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TMI Blog2005 (10) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 and 1980-81, have been referred to this court under section 256(1) of the Income-tax Act, 1961, by the Income-tax Tribunal: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Income-tax Officer to allow investment allowance on calculators for the assessment year 1979-80 and factory cleaning machines for the assessment year 1980-81? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee-company was entitled to claim investment allowance on Rs. 1,39,85,955 at Rs. 34,96,489 for the assessment year 1978-79 and on Rs. 1,16,46,083 at Rs. 29,11,521 for the assessment year 1980-81 which was the actual cost to the assessee as at the date of purchase without taking into account the variations in the liability of the assessee on account of fluctuations in exchange rate and the provisions of section 43A of the Act? (3) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the investment allowance was not allowable on the increase in the original cost of imported assets due to increase in the assessee's loan liability c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance on calculators for the year 1979-80 and factory cleaning machines for the assessment year 1980-81. The said issue is, therefore, answered in the affirmative and in favour of the assessee. The issue raised by question No. 4 is whether the Tribunal was right in law in failing to allow investment allowance under section 32A of the Act on canteen equipment and water coolers having failed to appreciate that these items are also plant and machinery. The Assessing Officer has held that water coolers are in the nature of furniture and fixture as opposed to plant, therefore, cannot be considered as plant and machinery for the purpose of investment allowance. The Commissioner of Income-tax (Appeals) records that water coolers are a part of the production department for the sustenance of the workers as required under the Factories Act and supplying drinking water to the workers/employees is, therefore, part of the plant and machinery required for its business. It may be further noted that the assessee in the present case is engaged in the activity of manufacturing of ball bearings, taper bearing and textile machinery components. Water cooler supplying drinking water cannot be called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase. The Tribunal was of the opinion that the most natural way to determine the cost is with reference to exchange rate at the time of purchase and in support thereof, the Tribunal has relied upon the decision of the Calcutta High Court in the case of Calcutta Electricity Supply Corporation Ltd. v. Addl. CIT [1982] 136 ITR 777. In the said case, the assessee, a non-resident company maintained accounts in pound sterling and computed the value and depreciation in terms of sterling only. On account of devaluation of the Indian rupee on June 6, 1966, such a computation gave the assessee a larger depreciation than what was allowable had the computation been in Indian currency. The Commissioner of Income-tax by his order under section 263 reduced the depreciation allowable. On a reference, the Calcutta High Court held as follows: "Assessment under the Income-tax Act, 1961, must always be made in Indian rupees according to the Indian Income-tax Act. The Act contemplates a determination of every allowance and every item of income in terms of Indian currency. Therefore, the words 'written down value' and the actual cost to the assessee in section 43(6) contemplates costs of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 43(1). In drafting the provision in this manner, the section automatically applied to all allowances based on actual cost as defined in section 43(1) of the Act. It is pointed out that there was therefore no need to specify all the allowances individually and no such specification of allowances has been made. For example, even depreciation granted under section 33(2) has not individually been mentioned. This view is supported by the fact that where the Legislature intended to exclude the allowance based on actual cost such as development rebate under section 33, a specific exclusion had to be made by section 43A(2). In contradistinction, section 43A(1) mentions other allowances intended to be varied which were not based on actual cost such as sections 35(1)(iv), 35A, 36(1)(ix) or for the purposes of section 48. It is pointed out that it was necessary to individually mention these allowances only because they were not automatically varied since they were not based on actual cost as defined under section 43(1). It is submitted that section 43A(1) commences with a non obstante clause which overrides all the other provisions of the Act and must therefore, be given full and proper e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Department has accepted in this very case that the depreciation can be varied by applying section 43A(1). There is no reason why section 43A(1) should be applied to vary depreciation but not investment allowance (CIT v. Baker Mercer India P. Ltd. [1992] 196 ITR 667 (Bom), Padamjee Pulp and Paper Mills Ltd. v. CIT [1994] 210 ITR 97 (Bom), CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374 (Karn) and CIT v. Widia (India) Ltd. [1992] 193 ITR 475 (Karn)). The decision of the Bombay High Court in Khatau Makanji Spg. and Wvg. Co. Ltd. v. CIT [1996] 222 ITR 472 referred to by the Revenue can be distinguished since there was no consideration of the issues arising and the said judgment sets out no reason whatsoever for arriving at its conclusion. Further, the latest decision of the Supreme Court in CIT v. Shri Ambika Mills Ltd. [1993] 201 ITR (St.) 63, wherein the Supreme Court approved the Gujarat High Court's view on the merits of that case supersedes the decision of the Bombay High Court in Khatau Makanji's case [1996] 222 ITR 472. The said decision in Khatau Makanji's case [1996] 222 ITR 472 (Bom) being a judgment per incuriam, CIT v. Modu Timblo (Individual) [1994] 206 ITR 647 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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