Commissioner Of Income Tax v. Alcock Ashdown And Co. Ltd

INCOME TAX REFERENCE No. 212 of 1993 For Approval and Signature: THE HON'BLE MR.JUSTICE D.A.MEHTAHON'BLE MS.JUSTICE H.N.DEVANI ============================================================== Whether Reporters of Local1Papers may be allowed to see thejudgment ?To be referred to the Reporter2or not ?Whether their Lordships wish to3see the fair copy of thejudgment ?Whether this case involves asubstantial question of law as4to the interpretation of theconstitution of India, 1950 orany order made thereunder ?Whether it is to be circulated5to the civil judge ?============================================================== COMMISSIONER OF INCOME-TAX - Petitioner(s)VersusNEEKA TUBES PVT LTD - Respondent(s)============================================================== Appearance : MR MANISH R BHATTfor Petitioner NOTICE SERVEDfor Respondent No(s).: 1. ============================================================== CORAM :THE HON'BLE MR.JUSTICE D.A.MEHTAHON'BLE MS.JUSTICE H.N.DEVANIDate : 13/06/2005 (Per : THE HON'BLE MR.JUSTICE D.A.MEHTA) 1.Income Tax Appellate Tribunal, Ahmedabad Bench “B” hasreferred the following two questions under Section 256(1) ofthe Income Tax Act, 1961 (the Act) at the instance of theCommissioner of Income Tax. “(1) Whether the Appellate Tribunal is right in law and onfacts in directing the ITO to take into account the amount ofRs.2,00,036/- representing the value of plant and machineryunder erection for computing the capital employed for thepurpose of relief under Section 80J of the Income Tax Act ? (2) Whether the Appellate Tribunal is right in law and onfacts in directing the ITO to take into account the amount ofRs.46,90,341/- being the amount of loan from the old unit forcomputing the capital employed for the purposes of reliefunder Section 80J of the Act?” 1.The assessment year is 1983-84 and the relevant accountingperiod is the year ended on 30[th] June 1982. The assessee, aLimited Company, was carrying on business of manufacturingstainless steel tubes and manufacturing of machinery andcomponents for tube making plants. 2.A deduction of Rs.4,38,228/- was claimed under Section 80Jof the Act. The assessing officer held that plant andmachinery valued at Rs.2,00,036/- which was under erectionhad wrongly been considered as assets. He excluded the saidamount from the capital employed. 3.The assessing officer also held that, while computing thecapital employed, the assessee company had not deducted thesum of Rs.46,90,341/- while deducting the liabilities.According to him, the said sum was received from the oldunit i.e. Machinery Division by the new unit, namely theTube Division and as the balance sheet of the MachineryDivision showed the same as loan to the new unit, the samewas required to be excluded while computing the capitalemployed. 4.The assessee carried the matter in appeal before the CIT(Appeals), who for the reasons stated in his order dated 2[nd]January 1987, held that, (1) the assessee was entitled totreat the amount of plant and machinery under erection ascapital employed, and (2) the sum of Rs.46,90,341/- was notrequired to be reduced from the figure of capital employed. 3.The assessing officer also held that, while computing thecapital employed, the assessee company had not deducted thesum of Rs.46,90,341/- while deducting the liabilities.According to him, the said sum was received from the oldunit i.e. Machinery Division by the new unit, namely theTube Division and as the balance sheet of the MachineryDivision showed the same as loan to the new unit, the samewas required to be excluded while computing the capitalemployed. 4.The assessee carried the matter in appeal before the CIT(Appeals), who for the reasons stated in his order dated 2[nd]January 1987, held that, (1) the assessee was entitled totreat the amount of plant and machinery under erection ascapital employed, and (2) the sum of Rs.46,90,341/- was notrequired to be reduced from the figure of capital employed. The revenue carried the matter in appeal before theTribunal. The Tribunal dismissed the departmental appealvide its order dated 1[st] June 1990, against which therevenue has approached this Court. 5.Mrs.M.M.Bhatt appearing on behalf of Mr.M.R.Bhatt, thelearned Senior Standing Counsel for applicant revenuesubmitted that question No.1 was concluded against therevenue by decision of the Supreme Court in case ofCommissioner of Income Tax v. Alcock Ashdown and Co. Ltd.,(1997) 224 ITR 353, wherein the Apex Court had approveddecision of this Court in case of C.I.T. v. Cibatul Ltd.,(1978) 115 ITR 879, which was followed by the Tribunal. 6.In light of the aforesaid statement, it is not necessary toset out the facts and contentions in relation to questionNo.1 and the same is accordingly answered in the affirmativei.e. in favour of the assessee and against the revenue,following the aforesaid decision in case of Commissioner ofIncome Tax v. Alcock Ashdown and Co. Ltd. (supra). 7.In so far as question No.2 is concerned, it was submitted onbehalf of revenue that once the balance sheet of the oldunit, namely, Machinery Division reflected the sum ofRs.46,90,341/- as loan, nothing further was required to bedone and the assessing officer was right in excluding thesaid sum, as it would be a liability which was notdeductible. She emphasized the fact that both the units hadmaintained separate accounts and drawn up separate balancesheets and therefore, had to be treated as independentpersons. 8.1 Mrs.Bhatt, in the course of her submissions, referred todecisions in case of Commissioner of Income Tax v. GujaratState Fertilizer Co. Ltd., [1996] 219 ITR 550 and on case ofLohia Machines Ltd. v. Union of India, [1985] 152 ITR 308,to submit that in case of a borrowing for an outstandingliability, the same was not includible in capital for thepurpose of Section 80J of the Act. The said contention is,to say the least, based on a misconception as to the factsof the case and the aforesaid decisions have no relevance tothe controversy at hand. 9. The Tribunal, while deciding the issue, has held that: “If the surplus, reserve and the existing capital of thecompany is available with it and the same is employed forpurchase of plant and machinery, building and other assets ofthe new industrial undertaking, the capital so utilized foracquiring the assets in the new industrial undertaking willamount to employment of capital in the new industrialundertaking.” [D.A.MEHTA, J.] [HARSHA DEVANI, J.] parmar*