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TMI Blog1997 (1) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... per lease agreement dated 1st April, 1987 placed at pages 26 and 27 of the paper book). Since the plant and machinery, on which investment allowance had been allowed was transferred before the expiry of 8 years, from the end of the previous year, in which it was installed, the investment allowance was liable to be withdrawn under section 155(4A), read with section 32A(5), of the Income-tax Act, 1961. The Assessing Officer issued a notice under section 154 dated 23-10-1991. The Assessing Officer observed that no satisfactory reply was received from the assessee. He placed reliance on the clarification given by the Ministry of Law conveyed to his office vide letter No. RA/IT/FED/91-92 /1275-1276 dated 26-11-1991 of the Chief Auditor clarifying that the leasing out of the plant and machinery is treated as transfer. Hence, the investment allowance allowed to the assessee as per details mentioned hereunder was withdrawn by the aforesaid order under section 154 : Assessment Amount withdrawn Year 1981-82 Rs. 87,285 1982-83 Rs. 8,043 1983-84 Rs. 17,802 1984-85 Rs. 1,09,312 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that jurisdiction is inherent in the exercise of power under section 155. 5.1 The learned Departmental Representative also placed reliance on judgment of Hon'ble Calcutta High Court in the case of CIT v. East India Cold Storage (P.) Ltd. [1996] 218 ITR 668. In this case, the ITO completed the original assessment of the assessee for assessment year 1979-80 allowing investment allowance under section 32A of the Income-tax Act, 1961 on plant and machinery of cold storage and also allowed deduction in respect of profits and gains from the cold storage under section 80HH of the Act. The ITO took the view that such allowance and deduction was wrongly allowed to the assessee and it was a mistake apparent from the record. The ITO, therefore, withdrew the allowance and deduction by passing an order of rectification under section 154 of the Act. The CIT (Appeals) confirmed the said order. The Tribunal held that whether the cold storage could be taken as an industrial undertaking within the meaning of sections 32A and 80HH was debatable and hence the mistake was not apparent from record. The Tribunal allowed the assessee's appeal. The Hon'ble Calcutta High Court held that in view of the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee came up for consideration in the assessment proceedings of M/s. Oswal Electricals for assessment year 1987-88. M/s. Oswal Electricals submitted a letter dated 31-1-1989 to their Assessing Officer along with copy of lease agreement dated 1-8-1986. The matter regarding allowability of the lease rent in the case of M/s. Oswal Electricals travelled up to the Tribunal. The Tribunal vide order dated 30-6-1993 in ITA Nos. 204 7506/Del/96 for assessment years 1988-89 and 1989-90 respectively allowed deduction in respect of the said lease rent in the hands of M/s. Oswal Electricals. 5.4 The learned Departmental Representative submitted that a perusal of the order passed by the Assessing Officer clearly indicates that the Assessing Officer was not at all made aware of the fact that the plant and machinery was leased out to M/s. Oswal Electricals for the first time w.e.f. 1-8-1986. The lease agreement submitted before the Assessing Officer in the case of the present assessee was only the lease agreement dated 1-4-1987. The said lease agreement dated 1-4-1987 nowhere gives any reference of any earlier lease agreement purported to have been executed on 1st August, 1986. The said l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 154(7) was not clarified in any way. It did not necessarily mean the original order, it could be any order including the amended or rectified order. On the strength of this judgment, the learned Departmental Representative submitted that the period of 4 years prescribed in section 154(7) should be reckoned with reference to the lease dated 1-4-1987. If that is done, the order passed by the Assessing Officer is perfectly within time. 5.5 The learned Departmental Representative thus strongly urged that the order of the DC(A) should be set aside and the order passed by the Assessing Officer under section 154 should be restored. 6. The learned counsel for the assessee strongly supported the order of the DC(A). He also invited our attention towards the order passed by the Tribunal in assessee's own case for assessment year 1981-82 in ITA No. 6926/Del/92, dated 30-3-1995. In the said order the Tribunal has confirmed the view taken by the DC(A) in relation to this very matter so far as assessment year 1981-82 is concerned. He was, however, fair enough to state that after the said decision was rendered by the Tribunal, the judgment of Hon'ble Supreme Court in the case of Narang Dairy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in favour of the assessee or was against the assessee. 6.4 He invited our attention towards the judgment of Hon'ble Maharashtra High Court in Walchand Nagpur Industries Ltd. v. V.S. Gaitonde, ITO [1962] 44 ITR 260 in which it was held that effect of the decision of the Supreme Court was that the levy of excess dividend tax was at no time good and therefore, the assessment order made by the ITO levying excess dividend tax was bad at its inception on the date it was made, notwithstanding that the decision of the Supreme Court was given subsequent to that date. It was held that it was a mistake apparent from record within the meaning of section 35 of the Income-tax Act, 1922. The income-tax authorities were clearly in error in refusing to rectify the mistake. 6.5 The learned counsel invited our attention to the judgment of Hon'ble Supreme Court in the case of S.A.L. Narayana Row, CIT v. Model Mills, Nagpur [1967] 64 ITR 67 in which the Hon'ble Supreme Court approved the view taken by the High Court in directing the Commissioner to refund the amount of tax which was illegally collected. The levy of additional tax was held to be illegal by the Supreme Court in the case of Khatau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to Rs. 3,20,000. The monthly lease rent was Rs. 40,000 p.m. The lease rent for 8 months comes to Rs. 3,20,000. The fact of existence, of such a lease deed dated 1-8-1986 was also produced in the case of M/s. Oswal Electricals as is indicated in the letter dated 31-1-1989 submitted to the DCIT in the case of assessment proceedings of M/s. Oswal Electricals for assessment year 1987-88. Therefore, such a fact should be taken on record for the purposes of deciding this appeal. He invited our attention towards the lease deed dated 1-8-1986 placed at page 1 of the paper book. The said lease deed indicates that the assessee had given on lease its machinery, moulds, furniture and fixture, vehicles, generator set, etc. at the rate of Rs. 40,000 p.m. w.e.f. 1st August, 1986. The duration of this lease agreement was up to 31st March, 1987. Clause (6) of the said lease agreement also authorises the party to renew the said agreement for further period by a mutual consent. He submitted that the second lease agreement executed between the parties on 1-4-1987 was in fact and in substance a renewal of the earlier agreement. The second lease deed was executed for a further period of 3 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned representatives of both sides. The following principles of law can be deduced from a careful study of all the judgments relied upon by the learned representatives of the parties : (a) The effect of the Supreme Court decision by virtue of the provisions of the Constitution is that the Supreme Court declares the law of the land and it must be held to have been always the law of the land. (b) The subsequent judgment of the Hon'ble Supreme Court can be a valid foundation for passing a rectification order under section 154/155 provided the action is taken within the prescribed time limit. The Hon'ble Supreme Court in the case of SAL Naraina Rao's case is clinching on this point. In that case, the ITO levied an additional tax on the excess dividend declared by the company for assessment year 1952-53. When, later on, the levy of tax on the excess dividend was declared by the Bombay High Court in Khatau Makanji Spg. Wvg. Mills' case to be illegal, the assessee applied to the ITO for refund of additional tax. The officer rejected the application and the Commissioner rejected its application under section 33A of the Income-tax Act. The assessee thereafter moved the Bombay High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment rebate originally granted to the assessee for assessment year 1965-66. It was held by the Appellate Tribunal and the High Court that no transfer was involved by the lease agreement and so section 34(3)(b) of the Act was not attracted. The Hon'ble Supreme Court held that in cases where the machinery or plant is not wholly used by the assessee for the purposes of business carried on by him, for the specified period and such user is given on hire to another, it can be safely stated that the machinery or plant is 'otherwise transferred' by the assessee to another person. The Hon'ble Supreme Court held that when the machinery was let out by the assessee to M/s. Hindustan Lever, it cannot admit to any doubt that the said machinery or plant could not and was not used by the assessee for the purposes of business carried on by him. It is not only the ownership of the plant or the machinery but also its exclusive user by the assessee for the purposes of the business, that is essential to enable the assessee to get the development rebate under section 33(1)(a). In cases where an assessee disabled himself from such continued exclusive user of the plant or machinery for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of expression 'otherwise transferred' used in sections 32A(5) and 155(4A). 10. However, the action for rectification and withdrawal of investment allowance by the Assessing Officer can be taken only within the time limit prescribed under section 155(4A)(i). The said provision clearly provides that said withdrawal of investment allowance can be made within a period of 4 years from the end of the previous year in which the sale or otherwise transfer took place. In the present case, the assessee has placed on record the necessary facts and evidence by way of an application under rule 10 of ITAT Rules, 1963 that the plant and machinery was first given on lease to M/s. Oswal Electricals w.e.f. 1-8-1986 and in accordance with the lease agreement executed on that date. The affidavit annexed with the said application under rule 10 and the copies of the letter dated 31-1-1989 submitted in the case of M/s. Oswal Electricals for assessment year 1987-88 as well as the copy of the order passed by the Tribunal in the case of Oswal Electricals [IT Appeal Nos. 204 and 756 (Delhi) of 1990] clearly proves that the existence and the genuineness of the lease agreement dated 1-8-1986 cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred, the question of its repeated transfer or re-transfers would not at all be relevant for deciding the question relating to withdrawal of investment allowance. Therefore, the withdrawal of investment allowance or development rebate will necessarily have to be co-related with the event of first transfer. The reliance placed by the learned Departmental Representative on the judgment of Hon'ble Supreme Court in the case of Hind Wire Industries Ltd. also does not in any manner support his aforesaid contention. In that case, it was held that the original assessment order dated 21st September, 1979 was amended by a rectification order passed on 12th July, 1982. Thereafter the assessee again moved second application for rectification of the fresh order dated 12th July, 1982 or 4th July, 1986. It was held by the Hon'ble Supreme Court that the application made on 4th July, 1986 was within 4 years of the fresh order of assessment made on 12th July, 1982 and hence, the application was within limitation of time. The principles of law laid down by the Hon'ble Supreme Court in this case do not in any manner relate to the present controversy before us. 12. In view of the aforesaid facts, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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