1984 (1) TMI 342 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to relief under section 84 of the Income-tax Act, 1961, for the assessment years 1964-65, 1965-66, and 1966-67 in respect of the Raipur plant.
2. Deduction as revenue expenditure of the payment of Rs. 6,000 made to the Central Electronic Research Institute for the assessment year 1966-67.

Issue-wise Detailed Analysis:

1. Entitlement to Relief under Section 84 for Assessment Years 1964-65, 1965-66, and 1966-67:

Facts:
- The assessee-company manufactures electrodes and welding equipment and had a manufacturing unit at Bhandup. A new plant was set up at Bilaspur, Raipur, which began production on 24-7-1962.
- The total cost of the Raipur plant was Rs. 10,50,997, with Rs. 2,51,556 worth of plant and machinery transferred from the Bhandup factory.
- Additional buildings and machinery were added in the previous year relevant to the assessment year 1964-65, bringing the total value to Rs. 12,58,672.
- The assessee claimed relief under section 84 for the assessment year 1964-65, which was initially omitted by the ITO and later rejected under section 154.

Contentions:
- The assessee argued that the relief should be considered for the assessment year 1964-65 as the construction was completed in that year.
- The revenue contended that the relief under section 84 should be considered with reference to the year the unit began to manufacture, i.e., the assessment year 1963-64, and the four succeeding years.

Tribunal's Decision:
- The Tribunal concluded that the relief under section 84 could not be available for the assessment year 1964-65 and the succeeding years as the unit began production in the previous year relevant to the assessment year 1963-64, where the value of old assets exceeded 20% of the total investment.

High Court's Analysis:
- The High Court noted that the legislative intent behind section 84 was to provide a tax incentive to newly established industrial undertakings.
- The Court emphasized that the provisions should be construed liberally to encourage new industrial undertakings.
- The Court examined whether the Raipur unit complied with the condition in section 84(2)(ii), considering the Explanation and sub-section (7).
- It was held that the condition prescribed in section 84(2)(ii) should be considered for each of the five relevant assessment years, not just the year of commencement.
- The Court found that in the assessment years 1964-65 to 1966-67, the value of previously used plant and machinery did not exceed 20% of the total value, thus complying with the Explanation.

Conclusion:
- The High Court concluded that the assessee was entitled to the relief under section 84 for the assessment years 1964-65, 1965-66, and 1966-67 in respect of the Raipur plant.
- Question No. 1 was answered in the affirmative and in favor of the assessee.

2. Deduction as Revenue Expenditure of Rs. 6,000 for Assessment Year 1966-67:

Facts:
- The assessee claimed a deduction of Rs. 6,000 paid to the Central Electronic Research Institute for acquiring the technical process of flash gun as revenue expenditure.

Tribunal's Decision:
- The claim was rejected by the income-tax authorities and the Tribunal, which held that the payment was in the nature of capital expenditure.

High Court's Analysis:
- The High Court noted that the assessee did not wish to pursue this question.

Conclusion:
- The High Court declined to answer Question No. 2 as the assessee did not desire it to be answered.

Costs:
- The High Court ordered that there would be no order as to costs, considering all the facts and circumstances of the case.