Thomson Press (India) Ltd. vs Deputy Commissioner Of Income ...
1997 Latest Caselaw 170 Del

ORDER

J. P. BENGRA, J. M. :

This is an appeal by the assessee against the order of CIT(A) III, New Delhi pertaining to asst. yr. 1986-87. The assessee company is a Limited Company but not a company in which public is substantially interested. It continued to carry on the same business as in the past i.e. printing and publishing of magazines, lottery tickets, periodicals, etc.

1.1 The first grievance of assessee in this appeal is as under :

"That the learned CIT(A) has legally gone wrong in treating a sum of Rs. 1,35,000 as revenue receipt."

This ground was not pressed by the assessees counsel, therefore, the ground is hereby rejected.

2. The next grievance in assessees appeal is as under :-

"That the learned CIT(A) has legally erred in not allowing on a sum of Rs. 1,83,217 under section 43B of the Income-tax Act, 1961."

2.1 The learned counsel for the assessee fairly admitted that the decision of Honble Delhi High Court which is the jurisdictional High Court in the case of assessee is against it but this issue should be decided on merit.

2.2 The learned Departmental Representative relied on the decision of Delhi High Court in the case of Union of India vs. Sanghi Motors (1992) 187 ITR 703 (PC)) and in the case of Escorts Ltd. vs. Union of India (1990) 189 ITR 81 (Del).

2.3 We have considered the rival submissions and have gone through the material available on record. We find that the Honble Delhi High Court has taken a view against the assessee. Therefore, in view of the decision of Honble Delhi High Court, cited above, we do not find any justification to interfere. This ground is hereby rejected.

3. The last and the main ground of assessee relates to claim of investment allowance on exchange rate fluctuation capitalised during the year. The assessing officer rejected the claim of assessee observing as under :

(a) The assessee was required to explain as to why investment allowance on this amount be allowed particularly in view of the provision of s. 43A(ii) which reads as under :

The provisions of sub-s. (i) shall not be taken into account in computing the actual cost of an asset for purpose of the deduction on account of development rebate under s. 33.

(b) It was the case of Shri Bakshi that provisions of s. 43A(2) related to the claim of development rebate and not to investment allowance. Sub-s. (2) of s. 43A only talks about provisions of s. 43A(1) not being taken into account for the purpose of deduction on account of development rebates under s. 33 and not as regards investment allowance under s. 32A of the IT Act.

(c) The provisions of s. 32-A were brought into statute from 1976. The form and the manner in which the claim of investment allowance are to be allowed were the similar to that of development rebate. This was specifically clarified at the time of introduction of this section. Even otherwise, in view of the judicial pronouncement and circulars of the CBDT, etc., the provisions of investment allowance are pari materia with the earlier development rebate. It was also brought to Mr. Bakshis notice that the investment allowance had its fixity in time. The claim of the company on account of exchange fluctuations would render other sub-section of the provisions otiose. Liability of the company would only be known after the expiry of the period in which the loans amount would be repaid. The provisions of s. 155 and 147B of the IT Act would also themselves be uninvokable. Therefore, provisions of this section had to be interpreted in the manner which would render machinery of income-tax workable. In view of these reasons the claim of investment allowance made in respect of amount capitalised on account of exchange fluctuation is not being considered."

This was challenged before the CIT(A). The CIT(A), taking support from the scope of s. 43A inserted w. e. f. 1st April, 1967 elaborated in Departmental Circular No. F. No. 1(408)/67-TPL dt. 9th Oct., 1967, observed as under :

"Sec. 43A(2) specifically provides that the provisions of s. 43A(1) to make variation in actual cost shall have no application for the purposes of developmental rebate. This position has been confirmed in the cases of CIT vs. Arun Spinning Mills (1982) 133 ITR 382 (P&H) and South India Shipping Corporation Ltd. vs. CIT (1979) 116 ITR 819 (Mad). I am in full agreement with the view of the AO that the provisions relating to grant of investment allowance are in pari materia with the provisions governing the grant of development rebate. In fact the Board in its various circulars issued from time to time have directed that its instructions with regard to the issues like creation of reserve etc., with reference to development rebate allowance may be followed while considering the grant of investment allowance also. The investment allowance which was introduced w. e. f. 1st April, 1976 has taken the place of development rebate in respect of machinery or plant installed etc., after 31st March, 1976, save in exceptional circumstances in which development rebate is still allowable in respect of such assets. It was fairly conceded by the learned counsel of the appellant during the course of hearing before me that it will be practically impossible to give any such allowance as is claimed because the rates can keep fluctuating from time to time and the liability of the company would only be known after the expiry of the period in which the loan amounts would be repaid. In view of the aforementioned facts and circumstances, and also the reasons given by the AO, with which I am in full agreement, the action of the AO is upheld."

and thereby rejected the claim of the assessee. The assessee is aggrieved.

3.1 The learned assessees counsel, referring to s. 32A relating to investment allowance, submitted that investment allowance equal to 25 per cent of the actual cost of machinery & plant is allowable to the assessee. It is pointed out that the word used is "actual cost" which includes price fluctuation during this period. It is submitted that provisions of s. 43A(2) are not pari materia with provisions of s. 32A. Sec. 43A(2) is not applicable in the case of assessee. It is further pointed out that the CIT(A), for the purpose of depreciation, has taken into consideration the actual cost on the amount claimed. However, for investment he has rejected the plea. It is pointed out by the learned assessees counsel that in the case of CIT vs. Arvind Mills Ltd. (1992) 193 ITR 255 (SC)) the Honble Supreme Court has taken a view that actual cost of machinery will be computed after taking into consideration the amount of increase or decrease in the liability due to exchange rate fluctuation. Therefore, on ordinary and normal principles of accountancy, the cost of assets should be at the increased figure i.e. the actual cost which the assessee would be entitled to development rebate. That decision was in relation to development rebate. But the Honble Supreme Court has decided how the actual cost will be computed. Reliance was placed on the decision of Tribunal in the case of Southern Asbestos Cement Ltd. vs. Dy. CIT 38 ITD 449 and the decision of Tribunal in the case of Asstt. CIT vs. New Chem Investment (P) Ltd. 45 ITD 294. Reliance was also placed on the decision of Tribunal in ITA No. 939/Del/88 for asst. yr. 1983-84 dt. 30th Nov., 1992. It is submitted that in the case of the assessee the machinery were purchased in the immediately preceding year and put to use in this year. In earlier year there was no profit. The investment allowance can be allowed against the profit, because in this year this was a year of profit. The deduction is allowable in the year of profit.

3.2 As against this the learned Departmental Representative relied on the order of the learned CIT(A) and also placed reliance on the decision of Tribunal in the case of Dalmia Cement (Bharat) Ltd. vs. Asstt. CIT ITA No. 3883/Del/91 for asst. yr. 1986-87 and also the decision of the Bombay High Court in the case of Khatau Makanji Spinning & Weaving Co. Ltd. vs. CIT (1996) 222 ITR 472 (Bom).

3.3 The learned assessees counsel submitted that the decision of the Tribunal in the case of Dalmia Cement (Bharat) Ltd. (supra) is not applicable to the facts of the present case because in that case the claim of investment allowance was made in respect of cost of plant & machinery fixed in earlier years. But due to change of fluctuation in the year which is subsequent to those years, the allowance was denied in view of provisions of s. 43A. But the facts of the present case is distinguishable because in this year, the machinery was put to use and this is the year of profit. The exchange fluctuation has also taken place in this year only. Therefore, the decision of the Tribunal is distinguishable on facts. It is pointed out that in the case of Bombay High Court the claim related to additional cost and not to actual cost. Reliance was placed on the decision of Karnataka High Court in the case of CIT vs. Shaan Finance (P) Ltd. (1993) 199 ITR 409 (Kar) for the proposition that the language of two ss. 33 and 32A are not in pari materia, hence in respect of machinery owned by the assessee its claim cannot be denied under s. 32A. Reliance was also placed on the decision reported in CIT vs. Shivanand (1994) 209 ITR 63 (Bom).

3.4 We have considered the rival submissions and have gone through the material available on record. The relevant provisions of ss. 32A, 43A(2) are given as under :

"32A(1) - In respect of a ship or an aircraft or machinery or plant specified in sub-s. (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."

Sec. 43A(2). - "The provisions of sub-s. (1) shall not be taken into account in computing the actual cost of an asset for the purpose of the deduction on account of development rebate under s. 33."

In the present case it is not in dispute that the assessee purchased the plant and machinery in the immediately preceding year and that was put to use in this year. It is also not in dispute that earlier the assessee has suffered loss but this is the year in which the assessee had earned profit. It is not in dispute that deduction shall be allowed only in the year of profit. Now the question arises whether on these facts investment allowance is allowable to the assessee or not. A perusal of the above section would show that investment allowance is allowable on the actual cost of the plant and machinery. In the case of Arvind Mills Ltd. (supra) the Honble Supreme Court has observed that the amount of increase or decrease due to exchange rate fluctuation should be adjusted against the actual cost or capital expenditure or the cost of acquisition. However, the said decision was rendered in reference to development rebate and depreciation but it is pertinent to mention here that in that section also the words used were "actual cost" as it is used in s. 32A. Therefore, this decision becomes relevant where we are concerned how the actual cost will be computed. In the case of Asstt. CIT vs. Newchem Investment (P) Ltd. (supra) we have held that the provisions of ss. 32A and 33 are not in pari materia. This view was taken taking into consideration the observation of the Honble Karnataka High Court in the case of Shaan Finance (P) Ltd. (supra). The Honble Karnataka High Court has drawn a distinction as under :

In the later two sub-clauses (of s. 33) there is a specific reference to the assessees business premises where the machinery is to be installed. Similarly, the language of sub-cl. (a) of s. 32A(2) stands in clear contrast to the language used in its sub-cl. (b). Each machinery installed in a particular manner is the case for the investment allowance, to be granted to the person who owns the machinery, provided, the owner used it in its entirety in his business."

Therefore, in our view, the provisions of s. 32A(2) and s. 33 are not in pari materia in the terms mentioned above. The Tribunal Bench of Madras in the case of Southern Asbestos Cement Ltd. vs. Dy. CIT (supra) has taken a view that where the company installed a plant and machinery during the previous year relevant to assessment year under consideration though it was purchased on deferred payment basis investment allowance is allowable on increase in cost of machinery occasioned by fluctuation in foreign exchange rate in assessment years in which incremental cost arose provided assessee had credited a suitable reserve for this purpose. In the case of M/s Shriram Fibres vs. IAC, similar view was taken by the Tribunal in ITA No. 939/Del/88. The learned Departmental Representative pointed out a contrary decision of Tribunal Bench of Delhi where in the case of Dalmia Cement (Bharat) Ltd. vs. Asstt. CIT (supra) the Tribunal has taken a view that the assessee is not entitled to investment allowance under s. 43A in respect of investment allowance claimed. However, it would be pertinent to mention here that the facts mentioned in that case are distinguishable from the facts of the present case. In that case, the plant & machinery were purchased in earlier years whereas the cost of plant & machinery has gone up due to fluctuation in foreign exchange rate in the year subsequent to those years. Therefore, the Tribunal has held that because of devaluation of rupee, the assessee who had imported capital asset from abroad and had to pay higher cost on account of deferred payment suffered hardship and as such to avoid hardship a provision was made in this background. The assessee is not entitled to benefit of investment allowance. However, the facts in the present case that the plant & machinery were purchased in the previous year, the same were installed in the assessment year under consideration and were put to use in this year and this was the year of profit in which the assessee has claimed investment allowance. Therefore, the decision of Tribunal in the case of Dalmia Cement (Bharat) Ltd. (supra) is not applicable to the facts of the present case. Taking into consideration the totality of the facts and circumstances of the present case, we are of the opinion that the assessee is entitled to investment allowance under s. 32A. So far as the decision of Honble Bombay High Court in the case of Khatau Makanji Spinning & Weaving Co. Ltd. vs. CIT (supra) is concerned, that decision was rendered in connection with additional cost of plant & machinery and not related to the actual cost of machinery. Therefore, the facts of that case are also distinguishable from the facts of the present case. In view of our discussion, the assessee is entitled to investment allowance on plant & machinery on the actual cost increased due to fluctuation in foreign exchange rate. This ground is allowed.

4. In the result the appeal is partly allowed.