9911796707
TMI Blog1978 (3) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ered under the Bombay Co-operative Societies Act, and enjoys the position of being a pioneer society in the co-operative field of dairy industry and more particularly milk production and its allied products. It started functioning in 1946. In the course of assessment year 1963-64, corresponding to relevant previous year ending on 31st March, 1963, some questions arose in connection with the computation of capital employed by the society for purposes of the relief of tax holiday under s. 84 of the I. T. Act, 1961, and r. 19 of the I.T. Rules, 1962. On behalf of the assessee-society, a two-fold claim was made. The first claim was that half of the profits of the aforesaid previous year relating to baby food unit and cheese unit of the society be included in capital employed in these undertakings as prescribed under r. 19(5) of the aforesaid Rules as directed by this court in CIT v. Elecon Engg. Co. Ltd. [1976] 104 ITR 510 (Guj). Since the point was concluded, so far as this court was concerned, the Tribunal, reversing the orders of the authorities below, upheld the contention of the assessee-society and directed that half of the profit of the year ending 31st March, 1963, relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, particularly in view of the fact that grant-in-aid was not given by the Government of Gujarat for the specific purpose of acquiring the plant and machinery for the projects of baby food unit and cheese unit, the Tribunal is right in holding that the assessee is not entitled to take into account the amount of such grant-in-aid in acquisition of plant and machiney in the computation of capital employed in the said units?" These two references are numbered as Income-tax References Nos. 72 and 73 of 1975. Similarly, in Income-tax References Nos. 160 and 161 of 1975, the following questions are referred to us at the instance of the Commissioner and the assessee respectively : "Whether, in computing the average capital employed for the purpose of s. 84, half of the profit of the relevant year should be added in view of r. 19(5)?" "Whether, on the facts and in the circumstances of the case, amount of grant-in-aid by the Government was entitled to be taken into account for the purpose of capital computation under r. 19(1)(b) or for addition under r. 19(6) ? Similarly, in Income-tax References Nos. 104 and 105 of 1975, the following questions have been referred to us at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains which do not exceed 6% per annum on the capital employed in such undertakings or businesses. If, on construing r. 19, the court finds that the main object or the purpose of the section, namely, tax holiday on the basis of the employment of capital is thwarted or frustrated by an apparently plain or literal reading of the provision of the rule, the court must read the provision in such a manner as to avoid manifest absurdity, apparent injustice and irrational or absurd conclusion so that the object and purpose of the main enactment can be effectuated fully. In the submission of the learned counsel for the assessee-society, the revenue must add the entire amount of grant-in-aid given by the Government for the above object of purchase of machinery and equipment for the baby food and cheese units since, in effect and substance, with the assistance of grant-in-aid the assessee-society has acquired, at least partly, the assets otherwise than by purchase inasmuch as the assessee-society has received and held grant-in-aid amount as a trustee or in any case as a donee for purposes of purchasing machinery and equipment for the said two units. The mere fact that the purchase of machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire the relevant provisions of the rule to be re-written as something more is sought to be read in the rule than prescribed. R. 19(1), according to the learned counsel for the revenue, classifies the assets having regard to the source of their acquisition and the nature of the assets have been classified into four kinds, namely, assets acquired by purchase and subject to depreciation ; assets acquired by purchase and not subject to depreciation ; business debts and other assets. In the present case, according to the learned counsel for the revenue, it cannot be said that the assets are not acquired by purchase by the assessee-society and on its own showing the grant-in-aid has formed part of the general income of the assessee and has been utilised for purposes of acquisition of assets by purchase. The assets being plant and machinery, they are subject to depreciation and, therefore, their evaluation can be only on the basis of the written down value as defined in r. 19(6) of the rules read with s. 43(6)of the Act. The entire contention of the assessee about frustration of the object of the main enactment, in the submission of the learned counsel for the revenue, is misconceived i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on the business, the nominal amounts of those debts ; (d) in the case of any other assets, the value of the assets when they became assets of the business : Provided that if any such asset has been acquired within the computation period, only the average of such value shall be taken in the same manner as average cost is to be computed. Explanation.-For the purposes of clauses (a) and (b) of this sub-rule, the value of any building, machinery or plant or any part thereof which, having been previously used for any purpose is transferred to the undertaking or hotel at the time of its formation, shall not be taken into account for computing the capital employed in cases to which the Explanation to section 84 applies ...... (3) Any borrowed money and debt due by the person carrying on the business shall be deducted and in particular there shall be deducted any debts incurred in respect of the business for income-tax (including advance tax) due under any provision of the Act : ........ It would also be necessary to dispose of the preliminary objection raised by Mr. Desai, learned advocate for the revenue. Mr. Shah for the assessee sought to rely on the Government Resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as circumscribed by the facts on which the Tribunal's decision was made and should not be regarded as at large. This suggestion means that the question must be read as limited only to those facts on which alone reliance was placed in support of the argument actually advanced before the Tribunal and on which the Tribunal's decision was founded, leaving out all other facts appearing on the record and even referred to in the Tribunal's order and the statements of the case. There is no warrant for such suggestion. The language of the question clearly indicates that the question of law has to be determined 'on the facts of this case'. To accede to the contention of the assessee, will involve the undue cutting down of the scope of the question by altering its language." The Supreme Court, therefore, permitted that argument to be advanced since it was also allowed by the High Court. In the present case before us, the Tribunal has, as stated above, referred to the facts stated by the AAC in para. 3 of his aforesaid order where the AAC has stated that he has seen and considered the resolution of the Government of 20th March, 1961. In the circumstances, therefore, we reject the prelimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pressed in service that this is not an asset acquired by purchase and in effect and substance was a gift by the Government to the assessee-company was not advanced before the Tribunal. None the less, we have also considered that contention urged on behalf of the assessee. As stated above, on a plain reading of the said resolution of the Government, we cannot agree with Mr. Shah, and we are of the opinion that the Tribunal was right, as observed by it in its statement of case in Income-tax Reference No. 73 of 1975, that the grant-in-aid was not given by the Gujarat Government for the specific purpose of acquiring plant and machinery for the two projects in question, and they were general grants, not specifically relatable to the plant and machinery. The entire basis of the argument on which Mr. Shah has tried to build the edifice for purposes of taking out the particular assets from the category prescribed in r. 19(1)(a), therefore, disappears. Moreover, on construction of the rule, we are not in a position to accept the interpretation canvassed by Mr. Shah. It is no doubt axiomatic to say that the court must always read a provision in a taxing statute and more so one providing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired by purchase, rule 19(1)(d) provides the method of computation as actual value if acquired before the computation period and average value if acquired in the course of the computation period. After making a sum total of such cost of the valuations as prescribed in sub-rule (1) of rule 19, such debts or monies borrowed by the assessee as well as the income of the investments of idle moneys not required for the business are to be deducted. This is provided in sub-rules (3) and (4) of rule 19. It is thereafter in rule 19(5) which has been set out above that the fiction is provided for purposes of ascertaining the average amount of capital employed in a business in the course of any computation period." The attempt of the learned advocate for the assessee that the assets in question before us should be considered to be assets acquired otherwise than by purchase and, therefore, falling within cl. (d) of r. 19(1) is not well founded. Mr. Shah urged that for purposes of cl. (a) of r. 19(1) we must restrict its scope and width to the assets acquired by purchase by the assessee and not any assets which have been acquired by purchase by any other person. We do see some force in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ; (ii) assets acquired by purchase but not entitled to depreciation ; (iii) assets acquired otherwise than by purchase and not entitled to depreciation ; (iv) debts ; and (v) assets being cash in hand or at bank. The emphasis, therefore, appears to be in the direction of differentiating assets which are entitled to depreciation and assets which are not entitled to depreciation though in the later class of assets the difference is sought to be prescribed between the assets acquired by purchase and assets acquired otherwise than by purchase. In our opinion, therefore, in the present case, the assets in question being assets acquired by purchase and entitled to depreciation would come within the terms of cl. (a) of r. 19(1). The necessary result of treating the assets in question as falling within cl. (a) would be that the valuation would be on the basis of its written down value as defined in cl. (iv) of sub-r. (6) of r. 19. Cl. (iv) defines "written down value" as one computed under sub-s. (6) of s. 43 as if for the words "previous year", the words "computation period" were substituted. Obviously, therefore, the written down value of the assets in question would be as provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich would, inter alia, therefore, include the assets acquired by gift, the valuation prescribed for such assets in cl. (d) is the value of the assets when they become the assets of the business and the value would necessarily mean the market value. We do see some force in this argument and we must state that the scheme as contained in r. 19(1) is not very happy as the one which we find in sub-r. (2) of r. 19A where a more rational scheme has been sought to be introduced. But, as we have stated above, the emphasis of Parliament in r. 19(1)(a) and (b) appears to be mainly on the nature of asset as one entitled to depreciation and one not entitled to depreciation and not on the source of acquisition. Mr. Shah urged that this would be ignoring one of the two pre-requisites for determining cases of assets in cls. (a)and (b) of rule 19(1). According to Mr. Shah, not only the entitlement of depreciation is to be considered but also the source of acquisition, whether it is by purchase or otherwise, is also to be borne in mind. We must state that this contention of Mr. Shah, though attractive, is self-defeating because on that interpretation since cl. (d) includes only those assets which d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed capital employed in the new industrial undertaking except to the extent indicated in sub-rr. (a) and (b) and also by prescribing that only that capital which is employed on the first day of the computation period should be taken as the basis, the said provisions were ultra vires the scope of the main enactment contained in s. 80J of the I.T. Act. We have not been able to appreciate how these two decisions of the Calcutta High Court can be of any assistance to the cause of Mr. Shah's client. We are not restricting the width and scope of the meaning of the term "capital" and not excluding any capital employed in the industry. We are of the opinion that for purposes of evaluating an asset which is entitled to depreciation, the legislature has prescribed its written down value as the basis for computation of capital. If the asset is subject to depreciation, its written down value is to be taken into consideration for purposes of computing capital. It cannot be urged that the basis prescribed for computation of capital is so unreasonable that the asset entitled to depreciation would be in a worse position than the assets which are not entitled to depreciation. On the contrary, in ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
