Commissioner
of Income Tax, Madras Vs. M/S Lucas T.V.S. Ltd. Padi Chennai [2007] Insc 1294 (14 December 2007)
Dr.
Arijit Pasayat & P. Sathasivam
(Arising
out of SLP (C) Nos.24479-24481 of 2005) Dr. ARIJIT PASAYAT, J.
1.
Leave granted.
2.
Challenge in these appeals is to the order passed by a Division Bench of the
Madras High Court dismissing the Tax Case Appeals as according to the High
Court the case at hand is covered against the revenue in view of the order
passed earlier by the High Court in Southern Asbestos Cement Ltd. v.
Commissioner of Income Tax (259 I.T.R. 631).
3.
These appeals relate to assessment years 1989-90, 1991- 92 and 1992-93. The
core issue is the allowability of investment allowance under Section 32A of the
Income Tax Act, 1961 (in short the Act). The assessing officer was of
the view that it is only to be allowed in one assessment year and not several
assessment years. The Tribunal and the High Court appear to have proceeded on
the basis that in view of Section 43A(1) of the Act the allowance was to be
granted in different assessment years.
4.
Sections 32A and 43A(1) of the Act read as under:
Section
32A- INVESTMENT ALLOWANCE.
(1) In
respect of a ship or an aircraft or machinery or plant specified in sub-section
(2), 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, be allowed a deduction, in respect of the previous
year in which the ship or aircraft was acquired or the machinery or plant was
installed or, if the ship, aircraft, machinery or plant is first put to use in
the immediately succeeding previous year, then, in respect of that previous
year, of a sum by way of investment allowance equal to twenty-five per cent. of
the actual cost of the ship, aircraft, machinery or plant to the assessee:
Provided
that in respect of a ship or an aircraft or machinery or plant specified in
sub-section (8B), this sub-section shall have effect as if for the words "twenty-five
per cent", the words "twenty per cent" had been substituted :
Provided
further that no deduction shall be allowed under this section in respect of
(a)
Any machinery or plant installed in any office premises or any residential
accommodation, including any accommodation in the nature of a guest- house;
(b)
Any office appliances or road transport vehicles;
(c)
Any ship, machinery or plant in respect of which the deduction by way of
development rebate is allowable under section 33; and (d) Any machinery or
plant, the whole of the actual cost of which is allowed as a deduction (whether
by way of depreciation or otherwise) in computing the income chargeable under
the head "Profits and gains of business or profession" of any one
previous year.
Explanation
: For the purposes
of this sub- section, "actual cost" means the actual cost of the
ship, aircraft, machinery or plant to the assessee as reduced by that part of
such cost which has been met out of the amount released to the assessee under
sub-section (6) of section 32AB.
(2)
The ship or aircraft or machinery or plant referred to in sub-section (1) shall
be the following, namely :- (a) A new ship or new aircraft acquired after the
31st day of March, 1976, by an assessee engaged in the business of operation of
ships or aircraft;
(b)
Any new machinery or plant installed after the 31st day of March, 1976 –
(i)
For the purposes of business of generation or distribution of electricity or
any other form of power; or
(ii)
454 in a small-scale industrial undertaking for the purposes of business of
manufacture or production of any article or thing; or
(iii)
In any other industrial undertaking for the purposes of business of
construction, manufacture or production of any article or thing, not being an
article or thing specified in the list in the Eleventh Schedule :
Provided
that nothing contained in clauses (a) and (b) shall apply in relation to, - (i)
A new ship or new aircraft acquired, or (ii) Any new machinery or plant
installed, after the 31st day of March, 1987 but before the 1st day of April,
1988, unless such ship or aircraft is acquired or such machinery or plant is
installed in the circumstances specified in clause (a) of sub-section (8B) and
the assessee furnishes evidence to the satisfaction of the Assessing Officer as
specified in that clause;
(c)
Any new machinery or plant installed after the 31st day of March, 1983, but
before the 1st day of April, 1987, for the purposes of business of repairs to
ocean-going vessels or other powered craft if the business is carried on by an
Indian company and the business so carried on is for the time being approved
for the purposes of this clause by the Central Government.
Explanation
: For the purposes
of this sub- section and sub-sections (2B), (2C) and (4), - (1)(a) "new
ship" or "new aircraft" includes 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;
(b)
"New machinery or plant" includes machinery or plant which before its
installation by the assessee was used outside India by any other person, if the following conditions are
fulfilled, namely :-
(i)
Such machinery or plant was not, at any time previous to the date of such
installation by the assessee, used in India;
(ii)
Such machinery or plant is imported into India from any country outside India; and
(iii)
No deduction on account of depreciation in respect of such machinery or plant
has been allowed or is allowable under the provisions of the Indian Income-tax
Act, 1922 (11 of 1922), or this Act in computing the total income of any person
for any period prior to the date of the installation of the machinery or plant
by the assessee, (2) An industrial undertaking shall be deemed to be a
small-scale industrial undertaking, if the aggregate value of the machinery and
plant (other than tools, jigs, dies and moulds) installed, as on the last day
of the previous year, for the purposes of the business of the undertaking does
not exceed, -
(i) In
a case where the previous year ends before the 1st day of August, 1980, ten lakh
rupees;
(ii)
In a case where the previous year ends after the 31st day of July, 1980, but
before the 18th day of March, 1985, twenty lakh rupees; and
(iii)
In a case where the previous year ends after the 17th day of March, 1985,
thirty-five lakh rupees, and for this purpose the value of any machinery or
plant shall be, -
(a) In
the case of any machinery or plant owned by the assessee, the actual cost
thereof to the assessee; and
(b) In
the case of any machinery or plant hired by the assessee, the actual cost
thereof as in the case of the owner of such machinery or plant.
(2A)
The deduction under sub-section (1) shall not be denied in respect of any
machinery or plant installed and used mainly for the purposes of business of
construction, manufacture or production of any article or thing, not being an
article or thing specified in the list in the Eleventh Schedule, by reason only
that such machinery or plant is also used for the purposes of business of
construction, manufacture or production of any article or thing specified in
the said list.
(2B)
Where any new machinery or plant is installed after the 30th day of June, 1977
but before the 1st day of April, 1987, for the purposes of business of
manufacture or production of any article or thing and such article or thing –
(a) Is
manufactured or produced by using any technology (including any process) or
other know-how developed in, or
(b) Is
an article or thing invented in, a laboratory owned or financed by the
Government, or a laboratory owned by a public sector company or a University or
by an institution recognised in this behalf by the prescribed authority 463 ,
the provisions of sub-section (1) shall have effect in relation to such
machinery or plant as if for the words "twenty-five per cent.", the
words "thirty-five per cent" had been substituted, if the following
conditions are fulfilled, namely :-
(i)
The right to use such technology (including any process) or other know-how or
to manufacture or produce such article or thing has been acquired from the
owner of such laboratory or any person deriving title from such owner;
(ii)
The assessee furnishes, along with the return of income for the assessment year
for which the deduction is claimed, a certificate from the prescribed authority
to the effect that such article or thing is manufactured or produced by using
such technology (including any process) or other know-how developed in such
laboratory or is an article or thing invented in such laboratory; and (iii) The
machinery or plant is not used for the purpose of business of manufacture or
production of any article or thing specified in the list in the Eleventh
Schedule.
Explanation: For the purposes of this sub-
section, -
(a)
"Laboratory financed by the Government"
means
a laboratory owned by any body [including a society registered under the
Societies Registration Act, 1860 (21 of 1860)] and financed wholly or mainly by
the Government;
xx xx xx
(c) "University" means a University established or incorporated by or
under a Central, State or Provincial Act and includes an institution declared
under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to
be a University for the purposes of that Act.
(2C)
Where any new machinery or plant, being machinery or plant which would assist
in control of pollution or protection of environment and which has been
notified 466 in this behalf by the Central Government in the Official Gazette,
is installed after the 31st day of May, 1983 but before the 1st day of April,
1987, in any industrial undertaking referred to in sub-clause (i) or sub-clause
(ii) or sub-clause (iii) of clause (b) of sub-section (2), the provisions of
sub-section (1) shall have effect in relation to such machinery or plant as if
for the words "twenty-five per cent", the words "thirty- five
per cent" had been substituted.
(3)
Where the total income of the assessee assessable for the assessment year relevant
to the previous year in which the ship or aircraft was acquired or the
machinery or plant was installed, or, as the case may be, the immediately
succeeding previous year [the total income for this purpose being computed
after deduction of the allowance under section 33 and section 33A, but without
making any deduction under sub-section (1) of this section or any deduction
under Chapter VI-A is nil or is less than the full amount of the investment
allowance, -
(i)
The sum to be allowed by way of investment allowance for that assessment year
under sub- section (1) shall be only such amount as is sufficient to reduce the
said total income to nil; and
(ii)
The amount of the investment allowance, to the extent to which it has not been
allowed as aforesaid, shall be carried forward to the following assessment
year, and the investment allowance 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 investment allowance, if any, still outstanding shall be
carried forward to the following assessment year and so on, so, however, that
no portion of the investment allowance shall be carried forward for more than
eight assessment years immediately succeeding the assessment year relevant to
the previous year in which the ship or aircraft was acquired or the machinery
or plant was installed or, as the case may be, the immediately succeeding previous
year.
Explanation
: Where for any
assessment year, investment allowance is to be allowed in accordance with the
provisions of this sub- section in respect of any ship or aircraft acquired or
any machinery or plant installed in more than one previous year, and the total
income of the assessee assessable for that assessment year [the total income
for this purpose being computed after deduction of the allowance under section
33 and section 33A, but without making any deduction under sub- section (1) of
this section or any deduction under Chapter VI-A] is less than the aggregate of
the amounts due to be allowed in respect of the asset aforesaid for that
assessment year, the following procedure shall be followed, namely :-
(a)
The allowance under clause (ii) shall be made before any allowance under clause
(i) is made; and
(b) where
an allowance has to be made under clause (ii) in respect of amounts carried
forward from more than one assessment year, the amount carried forward from an
earlier assessment year shall be allowed before any amount carried forward from
a later assessment year.
(4)
The deduction under sub-section (1) shall be allowed only if the following
conditions are fulfilled, namely :-
(i)
The particulars prescribed 468 in this behalf have been furnished by the assessee
in respect of the ship or aircraft or machinery or plant;
(ii)
An amount equal to seventy-five per cent of the investment allowance 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 (3) or any
earlier previous year [being a previous year not earlier than the year in which
the ship or aircraft was acquired or the machinery or plant was installed or
the ship, aircraft, machinery or plant was first put to use] and credited to a
reserve account (to be called the "Investment Allowance Reserve
Account") to be utilised
(a)
For the purposes of acquiring, before the expiry of a period of ten years next
following the previous year in which the ship or aircraft was acquired or the
machinery or plant was installed, a new ship or a new aircraft or new machinery
or plant [other than machinery or plant of the nature referred to in clauses
(a), (b) and (d) of the second proviso to sub-section (1)] for the purposes of
the business of the undertaking; and (b) Until the acquisition of a new ship or
a new aircraft or new machinery or plant as aforesaid, for the purposes of the
business of the undertaking other than for distribution by way of dividends or
profits or for remittance outside India as profits or for the creation of any
asset outside India :
Provided
that this clause shall have effect in respect of a ship as if for the word
"seventy- five", the word "fifty" had been substituted.
Explanation
: Where the amount
debited to the profit and loss account and credited to the Investment Allowance
Reserve Account under this sub-section is not less than the amount required to
be so credited on the basis of the amount of deduction in respect of investment
allowance claimed in the return made by the assessee under section 139, but a
higher deduction in respect of the investment allowance is admissible on the
basis of the total income as proposed to be computed by the Assessing Officer
under section 143, the Assessing Officer shall, by notice in writing in this
behalf, allow the assessee an opportunity to credit within the time specified
in the notice or within such further time as the Assessing Officer may allow, a
further amount to the Investment Allowance Reserve Account out of the profits
and gains of the previous year in which such notice is served on the assessee
or of the immediately preceding previous year, if the accounts for that year
have not been made up; and, if the assessee credits any further amount to such
account within the time aforesaid, the amount so credited shall be deemed to
have been credited to the Investment Allowance Reserve Account of the previous
year in which the deduction is admissible and such amount shall not be taken
into account in determining the adequacy of the reserve required to be credited
by the assessee in respect of the previous year in which such further credit is
made :
Provided
that such opportunity shall not be allowed by the Assessing Officer in a case where
the difference in the total income as proposed to be computed by him and the
total income as returned by the assessee arises out of the application of the
proviso to sub-section (1) of section 145 or sub-section (2) of that section or
the omission by the assessee to disclose his income fully and truly.
(5)
Any allowance made under this section in respect of any ship, aircraft,
machinery or plant shall be deemed to have been wrongly made for the purposes
of this Act (a) If the ship, aircraft, 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; or (b) If at any time before the expiry of ten years from the end of
the previous year in which the ship or aircraft was acquired or the machinery
or plant was installed, the assessee does not utilise the amount credited to
the reserve account under sub-section (4) for the purposes of acquiring a new
ship or a new aircraft or new machinery or plant [other than machinery or plant
of the nature referred to in clauses (a), (b) and (d) of the second proviso to
sub-section (1)] for the purposes of the business of the undertaking; or (c) If
at any time before the expiry of the ten years aforesaid, the assessee utilises
the amount credited to the reserve account under sub-section (4) for
distribution by way of dividends or profits or for remittance outside India as
profits or for the creation of any asset outside India or for any other purpose
which is not a purpose of the business of the undertaking, and the provisions
of sub-section (4A) of section 155 shall apply accordingly :
Provided
that nothing in clause (a) shall apply - (i) Where the ship, aircraft,
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 or (1 of 1956); or (ii) Where the sale or transfer of the
ship, aircraft, machinery or plant is made in connection with the amalgamation
or succession, referred to in sub-section (6) or sub-section (7).
(6)
Where, in a scheme of amalgamation, the amalgamating company sells or otherwise
transfers to the amalgamated company any ship, aircraft, machinery or plant, in
respect of which investment allowance has been allowed to the amalgamating
company under sub- section (1), -
(a)
The amalgamated company shall continue to fulfil the conditions mentioned in
sub-section (4) in respect of the reserve created by the amalgamating company
and in respect of the period within which such ship, aircraft, machinery or
plant shall not be sold or otherwise transferred and in default of any of these
conditions, the provisions of sub- section (4A) of section 155 shall apply to
the amalgamated company as they would have applied to the amalgamating company
had it committed the default; and
(b)
The balance of investment allowance, if any, still outstanding to the
amalgamating company in respect of such ship, aircraft, machinery or plant,
shall be allowed to the amalgamated company in accordance with the provisions
of sub-section (3), so, however, that the total period for which the balance of
investment allowance shall be carried forward in the assessments of the
amalgamating company and the amalgamated company shall not exceed the period of
eight years specified in sub-section (3) and the amalgamated company shall be
treated as the assessee in respect of such ship, aircraft, machinery or plant,
for the purposes of this section.
(7)
Where a firm is succeeded to by a company in the business carried on by it as a
result of which the firm sells or otherwise transfers to the company any ship,
aircraft, machinery or plant, the provisions of clauses (a) and (b) of
sub-section (6) shall, so far as may be, apply to the firm and the company.
Explanation
: The provisions of
this sub- section shall apply only where –
(i)
All the property of the firm relating to the business immediately before the
succession becomes the property of the company;
(ii)
All the liabilities of the firm relating to the business immediately before the
succession become the liabilities of the company; and (iii) All the
shareholders of the company were partners of the firm immediately before the
succession.
(8)
The Central Government, if it considers necessary or expedient so to do, may,
by notification in the Official Gazette, direct that the deduction allowable
under this section shall not be allowed in respect of any ship or aircraft
acquired or any machinery or plant installed after such date as may be
specified 475 therein.
(8A)
The Central Government, if it considers necessary or expedient so to do, may,
by notification in the Official Gazette, omit any article or thing from the
list of articles or things specified in the Eleventh Schedule.
(8B) Notwithstanding
anything contained in sub-section (8) or the notification of the Government of
India in the Ministry of Finance (Department of Revenue) No. G.S.R. 870(E),
dated the 12th June, 1986, issued thereunder, the provisions of this section
shall apply in respect of, - (a)(i) A new ship or new aircraft acquired after
the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee
furnishes evidence to the satisfaction of the Assessing Officer that he had,
before the 12th day of June, 1986, entered into a contract for the purchase of
such ship or aircraft with the builder or manufacturer or owner thereof, as the
case may be;
(ii)
Any new machinery or plant installed after the 31st day of March, 1987 but
before the 1st day of April, 1988, if the assessee furnishes evidence to the
satisfaction of the Assessing Officer that before the 12th day of June, 1986,
he had purchased such machinery or plant or had entered into a contract for the
purchase of such machinery or plant with the manufacturer or owner of, or a
dealer in, such machinery or plant, or had, where such machinery or plant has
been manufactured in an undertaking owned by the assessee, taken steps for the
manufacture of such machinery or plant :
Provided
that nothing contained in sub- section (1) shall entitle the assessee to claim
deduction in respect of a ship or aircraft or machinery or plant referred to in
this clause in any previous year except the previous year relevant to the
assessment year commencing on the 1st day of April, 1989;
(b) A
new ship or new aircraft acquired or any new machinery or plant installed after
the 31st day of March, 1988, but before such date as the Central Government, if
it considers necessary or expedient so to do, may, by notification in the
Official Gazette, specify 477a in this behalf.
(8C)
Subject to the provisions of clause (ii) of sub-section (3), where a deduction
has been allowed to an assessee under sub-section (1) in any assessment year,
no deduction shall be allowed to the assessee under section 32AB in the said
assessment year (hereinafter referred to as the initial assessment year) and a
block of further period of four years beginning with the assessment year
immediately succeeding the initial assessment year.
5.
Learned counsel for the appellant submitted that Section 43A(1) relates to
fluctuations of foreign exchange and its effect on the valuation of the assets.
It has nothing to do with the question as to whether it is allowable in one
year. Therefore, the decision relied upon by the High Court has no application.
6.
Learned counsel for the respondent fairly accepted this position.
7. In
that view of the matter, we set aside the impugned order of the High Court,
remit the matter to it for fresh adjudication after formulating the question of
law involved.
8. The
appeals are allowed to the aforesaid extent. No costs.
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