C.I.T.
Gujarat Vs. Elecon Engineering Co. Ltd. [1987] INSC 182 (21 July 1987)
MISRA
RANGNATH MISRA RANGNATH PATHAK, R.S. (CJ) CITATION: 1987 AIR 2014 1987 SCR (3)
588 1987 SCC (4) 530 JT 1987 (3) 117 1987 SCALE (2)89
ACT:
Income
Tax Act, 1961/Income Tax Rules, 1962--Section 84 (Section 80J)/Rule 19--New
Industrial Undertaking--Admissibility of exemption--Manner of computation.
HEADNOTE:
The
assessee, a public limited company, in the assessment year 1964-65 was in the
second year of its new project going into production. The Income-tax Officer
computed the assessment under s. 143(3) of the Income-tax Act, 1961 after
determining the rebate admissible under ss. 84 and 101 at Rs.2,72,372. He
re-opened the assessment under s. 147(b) and re-computed the rebate at
Rs.2,51,222. The appeal by the assessee to the Appellate Assistant Commissioner
was dismissed. The Appellate Tribunal accepted the plea of the assessee that to
the figure of capital as worked out under Rule 19(1) is to be added the average
profit as worked out under sub-rule (5) of Rule 19 and held that the average
capital has to be taken at Rs.45,39,557 and not at Rs.41,87,034. In the
Reference, the High Court agreed with the conclusion reached by the Appellate
Tribunal.
Dismissing
the Appeal of the Revenue,
HELD:
1. Admissibility of exemption under s. 84 of the Incometax Act, 1961 which has
been repealed with effect from 1.4.1968 has never been in dispute. What has
been deputed is the manner of its computation. Rule 19 of the Income-tax Rules,
1962 prescribes the method of computation and on a proper interpretation of
sub-rule (1), (3) and (5) of this Rule would depend the ultimate conclusion to
be reached. [590F-G]
2.
The High Court is right in saying that the dispute has to be resolved by
referring to sub-rules (1), (3), (5) and (6) of Rule 19. The High Court found
that the value of assets entitled to depreciation under Rule 19(1)(a) worked
out to Rs.40,10,947. To this figure was added a sum of Rs.1,39,764 on account of
depreciation as on 1.1.63 as also on account of the average value of additions.
The other assets were valued under Rule 19(1)(b) at Rs.44,38,126 as on 1.1.63.
All put together the 589 aggregate valuation came to Rs.85,38,837. From this
aggregate, deduction of sum of Rs.44,01,803 representing loans, other
liabilities including provision for tax as authorised by Rule 19 was made
leaving the valuation of the capital at Rs.41,87,034. To this figure the sum of
Rs.3,52,503 being half of the profit from the New Project was added to compute
the value at Rs.45,39,537. Following the provision of s. 84, entitlement to
exemption was determined at Rs.2,72,372 representing 6% of the capital employed
in the new industrial undertaking. [592C-E]
3.
Re-assessment was made by deleting the addition of Rs.3,52,503' which
represented half the profit of the year.
According
to the Revenue, profits earned during the year had already been taken into
account in the process of computation and there was no warrant for its addition
over again to the extent of a moiety. In fact, that is the only dispute that
fell to be resolved. The High Court took note of the fact that profits had
necessarily been reflected in the average valuation of the assets but in its
view the deeming provision of Rule 19(5) was the special procedure laid down
for computation for the purpose of calculation and could not be over-looked for
the reasons advanced by the Revenue.
There
is sufficient force in the reasoning of the High Court and the conclusion
reached by it is accepted. [592E-G]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 1 of 1975.
From
the Judgment and Order dated 11/12.9.1973 of the Gujarat High Court in I.T.
Reference No. 19 of 1971.
K.P.
Bhatnagar and Ms. A. Subhashini for the Appellant.
The
Judgment of the Court was delivered by RANGANATH MISRA, J. This appeal by
certificate has been carried by the Revenue challenging the decision rendered
by the Gujarat High Court reported in 104 ITR 5 10 on a reference under the
Income Tax Act, 1961.
Assessee
is a Public Limited Company and the relevant assessment year is 1964-65. This
was the second year of the assessee's new project at Vidyanagar going into
production.
On
19.3.1965, the Income Tax Officer computed the assessment under section 143(3)
of the Act after determining the rebate admissible under sections 84 and 590
101 of the Act at Rs.2,72.372. He reopened the assessment under section 147(b)
of the Act and by his reassessment order dated 29.11.1966 recomputed the rebate
at Rs.2,51,222.
The
appeal by the assessee to the Appellate Assistant Commissioner was dismissed.
The Appellate Tribunal on further appeal by the assessee came to
hold:"There is considerable force in the arguments urged by Sri Talati. In
view of the phraseology used in the rules we are inclined to accept Sri
Talati's plea that to the figure of capital as worked out under Rule 19(1) is
to be added the average profit as worked out under sub-rule (5) of Rule 19.
Accordingly, the average capital has to be taken at Rs.45,39,537 and not at
Rs.41.87.034. The assessee's contention must, therefore, be upheld." At
the instance of the Revenue, the Tribunal referred the following question for
the opinion of the High Court:"Whether on the facts and in the
circumstances of the case, the figure arrived at by computation under rule
19(5) was to be added to the figure arrived at by computation under rule 19(1)
for determining the average capital employed in the assessee's
undertaking?" The High Court noticed the feature that there was dearth of
judicial decisions on the point at issue, dealt with the relevant provisions at
length and came to agree with the conclusion reached by the Appellate Tribunal.
Admissibility
of exemption under section 84 of the Act which has been repealed with effect
from 1.4.1968, has never been in dispute. What has been debated is the manner
of its computation. Rule 19 of the Income Tax Rules, 1962 prescribes the method
of computation and on a proper interpretation of the relevant provisions of
this Rule would depend the ultimate conclusion to be reached. Sub-rule (1), (3)
and (5) are relevant. They provide:
"19.
(1) For the purposes of section 84, the capital employed in an undertaking or a
hotel to which the said section applies shall be taken to be:(a) in the case of
assets acquired by purchase and entitled to depreciation-591 (i) if they have
been acquired before the computation period, their written down value on the
commencing date of the said period;
(ii)
if they have been acquired on or after the commencing date of the computation
period, their average cost during the said period;
(b)
in the case of assets acquired by purchase and not entitled to depreciation-(i)
if they have been acquired before the computation period, their actual cost to
the assessee;
(ii)
if they have been acquired on or after the commencing date of the computation
period, their average cost during the said period;
...........................................................
(3)
Any borrowed money and debt due by the person carrying on the business shall be
deducted and in particular there shall be deducted any debts incurred in
respect of the business for tax (including advance tax) due under any provision
of the Act:
Provided
that any such debt for tax (including advance tax) shall, for the purpose of
this sub-rule, be deemed to have become due-(a) in the case of any advance tax
due under any provision of the Act or of any tax payable under section 140-A or
under section 141, on the date on which, under the provisions of section 211 or
section 2 12 or section 2 13 or section 140-A or section 220, as the case may
be, the payment first became due;
(b)
in any other case, on the last day of the period of time within which the tax
is payable under section 220.
(5)
For the purpose of ascertaining the average amount of capital employed in a
business during any computation 592 period, the profits or losses made in that
period shall, except so far as the contrary is shown, be deemed-(a) to have
accrued at an even rates throughout the said period; and (b) to have resulted,
as they accrued, in a corresponding increase or decrease, as the case may be,
in the capital employed in the business." 'Average Cost', 'Computation Period',
'depreciation' and 'Written Down Value' have been defined in sub-rule (6). The
High Court is right in saying that the dispute has to be resolved by referring
to sub-rules (1), (3), (5) and (6) of Rule 19. The High Court found that the
value of assets entitled to depreciation under Rule 19(1)(a) worked out to
Rs.40, 10,947. To this figure was added a sum of Rs.
1,39,764
on account of depreciation as on 1.1. 1963 as also on account of the average
value of additions. The other assets were valued under Rule 19(1)(b) at
Rs.44,38,126 as on 1.1.1963. All put together, the aggregate valuation came to
Rs.85.88,837. From this aggregate, deduction of a sum of Rs.44,01,803
representing loans, other liabilities including provision for tax as authorised
by Rule 19 was made leaving the valuation of the capital at Rs.41,67,034. To
this figure, the sum of Rs.3,52,503 being half of the profit from the New
Project was added to compute the value at Rs.45,39,537. Following the provision
of Section 84 of the Act, entitlement to exemption was determined at
Rs.2,72,372 representing 6% of the capital employed in the new industrial
undertaking.
The
assessment was made by deleting the addition of Rs.3,52,503 which represented
half the profit of the year.
According
to the Revenue, profits earned during the year had already been taken into
account in the process of computation and there was no warrant for its addition
over again to the extent of a moiety. In fact, that is the only dispute that
fell to be resolved. The High Court took note of the fact that profits had
necessarily been reflected in the average valuation of the assets but in its
view the deeming provision in Rule 19(5) was the special procedure laid down
for computation for the purpose of calculation and could not be overlooked for
the reasons advanced by the Revenue. We find sufficient force in the reasoning
of the High Court and accept the conclusion reached by it.
The
appeal is devoid of merit and is dismissed. Parties shall bear their own costs
throughout.
A.P.J.
Appeal dismissed.
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