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TMI Blog1993 (1) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment years 1964-65 and 1965-66 respectively ? (4) Whether the expenditure of Rs. 10,60,827 and Rs. 1,46,312 incurred by the assessee for bringing the gifted machinery from Europe to Bombay should be taken as part of the 'actual cost' of the said machinery for the assessment years 1964-65 and 1965-66 respectively ? (5) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 9,873 on Mr. E. Candolif was allowable as revenue/ business expenditure for the assessment year 1965-66 ? (6) If the answer to question No. 5 is in the negative, whether, on the facts and circumstances of the case, the said expenditure should be treated as part of the 'actual cost' of the plant to the assessee and depreciation should be allowed thereon ?" The assessment years involved in this reference are 1964-65 and 1965-66 for which the respective previous years are the years ending on December 31, 1963, and December 31, 1964. The assessee is a company carrying on the business of manufacture and sale of pharmaceutical goods. It has a factory and office at Bombay. The equity capital of the assessee-company was Rs. 50 lakhs out of which 65% was held by Ciba Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee by its parent company, M/s. Ciba Ltd., Basle, for the purpose of depreciation. During the accounting year relevant to the assessment year 1964-65, Ciba Ltd., Basle, gifted to the assessee machinery of the invoice value of Rs. 21,97,983 which was purchased only a little earlier before the gift was made. The machinery, at the time of gift, was lying in New York. The assessee incurred an expenditure of Rs. 10,60,827 during the first year relevant to the assessment year 1964-65 and Rs. 1,46,312 during the second year relevant to the assessment year 1965-66 on account of freight, customs duty, etc., for bringing the said machinery from New York to Bombay where it was installed. A question arose regarding the actual cost of the above machinery on which the assessee was entitled to depreciation and development rebate. According to the assessee, the actual cost would include not only the amount of Rs. 21,97,983 but also the amounts of Rs. 10,60,827 and Rs. 1,46,312 incurred by it. The latter part of the assessee's contention was not accepted by the Income-tax Officer who held that the actual cost was only Rs. 21,97,983 and, accordingly, he allowed depreciation and development rebate onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by counsel for the assessee to submit that these expenditures are revenue expenditures, we do not find any force in his submission. We, therefore, find no justification for interfering with the finding of the Tribunal in regard to the nature of these expenditures incurred by the assessee which, to our mind, are clearly capital in nature. Accordingly, both questions Nos. 1 and 5, are answered in the negative and in favour of the Revenue. Having held so, the next questions that fall for consideration are questions Nos. 3 and 6. But before we venture to answer the same, it is necessary to answer question No. 2 because that is like a road block in our way of answering these two questions. This question, as indicated above, pertains to the power of the Tribunal in an appeal where the controversy is whether a particular expenditure is revenue or capital in nature, to allow the assessee to raise an alternative plea that, in the event the expenditure in question is held to be capital in nature, suitable directions should be given by the Tribunal to the authorities below to include the same in the cost of the asset and to allow the assessee the benefit of development rebate and depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him. " ( emphasis supplied ) In that view of the matter, we are of the clear opinion that the Tribunal was not justified in refusing to consider the alternative submission of the assessee that in the event the expenditure in question was held by it to be capital in nature, suitable directions should be given for allowing appropriate development rebate and depreciation as admissible under the law on such amount on the plea that it was an additional ground raised by the assessee. In our opinion, it was the duty of the Tribunal, even in the absence of an alternative argument of the assessee, to make such a direction suo motu. We, therefore, answer the second question in the negative and in favour of the assessee. We now turn to questions Nos. 3 and 6 which relate to the allowance of depreciation on the aforesaid amounts incurred by the assessee which were hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd year on account of freight, customs duty, etc., for bringing the said machinery from New York to Bombay where it was installed. It is also an agreed position that this expenditure incurred by the assessee had neither been claimed by it as revenue expenditure nor allowed as a deduction in the computation of the assessee's income. Evidently, it was the admitted position that it is a capital expenditure. The assessee wanted this amount to be included in the cost of acquisition of Rs. 21,97,983 to determine the actual cost for the purpose of depreciation. There is no dispute that, in the event that the machinery in question would have been purchased by the assessee, these amounts had been included in the cost of acquisition to determine the actual cost for the purpose of depreciation. The controversy has arisen on account of the machinery having been received by the assessee by way of gift from its parent company. According to the Revenue, in such a case it is only the value of the machinery computed in the manner laid down in Explanation 2 to section 43(1) of the Act which will be deemed to be the actual cost and nothing more. In other words, the Revenue has sought to draw a dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in bringing the machinery from New York to Bombay and paying customs duty, etc. This expenditure incurred by the assessee in the two assessment years is admittedly capital in nature. Had the machinery in the instant case been purchased by the assessee, even according to the Revenue, this amount would have been added to the actual cost" thereof for the purpose of depreciation. The dispute has arisen only because the machinery was acquired by the assessee by way of gift and its value had been determined by resorting to Explanation 2 to clause (1) of section 43. In our opinion, the fact whether the value is determined under clause (1) of section 43 or under that clause read with the Explanation has no relevance for deciding the controversy at issue. It is well-settled that " actual cost " is not a static figure. It will vary from time to time. At the time of first acquisition, it might be a particular figure but that does not stop there. It will go on changing. As observed by the Supreme Court in Saharanpur Electric Supply Co. Ltd. v. CIT [1992] 194 ITR 294, 307 : "....the definition envisages the computation of the actual cost of each asset, for every assessment year, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets which have been created at a result of such expenditure..." From these decisions of the Supreme Court and the clear language of section 43(1) and Explanation 2, it is clear that, the expression " actual cost " cannot be given a narrow meaning as is sought to be given by the Revenue in the instant case. True it is that, in the instant case, the cost of acquisition on the date the gift was made by the parent company to the assessee was Rs. 21,97,983. But equally true is the fact that the assessee had incurred in the two years relevant to the assessment years under consideration amounts of Rs. 10,60,827 and Rs. 1,46,312 by way of expenditure on freight, customs duty, etc., for bringing the said machinery from New York to Bombay where it was insta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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