{"id":250356,"date":"1987-07-21T00:00:00","date_gmt":"1987-07-20T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/c-i-t-gujarat-vs-elecon-engineering-co-ltd-on-21-july-1987"},"modified":"2016-01-14T14:01:38","modified_gmt":"2016-01-14T08:31:38","slug":"c-i-t-gujarat-vs-elecon-engineering-co-ltd-on-21-july-1987","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/c-i-t-gujarat-vs-elecon-engineering-co-ltd-on-21-july-1987","title":{"rendered":"C.I.T. Gujarat vs Elecon Engineering Co. Ltd on 21 July, 1987"},"content":{"rendered":"
Supreme Court of India<\/div>\n
C.I.T. Gujarat vs Elecon Engineering Co. Ltd on 21 July, 1987<\/div>\n
Equivalent citations: 1987 AIR 2014, 1987 SCR (3) 588<\/div>\n
Author: M Rangnath<\/div>\n
Bench: Misra Rangnath<\/div>\n
           PETITIONER:\nC.I.T. GUJARAT\n\n\tVs.\n\nRESPONDENT:\nELECON ENGINEERING CO. LTD.\n\nDATE OF JUDGMENT21\/07\/1987\n\nBENCH:\nMISRA RANGNATH\nBENCH:\nMISRA RANGNATH\nPATHAK, R.S. (CJ)\n\nCITATION:\n 1987 AIR 2014\t\t  1987 SCR  (3) 588\n 1987 SCC  (4) 530\t  JT 1987 (3)\t117\n 1987 SCALE  (2)89\n\n\nACT:\n    Income Tax Act<\/a>, 1961\/Income Tax Rules, 1962--Section  84\n(Section 80J)\/Rule 19--New Industrial  Undertaking--Admissi-\nbility of exemption--Manner of computation.\n\n\n\nHEADNOTE:\n    The\t assessee, a public limited company, in the  assess-\nment year 1964-65 was in the second year of its new  project\ngoing  into production. The Income-tax Officer computed\t the\nassessment under s. 143(3)<\/a> of the Income-tax Act, 1961 after\ndetermining  the rebate admissible under ss. 84<\/a> and  101<\/a>  at\nRs.2,72,372. He re-opened the assessment under s. 147(b)<\/a> and\nre-computed  the  rebate at Rs.2,51,222. The appeal  by\t the\nassessee  to the Appellate Assistant Commissioner  was\tdis-\nmissed.\t The  Appellate Tribunal accepted the  plea  of\t the\nassessee  that to the figure of capital as worked out  under\nRule  19(1) is to be added the average profit as worked\t out\nunder  sub-rule\t (5) of Rule 19 and held  that\tthe  average\ncapital\t has  to  be  taken  at\t Rs.45,39,557  and  not\t  at\nRs.41,87,034.  In the Reference, the High Court agreed\twith\nthe conclusion reached by the Appellate Tribunal.\nDismissing the Appeal of the Revenue,\n    HELD:  1. Admissibility of exemption under s. 84 of\t the\nIncometax Act, 1961 which has been repealed with effect from\n1.4.1968 has never been in dispute. What has been deputed is\nthe  manner  of its computation. Rule 19 of  the  Income-tax\nRules,\t1962 prescribes the method of computation and  on  a\nproper\tinterpretation of sub-rule (1), (3) and (5) of\tthis\nRule  would  depend the ultimate conclusion to\tbe  reached.\n[590F-G]\n    2.\tThe High Court is right in saying that\tthe  dispute\nhas  to be resolved by referring to sub-rules (1), (3),\t (5)\nand  (6) of Rule 19. The High Court found that the value  of\nassets\tentitled to depreciation under Rule 19(1)(a)  worked\nout  to\t Rs.40,10,947.\tTo this figure was added  a  sum  of\nRs.1,39,764 on account of depreciation as on 1.1.63 as\talso\non  account  of the average value of  additions.  The  other\nassets were valued under Rule 19(1)(b) at Rs.44,38,126 as on\n1.1.63. All put together the\n\t 589\naggregate  valuation came to Rs.85,38,837. From this  aggre-\ngate,  deduction of sum of Rs.44,01,803 representing  loans,\nother liabilities including provision for tax as  authorised\nby Rule 19 was made leaving the valuation of the capital  at\nRs.41,87,034.  To this figure the sum of  Rs.3,52,503  being\nhalf of the profit from the New Project was added to compute\nthe value at Rs.45,39,537. Following the provision of s. 84<\/a>,\nentitlement  to\t exemption  was\t determined  at\t Rs.2,72,372\nrepresenting 6% of the capital employed in the new industri-\nal undertaking. [592C-E]\n    3.\tRe-assessment was made by deleting the\taddition  of\nRs.3,52,503' which represented half the profit of the  year.\nAccording to the Revenue, profits earned during the year had\nalready\t been taken into account in the process of  computa-\ntion and there was no warrent for its addition over again to\nthe  extent of a moiety. In fact, that is the  only  dispute\nthat  fell to be resolved. The High Court took note  of\t the\nfact  that  profits had necessarily been  reflected  in\t the\naverage valuation of the assets but in its view the  deeming\nprovision of Rule 19(5) was the special procedure laid\tdown\nfor computation for the purpose of calculation and could not\nbe  over-looked\t for the reasons advanced  by  the  Revenue.\nThere is sufficient force in the reasoning of the High Court\nand the conclusion reached by it is accepted. [592E-G]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1 of
\n1975.\n<\/p>\n
    From  the Judgment and Order dated 11\/12.9.1973  of\t the
\nGujarat High Court in I.T. Reference No. 19 of 1971.
\nK.P. Bhatnagar and Ms. A. Subhashini for the Appellant.
\nThe Judgment of the Court was delivered by
\n    RANGANATH MISRA, J. This appeal by certificate has\tbeen
\ncarried by the Revenue challenging the decision rendered  by
\nthe Gujarat High Court reported in 104 ITR 5 10 on a  refer-
\nence under the Income Tax Act<\/a>, 1961.\n<\/p>\n
    Assessee  is a Public Limited Company and  the  relevant
\nassessment year is 1964-65. This was the second year of\t the
\nassessee’s new project at Vidyanagar going into\t production.
\nOn 19.3.1965, the Income Tax Officer computed the assessment
\nunder section 143(3)<\/a> of the Act after determining the rebate
\nadmissible under sections 84<\/a> and
\n590<\/span><\/a>
\n101<\/a>  of the Act at Rs.2,72.372. He reopened  the  assessment
\nunder  section\t147(b)<\/a> of the Act and  by  his\treassessment
\norder dated 29.11.1966 recomputed the rebate at Rs.2,51,222.
\nThe  appeal by the assessee to the Appellate Assistant\tCom-
\nmissioner  was dismissed. The Appellate Tribunal on  further
\nappeal by the assessee came to hold:-\n<\/p>\n
\t      “There is considerable force in the  arguments
\n\t      urged   by   Sri\tTalati.\t In  view   of\t the
\n\t      phraseology used in the rules we are  inclined
\n\t      to accept Sri Talati’s plea that to the figure
\n\t      of  capital as worked out under Rule 19(1)  is
\n\t      to  be added the average profit as worked\t out
\n\t      under  sub-rule (5) of Rule  19.\tAccordingly,
\n\t      the  average  capital  has  to  be  taken\t  at
\n\t      Rs.45,39,537  and\t not  at  Rs.41.87.034.\t The
\n\t      assessee’s  contention  must,  therefore,\t  be
\n\t      upheld.”\n<\/p><\/blockquote>\n
\t      At  the instance of the Revenue, the  Tribunal
\n\t      referred\t the  following\t question  for\t the
\n\t      opinion of the High Court:-\n<\/p><\/blockquote>\n
\t      “Whether on the facts and in the circumstances
\n\t      of   the\tcase,  the  figure  arrived  at\t  by
\n\t      computation  under rule 19(5) was to be  added
\n\t      to the figure arrived at by computation  under
\n\t      rule 19(1) for determining the average capital
\n\t      employed in the assessee’s undertaking?”<\/p><\/blockquote>\n
    The High Court noticed the feature that there was dearth
\nof judicial decisions on the point at issue, dealt with\t the
\nrelevant  provisions  at length and came to agree  with\t the
\nconclusion reached by the Appellate Tribunal.
\n    Admissibility  of exemption under section 84<\/a> of the\t Act
\nwhich has been repealed with effect from 1.4.1968, has never
\nbeen in dispute. What has been debated is the manner of\t its
\ncomputation.  Rule  19 of the Income Tax  Rules,  1962\tpre-
\nscribes the method of computation and on a proper  interpre-
\ntation of the relevant provisions of this Rule would  depend
\nthe ultimate conclusion to be reached. Sub-rule (1), (3) and
\n(5) are relevant. They provide:\n<\/p>\n
\t      “19.  (1) For the purposes of section 84<\/a>,\t the
\n\t      capital employed in an undertaking or a  hotel
\n\t      to  which\t the said section applies  shall  be
\n\t      taken to be:-\n<\/p><\/blockquote>\n
\t      (a) in the case of assets acquired by purchase
\n\t      and entitled to depreciation–\n<\/p><\/blockquote>\n
\t\t     591<\/span><\/p>\n
\t      (i)  if  they have been  acquired\t before\t the
\n\t      computation  period, their written down  value
\n\t      on the commencing date of the said period;\n<\/p><\/blockquote>\n
\t      (ii)  if they have been acquired on  or  after
\n\t      the commencing date of the computation period,
\n\t      their average cost during the said period;\n<\/p><\/blockquote>\n
\t      (b) in the case of assets acquired by purchase
\n\t      and not entitled to depreciation–\n<\/p><\/blockquote>\n
\t      (i)  if  they have been  acquired\t before\t the
\n\t      computation  period, their actual cost to\t the
\n\t      assessee;\n<\/p><\/blockquote>\n
\t      (ii)  if they have been acquired on  or  after
\n\t      the commencing date of the computation period,
\n\t      their average cost during the said period;\n<\/p><\/blockquote>\n
…………………………………………………..\n<\/p>\n
\t      (3)  Any\tborrowed money and debt due  by\t the
\n\t      person  carrying\ton  the\t business  shall  be
\n\t      deducted\tand  in particular  there  shall  be
\n\t      deducted any debts incurred in respect of\t the
\n\t      business\tfor tax (including advance tax)\t due
\n\t      under any provision of the Act:\n<\/p>\n
\t\t  Provided  that  any  such  debt  for\t tax
\n\t      (including advance tax) shall, for the purpose
\n\t      of  this\tsub-rule, be deemed to\thave  become
\n\t      due–\n<\/p>\n
\t      (a)  in the case of any advance tax due  under
\n\t      any provision of the Act or of any tax payable
\n\t      under  section 140-A<\/a> or under section 141<\/a>,  on
\n\t      the  date\t on which, under the  provisions  of
\n\t      section 211<\/a> or section 2<\/a> 12<\/a> or section 2<\/a> 13<\/a> or
\n\t      section 140-A<\/a> or section 220<\/a>, as the case\t may
\n\t      be, the payment first became due;\n<\/p>\n
\t      (b) in any other case, on the last day of\t the
\n\t      period of time within which the tax is payable
\n\t      under section 220<\/a>.\n<\/p>\n
\t      (5)  For\tthe  purpose  of  ascertaining\t the
\n\t      average  amount  of  capital  employed  in   a
\n\t      business during any computation
\n\t       592<\/span>
\n\t      period,  the  profits or losses made  in\tthat
\n\t      period shall, except so far as the contrary is
\n\t      shown, be deemed–\n<\/p>\n
\t      (a)   to\thave  accrued  at  an\teven   rates
\n\t      throughout the said period; and\n<\/p>\n
\t      (b)  to have resulted, as they accrued,  in  a
\n\t      corresponding  increase  or decrease,  as\t the
\n\t      case  may be, in the capital employed  in\t the
\n\t      business.”\n<\/p>\n
‘Average  Cost’,  ‘Computation Period’,\t ‘depreciation’\t and
\n‘Written Down Value’ have been defined in sub-rule (6).\t The
\nHigh  Court  is right in saying that the dispute has  to  be
\nresolved by referring to sub-rules (1), (3), (5) and (6)  of
\nRule  19.  The\tHigh Court found that the  value  of  assets
\nentitled  to depreciation under Rule 19(1)(a) worked out  to
\nRs.40,\t10,947.\t To  this  figure was added  a\tsum  of\t Rs.
\n1,39,764 on account of depreciation as on 1.1. 1963 as\talso
\non  account  of the average value of  additions.  The  other
\nassets were valued under Rule 19(1)(b) at Rs.44,38,126 as on
\n1.1.1963. All put together, the aggregate valuation came  to
\nRs.85.88,837.  From  this aggregate, deduction of a  sum  of
\nRs.44,01,803 representing loans, other liabilities including
\nprovision for tax as authorised by Rule 19 was made  leaving
\nthe  valuation of the capital at Rs.41,67,034. To this\tfig-
\nure,  the sum of Rs.3,52,503 being half of the\tprofit\tfrom
\nthe   New  Project  was\t added\tto  compute  the  value\t  at
\nRs.45,39,537.  Following the provision of Section 84<\/a> of\t the
\nAct, entitlement to exemption was determined at\t Rs.2,72,372
\nrepresenting 6% of the capital employed in the new industri-
\nal undertaking.\n<\/p>\n
    The\t assessment  was made by deleting  the\taddition  of
\nRs.3,52,503  which represented half the profit of the  year.
\nAccording to the Revenue, profits earned during the year had
\nalready\t been taken into account in the process of  computa-
\ntion and there was no warrant for its addition over again to
\nthe  extent of a moiety. In fact, that is the  only  dispute
\nthat  fell to be resolved. The High Court took note  of\t the
\nfact  that  profits had necessarily been  reflected  in\t the
\naverage valuation of the assets but in its view the  deeming
\nprovision in Rule 19(5) was the special procedure laid\tdown
\nfor computation for the purpose of calculation and could not
\nbe  overlooked for the reasons advanced by the\tRevenue.  We
\nfind sufficient force in the reasoning of the High Court and
\naccept the conclusion reached by it.\n<\/p>\n
    The appeal is devoid of merit and is dismissed.  Parties
\nshall bear their own costs throughout.\n<\/p>\n
A.P.J.\t\t\t\t\t\t      Appeal\ndismissed.\n593<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India C.I.T. Gujarat vs Elecon Engineering Co. Ltd on 21 July, 1987 Equivalent citations: 1987 AIR 2014, 1987 SCR (3) 588 Author: M Rangnath Bench: Misra Rangnath PETITIONER: C.I.T. GUJARAT Vs. RESPONDENT: ELECON ENGINEERING CO. LTD. DATE OF JUDGMENT21\/07\/1987 BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH PATHAK, R.S. (CJ) CITATION: 1987 AIR 2014 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-250356","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nC.I.T. Gujarat vs Elecon Engineering Co. 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