JUDGMENT
K.P. Radhakrishna Menon, J.
1. The questions referred for our consideration are compartmentalised as follows :
” R. A. No. 177 :
1. Was the Appellate Tribunal justified in holding that a sum of Rs. 13,036 spent by the assessce on a pilot project for the manufacture of phosphorus is capital expenditure and not entitled to deduction ? Is not the said expense incurred for research and development of the assessee’s business and hence a revenue expenditure liable to deduction ?
R. A. No. 178 :
1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the research
expenditure of Rs. 4,048 on phosphorous project cannot be considered to be revenue expenditure and, therefore, cannot be allowed as a deduction ?
R. A. No. 179 ;
1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 5,58,597 received by the assessee by way of refund of excess electricity duty accrued to the assessee as income on November 21, 1975, when the Supreme Court decided the question in favour of the assessee ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the disallowance of the claim for extra shift allowance of Rs. 2,18,476 in respect of the Barium Carbonate (Expansion) Unit on the ground that this particular unit had worked only for 43 days during the year?
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in disallowing the expenses of Rs. 31,681 relating to the Tuticorin Project holding that this was a separate business which claimed a separate relief under Section 80J in subsequent years and cannot be considered to be a revenue expenditure for this assessment year ?
4. Was the Appellate Tribunal justified in holding that, having regard to the nature of the expenses, such expenses cannot also be capitalised for the purpose of depreciation along with fixed assets ? ”
The question in R. A. No. 177 and the question in H. A. No. 178 are identical.
2. On going through the findings of the Tribunal, it is seen that the Tribunal, after evaluating the various aspects of the case, has found that the respective sums of Rs. 13,036 and Rs. 4,048 expended during the relevant periods represent only capital expenditure.
3. Learned counsel for the assessee submits that the Tribunal, after entering the above finding, ought to have considered the further case of the assessee that the assessee is entitled to the benefit of Section 35 since the money was spent for scientific research.
4. That the assessee had raised such a contention before the assessing authority and the Appellate Assistant Commissioner is beyond dispute. On going through the order of the Tribunal, it can be inferred from the observations contained in the order that the assessce had raised such a
contention. We, in this connection, make a specific reference to the following sentences in paragraph 5 of the order :
“…. All that Section 35 envisages is the allowance of capital expenditure as a full deduction. . . . ”
Though such an observation has been made, the Tribunal does not appear to have dealt with the question as to whether the assessee is entitled to the benefit of Section 35.
5. Learned counsel for the Revenue no doubt contended that the assessee had not raised any such specific contention before the Tribunal and that may perhaps be the reason for the Tribunal not considering the claim under Section 35. It is not necessary for us to resolve this dispute because if, as a matter of fact, the assessee is entitled to bring his claim under Section 35, that claim requires to be considered by the Tribunal. It is all the more so because the authorities below in fact have considered the said claim.
6. Under the circumstances, we are of the view that the said claim of the assessee requires to be considered by the Tribunal. The question thus arising for consideration is whether the assessee is entitled to sustain his claim for deduction under Section 35 of the Income tax Act, 1961. No other question arises for consideration.
7. The question thus arising for consideration is the one stated above and not either of the questions formulated in R. A. No. 177 or 178.
8. Question No. (1) in R. A. No. 179 : Here, the assessee has a specific case that the receipt can be assessed only under Section 41(1) of the Income tax Act. The assessment, however, has been made as if it is a trading receipt. Dilating on the above point, learned counsel for the assessee submits that the receipt under no circumstances can be said to accrue to the assessee during the year in question.
9. From the competing contentions of the assessee as also the Revenue, it could be inferred that the question has not been considered in the right perspective. On a perusal of the order of the Tribunal, it is clear that the Tribunal has not approached the issue taking into account the impact of Section 41(1) on the facts of the case. We, therefore, are of the view that the entire issue requires reconsideration. Under the circumstances, we decline to answer this question.
10. Coming to question No. (2) in R. A. No. 179 : The assessee has a case that, in any event, his claim is covered by the circular and instruction
issued by the Central Board of Direct Taxes under Section 119 of the Income-tax Act, 1961. The relevant Circular No. is No. 10/83/69 I. T, (A. II) dated September 28, 1970, and the Instruction No. is No. 1605 dated February 26, 1985. Whether the authorities under the Income-tax Act are bound by the said Circular and Instruction is no more a moot question in view of the various decisions of the Supreme Court where it has been held that they are bound by such instructions and circulars. It, therefore, follows that the claim of the assessee requires to be considered in the light of the circular/instruction.
11. The Tribunal had no opportunity to consider the case in the light of this circular and instruction. Under the circumstances, we are of the view that the question as to whether the assessee is entitled to the benefit of the circular and the instruction also requires to be considered afresh. We, therefore, decline to answer this question also.
12. As regards questions Nos. 3 and 4, the decision of the Tribunal is based on the facts found by the Tribunal. The findings, it cannot be said, are perverse because they are based on materials. If that be the position, these questions must be said to be questions of fact. In other words, these questions in fact do not arise for consideration. The questions are, accordingly, answered in favour of the Revenue.
13. A copy of the judgment under the seal of this court and, the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, forthwith.
APPENDIX ‘A’
Circular No. 10/83/69 I. T. (A. II), dated September 28, 1970
135. Calculation of depreciation–Extra shift allowance in respect of plant and machinery.–The Board have decided that where a concern has worked double shift or triple shift, extra shift allowance will be allowed in respect of the entire plant and machinery used by the concern without making any attempt to determine the number of days on which each machine actually worked double or triple shift during the relevant previous year.
APPENDIX ‘B’
Instruction No. 1605, dated February 26, 1985
Calculation of depreciation for extra shift working of plant and machinery under Section 32 of Income-tax Act, 1961, read with Rule 5 of Income-tax Rules, 1962–Instruction under Section 119(1) of Income-tax Act-The Board had laid down in their letter No. 10/83/69 I. T. (A. II), dated September 28, 1970, that extra shift allowance will be allowed in respect of the entire plant
and machinery used by a concern which has worked extra shift, without making any attempt to determine the number of days on which each machinery or plant actually worked extra shift during the relevant previous year. In Circular No. 109 dated March 20, 1973 (see [1973] 89 ITR (St.) 30), it was mentioned that the said allowance should be calculated for the period for which the concern has actually worked extra shift expressed in terms of the proportion which such period bears to the “normal number of working days during the previous year”. Except machinery or plant against which the letters NESA appear and those listed under Clause (iv) of Item III in Part I of the Schedule, the balance of the machinery or plant of the concern would be entitled to extra shift allowance.
2. Subsequently, the Allahabad High Court in Kundan Sugar Mills v. CIT [1977] 106 ITR 704, the Calcutta High Court in the case of Anantapur Textiles Ltd. v. CIT [1979] 116 ITR 851 and lately the Madras High Court in South India Viscose Ltd. V. CIT [1982] 135 ITR 206, have held that extra shift allowance would be admissible with reference to the number of days on which the particular machinery or plant has worked extra shift and not on the basis of the working of the concern. It may be mentioned that Board’s letter dated September 28, 1970, and the Circular No. 109 dated March 20, 1973 (see [1973] 89 ITR (St.) 30), have not been cited before these courts and, therefore, had not been considered by them. Receipt audit has been raising objections on the basis of these decisions where the Assessing Officers had allowed extra shift allowance on the basis of the working of the concern as a whole instead of the working of individual plant and machinery.
3. The instructions issued earlier have been considered again by the Board. In exercise of the powers conferred by Section 119(1) of the Income-tax Act, 1961, the Central Board of Direct Taxes, being of the opinion that it is expedient for the proper administration of these provisions, directs that the grant of extra shift allowance for plant and machinery be calculated with reference to the working of a factory situated at a place and not with reference to the number of days each machinery and plant has worked. Where a concern has more than one factory, the extra shift allowance will be regulated for each factory in the above manner. As the determination of the number of days each machinery or plant has worked in a factory is cumbersome, the existing instructions and the present clarification are aimed at simplifying the calculation of extra shift allowance. (F. No. 202/27/84-II (All), dated February 26, 1985, from the Central Board of Direct Taxes).