1981 (7) TMI 16 - HC - Income Tax

Accrual Of Income Depreciation Developement Rebate Income New Industrial Undertaking Priority Industry

Issues Involved:
1. Entitlement to relief under sections 84/80J for new production units.
2. Receipt of fees by the non-resident company in India.
3. Services rendered by the non-resident company in India.
4. Business connection between the non-resident company and Indian Aluminium Company within the meaning of section 9(1).
5. Depreciation on roads, fences, and culverts within the factory compound.
6. Deduction under sections 80E/80-I for the powder and paste plant.
7. Development rebate at 35% for machinery installed at the powder and paste plant.
8. Depreciation on storage tanks at 100% vs. 7%.
9. Assessability of Rs. 55,546 as income for the assessment year 1968-69.

Detailed Analysis:

Issue 1: Entitlement to Relief under Sections 84/80J for New Production Units
The Tribunal upheld the Appellate Assistant Commissioner's action in granting relief under section 84/80J. The new production units at Hirakud, Alupuram, Belur, and Muri were not formed by splitting up or reconstruction of existing units, and were financed by additional capital. The Tribunal relied on the Calcutta High Court decision in CIT v. Indian Aluminium Co. Ltd. [1973] 88 ITR 257 and the Supreme Court decision in CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367. The question was answered in the affirmative and in favor of the assessee.

Issue 2: Receipt of Fees by the Non-Resident Company in India
The Tribunal found that the agreement provided for payment of fees in Canada, and there was no receipt of fees in India. The payment was made through demand drafts sent by post to Montreal. The post office was not considered an agent of the non-resident company. The question was answered in the affirmative and in favor of the assessee.

Issue 3: Services Rendered by the Non-Resident Company in India
The Tribunal concluded that the services were rendered in Canada, as the technical know-how and information were provided from Canada. The non-resident company did not send experts to India, nor was the know-how applied under their guidance in India. The income arose where the services were performed, which was in Canada. The question was answered in the affirmative and in favor of the assessee.

Issue 4: Business Connection between the Non-Resident Company and Indian Aluminium Company within the Meaning of Section 9(1)
The Tribunal held that there was no business connection in India between the two companies as per section 9(1). The agreement and the nature of the transactions indicated that the income did not accrue or arise in India. The question was answered in the affirmative and in favor of the assessee.

Issue 5: Depreciation on Roads, Fences, and Culverts within the Factory Compound
The Tribunal, following the decision in Indian Aluminium Co. Ltd. v. CIT [1980] 122 ITR 660, held that the assessee was entitled to depreciation at the rate applicable to first-class factory buildings. The question was answered in the affirmative and in favor of the assessee.

Issue 6: Deduction under Sections 80E/80-I for the Powder and Paste Plant
The Tribunal found that the pigments produced from alumina did not retain the essential character of aluminum in its primary form. The sophisticated process used indicated a different product. The Tribunal agreed with the Appellate Assistant Commissioner, and the question was answered in the affirmative and in favor of the Revenue.

Issue 7: Development Rebate at 35% for Machinery Installed at the Powder and Paste Plant
The Tribunal held that the machinery used in the sophisticated process of manufacturing pigments did not qualify for the higher development rebate. The question was answered in the affirmative and in favor of the Revenue.

Issue 8: Depreciation on Storage Tanks at 100% vs. 7%
The Tribunal initially allowed depreciation at 7%, but the court found that storage tanks, being part of the aluminum factory, should be entitled to a special rate of 10% as per the I.T. Rules, 1962. The question was answered in favor of the assessee, allowing 10% depreciation.

Issue 9: Assessability of Rs. 55,546 as Income for the Assessment Year 1968-69
The Tribunal held that the additional sum received due to devaluation of the rupee was assessable as income, as it was related to the stock-in-trade. The court referred to various precedents, including Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 and Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1, to support this view. The question was answered in the affirmative and in favor of the Revenue.

Conclusion:
All questions were answered based on the findings and interpretations of the Tribunal, with the majority favoring the assessee except for questions 6, 7, and 9, which were in favor of the Revenue. The parties were instructed to bear their own costs.

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