met directly or indirectly by any other person or authority :

Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees.

Explanation 1. - Where an asset is used in the business, after it ceases to be used for scientific research related to that business and a deduction has to be made under clause (ii) of sub- (1) of 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub- (1) of 35 or under any corresponding provision of the Indian Income-tax Act, 1922 (11 of 1922).'

11. The main provisions of 43(1) are quite clear when it says that the actual cost is that which is incurred by the assessee. To the extent any portion of the cost is met directly or indirectly by any other person or authority, to that extent the actual cost of the assessee gets reduced. A deduction granted under 35 cannot be equated to a situation where a portion of the cost is being met by a third party because 35 provides only a statutory deduction under certain circumstances. Learned counsel for the Revenue, however, sought to rely on Explanation 1. According to learned counsel, when the assets ceased to be used for scientific research and a deduction is to be made under 32(1)(ii), the actual cost of the asset to the assessee would get reduced by the amount of deduction allowed under 35(1)(iv) and according to learned counsel, that is the situation involved here.

12. The above contention ignores the scope of this Explanation. Explanation 1 is attracted only when a deduction has to be made under 32(1)(ii). The applicability of the Explanation is confined to the particular situation stated therein. It nowhere extends to other situations wherein actual cost will have to be computed for any other purpose. Hence, it is not possible for us to accept the contention of learned counsel. Therefore, question No. 5 is answered in the affirmative and in favour of the assessee.

Re : Question No. 6 :

13. 80AB was introduced with effect from April 1, 1981, and therefore, it governs the assessment year in question. On this aspect, there is no dispute. The reads as follows :

'80AB. Where any deduction is required to be made or allowed under any (except 80M) included in this Chapter under the heading 'C - Deductions in respect of certain incomes' in respect of any income of the nature specified in that which is included in the gross total income of the assessee, then, notwithstanding anything contained in that , for the purpose of computing the deduction under that , the amount of income of that nature as computed in accordance with the provisions of the Act (before making any deduction under this Chapter) shall alone be deemed to the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.'

14. This says that, for the purpose of computing the deduction under any in Part-C of Chapter VII-A, in spite of that , the amount of income of the nature referred to in that other shall alone be deemed to be the amount of income of that nature. Mr. Kumar contended that 80-1(6) may be compared with 80AB and pointed out that 80-I(6) is quite clear, elaborate and specific. That may be so, but a different phraseology used in 80AB cannot deprive it of its content and full effect will have to be given to the language used by the , however clumsily it may have been drafted. Therefore, the Tribunal was justified in holding that, for the purposes of s 80J and 80HH, profits and gains of new undertakings are not commercial profits but only such profits as are computed in the manner laid down under the Act in pursuance of 80AB, as if each undertaking was a separate assessee. The question referred to us is answered in the affirmative and in favour of the Revenue.

15. The references are accordingly answered.