JUDGMENT
S. Muralidhar, J.
1. The question referred to this Court for opinion under Section 256(1) of the Income Tax Act, 1961 (`Act’) is:
Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the scrap comprising of cops and bobbins cannot be cannot be equated with the plant and machinery and the provisions of Section 155(5) of the Income-tax Act, 1961 in withdrawing the development rebate in respect thereof are not applicable in the case of the assessed company?
2. The facts in brief are that the respondent assessed availed development rebate in respect of certain plant and machinery for the Assessment Year (AY) 1969-70. At the time of availing the development rebate, the assessed included cops and bobbins as forming part of the plant and machinery in respect of which the development rebate was claimed. The assessment for 1969-70 was finalised on this basis by an assessment order dated 8.3.1972. The Appellate Assistant Commissioner (AAC) in an order in I.T.A. No. 16/CC-III/72-73 dated 15.1.1973 made certain observations about the assessed having wrongly claimed development rebate. As a consequence the AO sought to reopen the assessment under Section 147(a) of the Act. The assessed went in appeal and this time the AAC by an order dated 11.10.1977 held that the notice should have been issued under Section 147(b) of the Act and also decided certain other points on merits. The AAC also made certain observations about the consequence of the assessed selling the cops and bobbins as scrap. Against this both the assessed and the revenue filed appeals before the Income Tax Appellate Tribunal (ITAT). The revenue’s appeal, I.T.A. No. 3750 (Del)/77-78, was dismissed by the ITAT on 9.1.1981. The relevant portion of the said order read thus:
Ground No. 8 in the assessed’s appeal and Ground No. 3 in the departmental appeal relates to the observations of the Appellate Assistant Commissioner as regards the consequence of the sale of the scrap arising out of the user of cops and bobbins. The Income-tax Officer allowed 100% depreciation and development rebate treating them as plant and machinery. As the life of the cops and bobbins was relatively short they were sold by weight as scrap. It was contended by the learned Counsel for the assessed that in the light of the order of the Bombay Bench of the Tribunal in I.T.A. No. 2757/70-71, dated 20-3-1972, the assessed’s case not hit by the provisions of Section 155(5). We are satisfied that the assessed’s case is not hit by the provisions of Section 155(5) because the scrap cannot be equated with plant and machinery. Therefore, there is no case for withdrawal of development rebate within the meaning of Section 155(5).
3. Meanwhile, other developments took place. Admittedly the assessed had in the previous years in relation to Assessment Years 1972-73 and 1973-74 sold the said cops and bobbins as scrap. This came to light in the AAC’s order referred to above. Since the transfer by way of sale of the cops and bobbins, constituting part of the plant and machinery in respect of which development rebate had been claimed, had taken place within a period of 8 years, a show cause notice was issued to the assessed under Section 155(5) of the Act for withdrawal of the development rebate availed of during the Assessment Year 1969-70. The explanation given by the assessed was that the cops and bobbins had become unusable and had lost their original identity as items of plant and machinery due to wear and tear. Accordingly, the assessed had sold these cops and bobbins as scrap on weight basis. It was further submitted the provisions of Section 34(3) would apply only if the plant and machinery was itself sold.
4. The Assessing Officer (`AO’) rejected this contention and by an order dated 30.5.1978 passed under Section 155(5) of the Act, he withdrew the development rebate on cops and bobbins valued at Rs. 5,94,850 and Rs. 3,60,038 sold during the assessment year 1972-73 and 1973-74 respectively. The development rebate so withdrawn worked out to Rs. 1,18,970 and Rs. 72,005 respectively. The assessed’s appeal was dismissed by the Commissioner of Income Tax (CIT)(Appeals) by an order dated 25.8.1980. The assessed’s further appeal before the ITAT, I.T.A. No. 4033 (Del)/80 was allowed by the ITAT which followed its earlier order dated 9.1.1981. Thereafter the ITAT referred the matter to this Court under Section 256(1) of the Act for its opinion on the question set out in the first paragraph of this judgment.
5. Ms. Prem Lata Bansal, learned Advocate for the applicant submits that the provisions of Sections 34(3) read with 155(5) of the Act are required to be strictly construed. Where the assessed comes forward to declare certain components as comprising the plant and machinery in respect of which development rebate is claimed, then the conditions spelt out therein would apply to all such components as well. She points out that there are specific conditions on which the said development rebate is permitted. The first is that an amount equivalent to 75 per cent of the development rebate to be actually allowed should be debited to the profit and loss account and the same amount should be credited to a reserve account. There are restrictions on the manner of use of this reserve. The second condition is that before the expiry of 8 years from the end of the previous year in which the plant and machinery was acquired or installed, the plant and machinery, together with its components as identified by the assessed, cannot be transferred. If either of these conditions is breached, then the development rebate is liable to be withdrawn under Section 155(5) of the Act. She submits that the development rebate in the instant case was rightly withdrawn by the AO as confirmed by the CIT (A) and the question posed is required to be answered in favor of the revenue.
6. In reply, Mr. S.K. Aggarwal, the learned Counsel appearing for the respondent, submits that the provisions of Section 155(5) of the Act are not attracted since what was sold were the damaged and unusable cops and bobbins which could no longer be considered as plant and machinery. He submits that prohibition under Section 155(5) is only on the transfer of the `plant and machinery’. This according to him only contemplates plant and machinery that are capable of being put to use. Relying on the judgment in Commissioner of Income Tax v. Hardelia Chemical Ltd. , he submits that where any plant and machinery is destroyed it cannot be said that there is a transfer which attracts the bar under Section 155 of the Act.
7. In order to appreciate these rival contentions the statutory provisions may first be examined. The relevant portions of Sections 2(47), 33, 34(3) and 155(5) of the Act read as under:
2(47) ‘transfer’, in relation to a capital asset, includes,-
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or
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33 (1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessed and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of Section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in Clause (b).
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34 (3)(b) If any ship, machinery or plant is sold or otherwise transferred by the assessed to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under Section 33 or under the corresponding provisions of the Indian Income Tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of Sub-section (5) of Section 155 shall apply accordingly:
Provided that this clause shall not apply-
(i) where the ship has been acquired or the machinery or plant has been installed before the 1st day of January, 1958; or
(ii) where the ship, machinery or plant is sold or otherwise transferred by the assessed to the Government, a local authority, a corporation established by a Central, State or Provincial Act or a government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956); or
(iii) where the sale or transfer of the ship, machinery or plant is made in connection with the amalgamation or succession, referred to in Sub-section (3) or Sub-section (4) of Section 33.
155(5) Where an allowance by way of development rebate has been made wholly or partly to an assessed in respect of a ship, machinery or plant installed after the 31st day of December, 1957, in any assessment year under Section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), and subsequently –
(i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessed to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in Sub-section (3) or Sub-section (4) of Section 33; or
(ii) at any time before the expiry of the eight years referred to in Sub-section (3) of Section 34, the assessed utilises the amount credited to the reserve account under Clause (a) of that sub-section
(a) for distribution by way of dividends or profits; or
(b) for remittance outside India as profits or for the creation of any asset outside India; or
(c) for any other purpose which is not a purpose of the business of the undertaking.
the development rebate originally allowed shall be deemed to have been wrongly allowed, and the [Assessing] Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessed for the relevant previous year and make the necessary amendment; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the previous year in which the sale or transfer took place or the money was so utilised.
8. Section 155(5) of the Act unambiguously states that if “at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessed to any person other than the government…”, then the development rebate originally allowed “shall be deemed to have been wrongly allowed.” It is entirely up to the assessed how it chooses to describe plant and machinery in respect of which the assessed wants to claim development rebate. It is quite possible that certain components of the plant and machinery may not be usable for 8 eight years. In that event, if the assessed chooses to include such components as part of the plant and machinery, it runs the risk of being tied down by the condition of non-transferability attached to such components in terms of Section 155(5). Further, the assessed stands to lose development rebate only pro rata, i.e., corresponding to the extent of plant and machinery that has been sold within the period of eight years. Since this is a benefit that has been extended to the assessed in terms of Section 34(3) read with Section 155(5) of the Act the provisions require to be strictly construed.
9. Turning to the facts of the instant case, there is no dispute that the assessed in fact sold the cops and bobbins as scrap by weight. Clearly therefore this was a transfer of the cops and bobbins, which comprised the plant and machinery, admittedly within the period of eight years. In our view, the provisions of Section 155(5) of the Act would straightway get attracted to such a transfer. We are unable to persuade ourselves to agree with the submission on behalf of the respondent assessed that the bar under Section 155(5) gets attracted only where the plant and machinery transferred is useable and not where the plant and machinery has ceased to be of use to the assessed. This being a taxing statute, it admits of strict construction and it is impermissible to qualify the words “machinery or plant” in Section 155(5) with the word “useable” as is sought to be suggested by the assessed. To recall the words of J.C. Shah, J. in Sales Tax Commissioner v. Modi Sugar Mills :
In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency.
10. The decision in Hardelia Chemical Ltd. (supra) was rendered in a case where the plant and machinery acquisition had been destroyed by fire and the assessed had claimed insurance payment as a result thereof. It was held by the Hon’ble Supreme Court that where the insurance company settles the claims of the assessed and takes the destroyed plant and machinery, there is no transfer of the plant and machinery and that therefore the bar under Section 155(5) of the Act would not get attracted. Clearly, that was not a case where the plant and machinery, as in the present case, was transferred by way of sale. In the circumstances, we do not see how the decision in Hardelia Chemical Ltd. can come to the aid of the assessed here. On the other hand we find that in CIT v. Narang Diary Products 219 ITR 478, the Hon’ble Supreme Court held that even where the plant and machinery had been let out by the assessed the bar under Section 34(3)(b) read with Section 155(5) would get attracted. It was observed (at ITR p. 483):
It is not only the ownership of the plant or machinery but also its exclusive user by the assessed for the purpose of his business, that is essential to enable the assessed to get the development rebate under Section 33(1)(a). In cases where an assessed disables himself from such continued exclusive user of the plant or machinery for the purpose of his business for the specified period, the consequences specified in Section 34(3)(b) will follow, provided the machinery or plant is “otherwise transferred”. It is true that there is no sale; nor is there any complete extinguishment of the right of the assessed in the machinery or plant by the grant of lease; but the exclusive possession and enjoyment of the machinery or plant by the assessed no longer exists or survives. Such right to exclusive possession and enjoyment vests in the lessee and it is a case where the machinery or plant is “otherwise transferred” to the lessee.
11. The Gujarat High Court in Kalindi Investment P. Ltd. v. CIT 213 ITR 207 explained (at pp. 214-215) that the objective behind the benefit of development rebate and the language of the statute “leave no room for doubt that if a person who acquires a new asset and avails of the benefit of deduction of development rebate after fulfillling the conditions for availing thereof, is unable to retain that asset for a specified period for any reason, he is also not entitled to retain the benefit of reduced taxability relatable to the said assets on account of development rebate under Section 33 of the Act.”
12. Applying the above principles to the facts on hand, we are of the considered view that the sale of the cops and bobbins as scrap by weight by the assessed before the expiry of the eight year period constituted a transfer of a part of the plant and machinery and would attract the provisions of Section 34(3) read with Section 155(5) of the Act resulting in the pro rata withdrawal of the development rebate allowed in respect of such part.
13. Mr. Aggarwal then relies on a decision of this Court in Commissioner of Wealth Tax v. Allied Finance (P) Ltd. (2005) 195 CTR 528 to contend that the revenue having not appealed against the order dated 0.1.1981 passed by the ITAT in relation to the same assessed and the same AY 1969-70, it should not be permitted to challenge the subsequent order dated 30.9.1981 which merely follows the order dated 9.1.1981. We are unable to agree with this submission either. In the first place, it may be noticed that the order dated 9.1.1981 gives no reasons at all except following an order dated 20.3.1972 passed by the Bombay Bench of the ITAT in I.T.A. No. 2757/70-71, a copy of which decision is not available either with the counsel for the revenue or the assessed. Secondly, we find that there is absolutely no reasoning given by the ITAT for overturning the order of the AO and the observations of the AAC in the facts of the present case. Thirdly, the ITAT’s earlier order was in proceedings relating to the assessment order dated 8.3.1972 while the later order was in the specific context of the separate proceedings under Section 155(5) of the Acton the issue of withdrawal of development rebate for the assessment year 1969-70. Fourthly, the ITAT has in the order dated 30.9.1981 followed its earlier order dated 8.1.1981. The order dated 30.9.1981 has been put in question by the Revenue by seeking the present reference. Therefore, what in effect is also being put to challenge is the earlier order dated 8.1.1981. This argument would have been of some merit had the Revenue let the orders for the assessment years 1969-70 go unchallenged and woken up suddenly a few years later and challenged the order for a subsequent assessment year which followed the earlier order. However, that is not the case here. The challenge is in respect of an order for the very same assessment year 1969-70. For all these reasons, it cannot be said that the Revenue has accepted the earlier order dated 8.1.1981 and is, therefore precluded from preferring the present reference.
14. We hold that the Tribunal was in error in holding that the cops and bobbins sold as scrap cannot be equated with the plant and machinery and that the provisions of Section 155(5) of the Act were not applicable in the present case. Accordingly, we answer the question referred for our opinion in favor of the Revenue and against the assessed.
15. The reference stands disposed of accordingly.