1983 (8) TMI 31 - HC - Income Tax

Summary

Issues: Interpretation of provisions under section 32(1)(iii) of the Income-tax Act, 1961 for deduction in respect of discarded dies used in manufacturing process.

Analysis:
The case involved a question regarding the entitlement of the assessee to a deduction in respect of discarded dies under section 32(1)(iii) of the Income-tax Act, 1961, for the assessment year 1963-64. The assessee, engaged in manufacturing cameras, had purchased second-hand dies, of which a portion was written off during the accounting year. The Income Tax Officer (ITO) disallowed the claim, stating that the dies were not used in the business. This decision was upheld by the Appellate Assistant Commissioner (AAC), but the Tribunal directed a fresh consideration of the matter. The AAC partially allowed the claim, considering the cost of the discarded dies. However, the Revenue appealed to the Tribunal, which upheld the AAC's finding of utilization of the dies but concluded that no provision in the Act enabled the claimed write-off.

The Tribunal noted that sections 32(1)(iii) and 28 were potential provisions for the write-off claim. Section 32(1)(iii) allowed write-off for assets sold, discarded, demolished, or destroyed in a year other than the first year of use, which did not apply to the assessee's case. Section 28 permitted deductions for revenue items, not capital assets like the dies. As there was no provision enabling the claimed write-off, the Tribunal reversed the AAC's order. The assessee then sought a reference on the matter.

During arguments, the counsel for the assessee highlighted that the dies were second-hand and had been used in the manufacturing process during the previous year. Emphasis was placed on the interpretation of the phrase "other than the previous year in which it is first brought into use" in section 32(1)(iii). The counsel argued that the provision did not restrict consideration to the assessee's first use of the asset. The court agreed, stating that the parenthetical portion of the provision must be strictly construed. Therefore, the assessee was entitled to the deduction under section 32(1)(iii) despite first using the machinery in the previous year.

The court answered the question posed by stating that the assessee was entitled to a deduction under section 32(1)(iii) for the discarded dies. The court did not delve into arguments regarding sections 28 and 37 of the Act. Considering that the upheld contention was not raised before the Tribunal, each party was directed to bear its own costs.