COMMISSIONER OF INCOME TAX, MADRAS v. M-S. LUCAS T.V.S. LTD. PADI CHENNAI

Citation: [2007] 13 S.C.R. 958

Court: Supreme Court of India

Bench: ARIJIT PASAYAT, P. SATHASIVAM

Case summary

COMMISSIONER OF INCOME TAX, MADRAS v. M-S. LUCAS T.V.S. LTD. PADI CHENNAI.pdf

Judgment text

COMMISSIONER OF INCOME TAX, MADRAS v. MIS. LUCAS T. V. S. LTD. PADI CHENNAI DECEMBER 14, 2007 [DR. ARIJIT PASAYAT AND P. SATHASIVAM, JJ. ] Income Tax Act, 1961; Ss. 32A and 43A(l): Investment allowance-Allowing of in one or more than one financial years-Held: S. 43A(J) relates to fluctuation offoreign exchange and has nothing to do with allowability of investment in terms ofs. 32(A) ofthe Act in one or more assessment years-High Court did not take into consideration the relatedprovisions oflaw in its proper perspective while dismissing the appeal ofthe Revenue- Hence, matter remitted to High Court for adjudication afresh after formulating the question oflaw involved. The main issue arose for consideration in these appeals was as to whether investment allowance under Section 32A ofthe Income Tax Act, 1961 could be allowed in one financial/assessment year only or in more than one financial years.

The assessing officer was ofthe view that it is only to be allowed in one assessment year and not several assessment years. The Tribunal has proceeded on the basis that in view of Section 43A(l) of the Act the allowance could be granted in different assessment years. The order ofthe Tribunal was affirmed by the High Court relying on the decision ofthe High Court in the case of Southern Asbestos Cement Ltd. v. Commissioner of Income Tax (259 I. T. R. 631). Hence the present appeals. Appellant contended that Section 43A(l) ofthe Income Tax Act relates to fluctuations of foreign exchange and its effect on the valuation ofthe 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. LUCAS T. V. S. LTD. PADICHENNAI [PASAYAT,J. ] Allowing the appeals, the Court HELD: Since contention of the appellant-Revenue that S.

43A(l) of the Income Tax Act relates to fluctuation of foreign exchange and its effect on the valuation of the assets and it has nothing to do with the question as to whether it is allowable in one assessment year or more, accepted by respondent-assessee, the matter is remitted to the High Court for fresh adjudication after formulating the question oflaw involved. [Para 5) [971-E-G] CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5950- 5952 of2007. From the final Judgment and Order dated 15. 3. 2004 of the High Court of Judicature at Madras in ITA Nos. 109-111 of2004. P. P. Malhotra, ASG. , Dr. R. G. Padia, Arijit Prasad, Shweta and B. V. Balaram for the Appellant. Radha Rangaswamy for the Respondent. The Judgment ofthe Court was delivered by DR. ARIJIT PASAYAT, J. l. 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 ofthe order passed earlier by the High Court in Southern Asbestos Cement Ltd. v. Commissioner of Income Tax (259 l. T. R. 631). 3. These appeals relate to assessment years 1989-90, 1991-92 and 1992-93. The core issue is the allowability ofinvestment 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 ofSection 43A(l) ofthe Act the allowance was to be granted in different assessment years. 4. Sections 32A and 43A(l) ofthe Act read as under: ·- Sectfon 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 ofthis section, be allowed a deduction, in respect ofthe previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, ifthe ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect ofthat previous year, ofasum by way ofinvestment allowance equal to twenty-five per cent.

ofthe actual cost ofthe ship, aircraft, machinery or plant to the assessee: Provided that in respect ofa ship or an aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as iffor 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 ofa guest-house; (b) Any office appliances or road transport vehicles; (c) Any ship, machinery or plant in respect of which the deduction by way ofdevelopment rebate is allowable under section 33; and (d) Any machinery or plant, the whole ofthe 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 ofbusiness or profession" ofany one previous year.

Explanation: For the purposes ofthis sub-section, "actual cost" means the actual cost ofthe ship, aircraft, machinery or plant to the assessee as reduced by that part ofsuch cost which has been met out ofthe amount released to the assessee under sub-section (6) ofsection 32AB. (2) The ship or aircraft or machinery or plant referred to in subsection (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 ofoperation ofships or aircraft; (b) Any new machinery or plant installed after the 31st day of March, 1976 - ...

(i) For the purposes ofbusiness ofgeneration or distribution ofelectricity or any other form ofpower; or (ii) 454 in a small-scale industrial undertaking for the purposes ofbusiness ofmanufacture or production ofany article or thing; or (iii) In any other industrial undertaking for the purposes of business ofconstruction, manufacture or production ofany 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 ofMarch, 1987 but before the 1st day ofApril, 1988, unless such ship or aircraft is acquired or such machinery or plant is installed in the circumstances specified in clause (a) ofsubsection (8B) and the assessee furnishes evidence to the satisfaction ofthe 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 ifthe business is carried on by an Indian company and the business so carried on is for the time being approved for the purposes ofthis clause by the Central Government.

Explanation : For the purposes of this sub-section and subsections (2B), (2C) and (4), - (1 )(a) "new ship" or "new aircraft" includes a ship or aircraft which before the date ofacquisition by the assessee was used by any other person, if it was not at any time previous to the date ofsuch 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, ifthe following conditions are fulfilled, namely :- - (i) Such machinery or plant was not, at any time previous to the date ofsuch 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 ofdepreciation in respect of such machinery or plant has been allowed or is allowable under the provisions ofthe Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income ofany 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, ifthe aggregate value ofthe machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day ofthe previous year, for the purposes ofthe business of the undertaking does not exceed, - (i) In a case where the previous year ends before the 1st day of August, 1980, ten lak.

h rupees; (ii) In a case where the previous year ends after the 31st day of LUCAST. V. S. LTD. PADICHENNAl[PASAYAT,J.

] 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 ofany machinery or plant shall be, - (a) In the case ofany machinery or plant owned by the assessee, the actual cost thereofto the assessee; and (b) In the case of any machinery or plant hired by the assessee, the actual cost thereofas in the case ofthe owner ofsuch machinery m~ (2A) The deduction wider sub-section (1) shall not be denied in respect ofany machinery or plant installed and used mainly for the purposes ofbusiness ofconstruction, manufacture or production ofany 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 ofbusiness ofconstruction, manufacture or production ofany article or thing specified in the said list.

(2B) Where any new machinery or plant is installed after the 30th day ofJune, 1977 but before the 1st day of April, 1987, for the purposes ofbusiness ofmanufacture 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 behalfby the prescribed authority 463 , the provisions ofsubsection (1) shall have effect in relation to such machinery or plant as iffor the words "twenty-five per cent.

", the words "thirty-five per cent" had been substituted, ifthe 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 ofincome 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 artick or thing invented in such laboratory; and (iii) The machinery or plant is not used for the purpose ofbusiness ofmanufacture or production ofany 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 behalfby 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) ofclause (b) ofsub-section (2), the provisions ofsub-section (1) shall have effect in relation to such machinery or plant as if for the words "twenty-five per cent", the words LUCAST. V. S. LTD. PADICHENNAI[PASAYAT,J. ] "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) ofthis section or any deduction under Chapter VI-A is nil or is less than the full amount ofthe investment allowance, - (i) The sum to be allowed by way ofinvestment 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 ofthe investment allowance, to the extent to \\>illch 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 ofthe assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance ofthe investment allowance, ifany, still outstanding shall be carried forward to the following assessment year and so on, so, however, that no portion ofthe 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 ofany ship or aircraft acquired or any machinery or plant installed in more than one previous year, and the total income ofthe assessee assessable for that assessment year [the total income (or this purpose being computed after deduction ofthe allowance under section 33 and section 33A, but without making any deduction under sub-section (1) ofthis section or any deduction under Chapter VI-A] is less than the aggregate ofthe 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 ofamounts carried forward from more than one assessment year, 1he amount carried forward from an earlier assessment year shall be allowed before any amount carried forward from a later assessment year.

(4) The d~duction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :- (i) Tbe particulars prescribed 468 in this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant; (ii) A'. 1.

amount equal to seventy-five per cent ofthe investment allowance to be actually allowed is debited to the profit and loss account ofany previous year in respect ofwhich 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 Allowar1ce Reserve Account") to be utilised - (a) For the purposes ofacquiring, before the expiry ofa period often 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 ofthe nature referred to in clauses (a), (b) and (d) ofthe second proviso to sub-section (1)) for the purposes of the business ofthe undertaking; and (b) Until the acquisition of a new ship or a new aircraft or new machinery or plant as aforesaid, for the purposes ofthe business ofthe undertaking other than for distribution by way ofdividends 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 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 ofthe amount ofdeduction in respect ofinvestment 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 ofthe 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 ofthe profits and gains ofthe previous year in which such notice is served on the assessee or ofthe immediately preceding previous year, ifthe accounts for that year have not been made up; and, ifthe 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 ofthe 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 ofthe previous year in which such further ~~~~: 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 ofthe application ofthe proviso to sub-section (1) ofsection 145 or sub-section (2) ofthnt section or the omission by the assessee to disclose his income :Ully and truly.

(5) Any allowance made under this section in respect ofany ship, aircraft, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act - (a) Ifthe ship, aircraft, machinery or plant is sold or otherwise transferred by th~ assessee to any person at any time before the expiry ofeight years from the end ofthe previous year in which it was acquired or mstalled; or (b) Ifat any time before the expiry often years from the end of the previous year in which the ship or aircraft was acquired or the machinery or pl<mt 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) ofthe second prm'iso to subsection (1)] for the purposes ofthe busint'.

ss ofthe undertaking; or (c) Ifat any time before the expiry ofthe ten years aforesaid, the assessee utilises the amount credited to the reserve acc:ount 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 subsection (4A) of section 155 shall apply accordingly : Provided that nothing in clause (a) shall apply- (\)Where the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to the Government, a local authority, acorporation established by a Central, State or Provincial Act or a Government company as defined in section 617 ofthe 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 ofwhich 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 ofthe period within which such ship, aircraft, machinery or plant shall not be sold or otherwise transferred and in default ofany of these conditions, the provisions ofsub-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) TI1e balance ofinvestment 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 ofsub-section (3), so, however, that the to\al period for which the balance ofinvestment allowance shall be carried forward in the assessments ofthe 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 ofthis 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 ofclauses (a) and (b) of sub-section (6) shall, so far as may be, apply to the firm and the company. Explanation: The provisions ofthis sub-section shall apply only where - (i) All the property of the firm relating to the business immediately before the succession becomes the property ofthe company; (ii) All 1he Iiabilities of1he finn relating to 1he business immediately before 1he succession become the liabilities ofthe company; and (iii) All 1he shareholders ofthe company were partners of1he firm immedi. ately before 1he succession.

(8) The Central Government, ifit considers necessary or expedient so to do, may, by notification in the Official Gazette, direct that 1he deduction allowable under this section shall not be allowed in respect ofany ship or aircraft acquired or any machinery or plant installed after such date as may be specified 4751herein. (8A) The Central Government, if it considers necessary or expedient so to do, may, by notification in 1he Official Gazette, omit any article or thing from 1he list ofarticles or things specified in 1he Eleven1h Schedule. (8B) Notwi1hstanding anything contained in sub-section (8) or 1he notification of1he Government oflndia in 1he Ministry ofFinance (Department ofRevenue) No. G. S. R. 870(E), dated 1he 12th June, 1986, issued thereunder, the provisions of1his section shall apply in respect of, - (a)(i) A new ship or new aircraft acquired after 1he 31st day ofMarch, 1987 but before 1he !

st day ofApril, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer 1hat he had, before the 121h day ofJune, 1986, entered into a contract for the purchase of such ship or aircraft wi1h 1he builder or manufacturer or owner thereof, as 1he case may be; (ii) Any new machinery or plant installed after the 31st day of March, 1987 but before 1he Ist day ofApril, 1988, if1he assessee furnishes evidence to 1he satisfaction of1he Assessing Officer 1hat before the 12th day of June, 1986, he had purchased such machinery or plant or had entered into a contract for 1he purchase ofsuch machinery or plant with 1he 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 LUCAST. V. S. LTD. PADICHENNAI[PASAYAT,J.

] assessee, taken steps for the manufacture ofsuch 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 ofApril, 1989; (b) A new ship or new aircraft acquired or any new machinery or plant installed after the 31st day ofMarch, 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 subsection (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 offurther period offour 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 offoreign 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 ofthe matter, we set aside the impugned order of the High Court, remit the matter to it for fresh adjudication after formulating the question oflaw involved. 8.

The appeals are allowed to the aforesaid extent. No costs. S. K. S. Appeals allowed.