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TMI Blog1984 (10) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner (Appeals) did not agree. He held that a reading of the section showed that initial depreciation was allowable, provided the purpose was the business of generation and distribution of electricity. He, therefore, confirmed the disallowance of the assessee's claim for initial depreciation as justified. 7. Before us, Shri Dinesh Vyas contended that his case was not that the assessee manufactured items specified in the Ninth Schedule as erroneously assumed by the ITO but that the assessee-company was carrying on the business of generation of electricity with the help of the power generation unit installed by the assessee in its factory at Thane, and that, therefore, the assessee was entitled to initial depreciation in respect of this power generation unit under section 32(1)(vi). The learned counsel argued that the assessee-company generates electricity as part of its business, for its own use, with this new captive power generation plant, that this power generation unit was installed to generate and supply electricity to the assessee's factories, in addition to the electricity supplied to the assessee's factories from conventional sources such as the Maharashtra State Elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim for initial depreciation was in respect of a captive power plant installed by it for generation of electricity for its own consumption or use in its factory and that this was not business of generation of electricity specified in section 36(1)(vi). The learned departmental representative submitted that the concept of a business as such would entail dealings with outside or third parties, that in the present case, there was no dealing with outsiders or third parties involved, as the assessee-company itself utilised the energy produced in its captive plant in its main manufacturing activity of producing air-conditioning products and that there was no question of sale of electricity produced by the assessee in the present case to call it a business of generation of electricity. Shri Roy Alphonso argued that a careful reading of the provision of law in section 32(1)(vi) showed that the emphasis in the said provision was on the ' business aspect ' rather than on a particular activity, that the deduction of initial depreciation was allowed by section 32(1)(vi) with reference to the various types of businesses carried on by the assessees as specified in the said provision of law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of construction, manufacture or production of any one or more of the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth Schedule or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date in a small-scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things, a sum equal to twenty per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee, in respect of the previous year in which the ship or aircraft is acquired or the machinery or plant is installed, or if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year ; but any such sum shall not be deductible in determining the written down value for the purposes of clause (ii) :" 10. A careful reading of this provision of law indicates that initial depreciation is allowable in respect of new machinery or plant installed after 31-5-1974, inter alia, for the purpose of business of generation of electricity or any other form of power. The appellant, in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... division for the assessment year 1959-60. The Tribunal allowed the assessee's appeals and held that the assessee was entitled to relief under section 15C in respect of the two new divisions, which were new industrial undertakings. While upholding the decision of the Tribunal, the Supreme Court held that new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business and that these products may be consumed by the assessee in his old business or may be sold in the open market. Their Lordships further held that one thing is certain that the new undertaking must be an integrated unit by itself, wherein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed and that such a new industrially recognisable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. We are, therefore, unable to agree with the contention of the appellant that it is carrying on the business of generation of electricity by merely installing a power generation plant in its factory at Thane to qualify for initial depreciation under section 32(1)(vi). 13. Shri Roy Alphonso is further right in his submission that there is no scope for dividing a business into two parts so that each part of the activities carried by the assessee constituted a separate business. This is clear from the decisions of the Bombay High Court in N. U. C. (P.) Ltd.'s case and Shah Construction Co. Ltd.'s case. Though these two decisions turned on the definition of an ' industrial company ' in the Finance Act, yet they fully support the contentions of the revenue in the present case. 14. In the case of N.U.C. (P.) Ltd., their Lordships of the Bombay High Court held that the making of door and window frames and of concrete beams and slabs was, admittedly, in the process of the construction and repair of buildings and that there was no scope for dividing the business of the company into two parts, for neither the frames nor the slabs or beams were manufactured or prepared independentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said receipt of Rs. 4 lakhs comprised of three items : (i) inventories worth Rs. 1,03,000, (ii) business in the pipeline worth Rs. 80,000, and (iii) balance amount passed by way of goodwill Rs. 2,17,000. The ITO held that the first two items were trading receipts and that even the sum of Rs. 2,17,000 was not for goodwill. He pointed out that no document or correspondence had been produced to show, how or what for the amounts were received and that the entire amount of Rs. 4 lakhs was credited as commission in the accounts and included under that head. The ITO further pointed out that no part of goodwill in the name of Blue Star had been transferred to the newly floated company in India, that the amount of Rs. 4 lakhs was not paid by the newly floated Indian company but by the American company, which did not have to buy back any goodwill of the business of their products. The ITO held that the assessee was looking after the interest of Honeywell Inc., USA in regard to (i) distribution of their products in India, and (ii) servicing the equipments during the warranty period and thereafter ; and, therefore, concluded that they were representing Honeywell Inc., USA, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued that there was no agency agreement in favour of the assessee-company, as the assessee was buying and dealing on its own account and did not receive any commission or remuneration as an agent from Honeywell Inc., USA, and that, therefore, the receipt of Rs. 2,17,000 would not fall within the mischief of section 28(ii)(c). 21. Shri Roy Alphonso, the learned departmental representative, met these arguments of the assessee, by pointing out at the outset that the assessee did not produce the letters at pages 10 to 19 of the assessee's papers before the departmental authorities in spite of number of opportunities allowed to them by the ITO, but was producing the same for the first time before the Tribunal and that, therefore, they should not be admitted, as they amounted to fresh and additional evidence. His alternative submission on this aspect of the case was that if we decide to admit these letters, the ITO should be given an opportunity to examine the same and that for this purpose, the case might have to be sent back to the ITO. 22. On the merits of the case, Shri Roy Alphonso contended that there was really no distinction between the two amounts totalling Rs. 1,83,000, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgued that there was no question of transfer of goodwill by the assessee-company to Honeywell Inc., USA, or to its Indian company. Adverting to the assessee's letter dated 26-3-1979, at page 8, the learned departmental representative argued that it did not advance the assessee's case any further but, on the contrary, fully supported the revenue's contention that it was a case of termination of agency agreement between the assessee-company and Honeywell Inc., USA, which squarely came within the provisions of section 28(ii)(c), as what was earned by the assessee on Honeywell products was accepted by the assessee as its commission and not as its profits. Shri Roy Alphonso, therefore, argued that the decision of the departmental officers deserved to be upheld as correct, both on facts and in law. 25. The dispute now before us is only in respect of the balance of Rs. 2,17,000 out of the sum of Rs. 4 lakhs received by the assessee from Honeywell Inc., USA, as the assessee's learned counsel accepted before us that the two amounts of Rs. 1,03,000 and Rs. 80,000 for inventories and business in the pipeline, respectively, were taxable business receipts. The appellant's contention is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any in consideration of this sum of Rs. 2,17,000, paid by the American company. Actually, the revenue requires us to infer an agency in favour of Blue Star from paragraph No. 2 of this letter. In our view, when we read all the four letters together, the totality of the impression created in our minds is that the appellant-company was representing the American company in India, though it might not have been called by the name of an agent, but for all practical purposes it was acting as the sole distributors of Honeywell in India looking after their interests. This is also clear from page 9 of the papers of the assessee, wherein the last but one paragraph in the letter dated 26-3-1979, the appellant accepts that it had earned commission income on the sale of Honeywell's products in the years 1969 to 1972, on the basis of which figures, it has given a working of the value of the goodwill to the ITO. This shows that there was some sort of an arrangement of distributorship between the appellant-company and the American company for a period of nearly 19 years, even though the two companies were dealing on principal to principal basis in all these years and not as a principal and an agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the earlier years. Therefore, this amount has been rightly brought to charge as a business receipt under section 28(ii)(c). 31. Even if we assume for the sake of argument, that we should have looked into the papers at pages 10 to 19 of the assessee's papers, in our view, they do not advance the case of the assessee any further. In fact, a perusal of the said papers established that there was an original letter agreement between the appellant-company and the American company written on 12-3-1954 and that it was a distribution arrangement, which was terminated on 31-12-1972. Though there is a reference to the goodwill in these letters, the calculation and the basis for arriving at this amount of goodwill has not been disclosed. Further, the mere fact that the parties have used the term ' goodwill ', would not be decisive of the nature of the receipt in the hands of the appellant particularly in the light of the facts brought out by these letters. On the contrary, they do establish that this amount was received only for the termination of agency of the distributorship in favour of Blue Star with effect from 31-12-1972. Therefore, this amount would squarely fall within the scope o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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