{"id":81364,"date":"1997-02-05T00:00:00","date_gmt":"1997-02-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-vs-ms-filtrone-india-ltd-ms-on-5-february-1997"},"modified":"2018-04-16T00:11:31","modified_gmt":"2018-04-15T18:41:31","slug":"commissioner-of-income-vs-ms-filtrone-india-ltd-ms-on-5-february-1997","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-vs-ms-filtrone-india-ltd-ms-on-5-february-1997","title":{"rendered":"Commissioner Of Income … vs M\/S. Filtrone India Ltd.M\/S. … on 5 February, 1997"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of Income … vs M\/S. Filtrone India Ltd.M\/S. … on 5 February, 1997<\/div>\n
Author: Paripoornan<\/div>\n
Bench: B.P. Jeevan Reddy, K.S. Paripoornan<\/div>\n
           PETITIONER:\nCOMMISSIONER OF INCOME TAX,BOMBAY\n\n\tVs.\n\nRESPONDENT:\nM\/S. FILTRONE INDIA LTD.M\/S. ALCOCK ASHDOWN & CO. LTD.\n\nDATE OF JUDGMENT:\t05\/02\/1997\n\nBENCH:\nB.P. JEEVAN REDDY, K.S. PARIPOORNAN\n\n\n\n\nACT:\n\n\n\nHEADNOTE:\n\n\n\nJUDGMENT:\n<\/pre>\n
\t\t\t    WITH
\n\t       CIVIL APPEAL NO. 9796 OF 1995
\n\t\t      J U D G M E N T
\n     Paripoornan, J.\n<\/p>\n
     A common  question of  law arises\tfor consideration in
\nboth the  appeals. the\tappeals are  preferred\tagainst\t the
\njudgments of  the Bombay High Court in I.T.R. No. 40 of 1969
\ndated 7.7.1978\tand I.T.R.  No. 453 of 1975 dated 27.3.1987.
\nCivil Appeal NO. 1274 of 1980 preferred against the judgment
\nof the\tBombay High  Court in  I.T.R. No.  40 of 1969 is the
\nmain appeal.  The judgment  rendered therein  is reported in
\n(1979) 119 ITR 164. This judgment was followed in the latter
\ncase, I.T.R. No. 453 of 1975.\n<\/p>\n
2.   In Civil  Appeal No.  1274 of  1980, the question arose
\nwith reference\tto the\tassessment year 1962-63, wherein the
\ninterpretation of Section 84 of the Income-tax Act, 1961, as
\nit existed then, came up for consideration. Civil Appeal No.
\n9796 of\t 1995 is concerned with the assessment year 1969-70,
\nwherein Section\t 80-J of  the Act came up for consideration.
\nIt was\tagreed at  the bar  and it is also fairly clear that
\nthe  controversy   in  these   cases,\tis   regarding\t the
\ninterpretation of  the crucial\twords viz. `capital employed
\nin the undertaking’ occurring both in Sections 84(1) and 80-
\nJ of  the Income-tax  Act (hereinafter\treferred to  as `the
\nAct’).\n<\/p>\n
3.   We heard counsel.\n<\/p>\n
4.   It will be sufficient if we advert of the minimal facts
\nin the\tmain appeal  — Civil  Appeal No.  1274 of 1980. The
\nrespondent-assessee is\ta public  limited company.  It has a
\nchain of  machine workshops.  In the previous year (calendar
\nyear 1961),  relevant for  the assessment  year 1962-63, the
\nassessee started  a new industrial undertaking at Bhavnagar.
\nIt was\tto consist  of several\tworkshops, including one for
\nthe manufacture of small boats. The undertaking at Bhavnagar
\nstarted business  operations in\t the year  of  account.\t The
\nprofit for  this year  was Rs.5,39,791\/-.  A good portion of
\nthe plant  and machinery  was installed for the new business
\noperation, but some of them remained to be installed, though
\nthey were  paid for.  Some of the workshops were still under
\nconstruction. The  value of  the  plant\t and  machinery\t not
\ninstalled came\tto Rs.\t11,95,167\/-, while  the cost  of the
\nworkshop  under\t construction  came  to\t Rs.9,22,011\/-.\t The
\naggregate for  the above  two items  came to Rs.21,17,178\/-.
\nThe assessee claimed relief for this amount under Section 84
\nof the\tAct as\t“capital  employed  in\tthe  new  industrial
\nundertaking” at\t Bhavnagar. The\t Income-tax Officer declined
\nto afford  the relief  claimed on the ground that the assets
\nhad not\t been put  to use  during the accounting period. The
\nappeal filed before the Appellate Assistant Commissioner was
\nfutile.\t In   second  appeal  filed  by\t the  assessee,\t the
\nAppellate Tribunal  held that  the industrial undertaking at
\nBhavnagar formed  an integral  whole and  the new  workshops
\nunder construction  remaining to  be installed were part and
\nparcel of that undertaking. The Appellate Tribunal also held
\nthat the business of the industrial undertaking at Bhavnagar
\nhad already  commenced and  was being  carried on during the
\nyear of\t account. The  Tribunal further held that it was not
\nin  dispute  that  the\tassets\tin  question  could  not  be
\nsegregated from\t the industrial\t undertaking  at  Bhavnagar.
\nThese are  the basic  findings of the Appellate Tribunal. On
\nthe basis of the above findings, the Tribunal concluded that
\n“the  capital\temployed  in  the  undertaking”\t has  to  be
\ndistinguished from  “assets used in the undertaking” and the
\nrelief envisaged  by Section 84 of the Act is with reference
\nto the\tcapital utilised  for the  purpose of  acquiring the
\nasset for  the business\t and the  question as  to whether it
\n(the asset)  was actually used in the business or not during
\nthe relevant year is of no consequence. The Tribunal decided
\nthe question  in favour\t of the\t assessee and  held that the
\naggregate amount  of Rs.21,17,178\/-  was includable  in\t the
\ncomputation of\tcapital for  the purpose  of granting relief
\nunder Section  84 of  the Act  to the assessee. On motion by
\nthe Revenue,  the Appellate  Tribunal referred the following
\nquestion of  law under Section 256(1) of the Act of the High
\nCourt of Bombay:\n<\/p>\n
     “Whether, on  the facts  and in the
\n     circumstances  of\t the  case,  the
\n     amount    of     Rs.    21,17,178\/-
\n     representing the  cost of\tworkshop
\n     under construction,  could be taken
\n     into  account  in\tdetermining  the
\n     capital employed in the undertaking
\n     at Bhavnagar  for\tthe  purpose  of
\n     granting relief  to the  company in
\n     terms of  Section 84 of the Income-
\n     tax Act,  1961 for\t the  assessment
\n     year 1962-63?”\n<\/p><\/blockquote>\n
5.   The  High\tCourt  of  Bombay,  by\tits  judgment  dated
\n7.7.1978, considered  the rival pleas of the Revenue and the
\nassessee in  detail and\t concurred with\t the  reasoning\t and
\nconclusions of\tthe  Appellate\tTribunal  and  answered\t the
\nquestion in  the affirmative  and in favour of the assessee.
\nThereafter, this  Court granted special leave to the Revenue
\nto appeal  to this  Court against  the aforesaid judgment of
\nthe Bombay  High Court\tand that is how the appeal is before
\nus.\n<\/p>\n
6.   Section 84(1)  of the  Income-tax,\t Act,  1961  at\t the
\nrelevant period read as follows:\n<\/p>\n
     “84(1)    Save\tas     otherwise
\n     hereinafter  provided,   income-tax
\n     shall not be payable by an assessee
\n     on so  much of the profits or gains
\n     derived   from    any    industrial
\n     undertaking or  hotel to which this
\n     section applies  as do  not  exceed
\n     six  per  cent  per  annum\t on  the
\n     capital employed in the undertaking
\n     or\t  hotel,    computed   in    the
\n     prescribed manner.”\n<\/p>\n
\t  (Emphasis supplied)
\n     Rules 19(1)  and (6)  of  the  Income-tax\tRules,\t1962
\ninsofar as they are relevant, provide as follows:\n<\/p>\n
     “19.   Computation\t   of\t capital
\n     employed\t in\tan    industrial
\n     undertaking or  a hotel  — (1) For
\n     the purposes  of  section\t84,  the
\n     capital employed  in an undertaking
\n     or\t a   hotel  to\twhich  the  said
\n     section applies  shall be\ttaken to
\n     be —\n<\/p>\n
     (a) in  the case of assets acquired
\n     by\t  purchase   and   entitled   to
\n     depreciation —\n<\/p>\n
     (1)  if  they  have  been\tacquired
\n     before  the   computation\t period,
\n     their written  down  value\t on  the
\n     commencing date of the said period;\n<\/p>\n
     (ii) if  they have been acquired on
\n     or after the commencing date of the
\n     computation period,  their\t average
\n     cost during the said period;\n<\/p>\n
     (b) in  the case of assets acquired
\n     by purchase  and  not  entitled  to
\n     depreciation —\n<\/p>\n
     (i) if  they have\tbeen acquired on
\n     or after the commencing date of the
\n     computation period,  their\t average
\n     cost during the said period;\n<\/p>\n
     (c) in  the case  of  assets  being
\n     debts due to the person carrying on
\n     the business,  the nominal\t amounts
\n     of those debts;\n<\/p>\n
     (d)  in   the  case  of  any  other
\n     assets, the  value\t of  the  assets
\n     when  they\t became\t assets\t of  the
\n     business;\n<\/p>\n
     Provided that if any such asset has
\n     been    acquired\t  within     the
\n     computation   period,    only   the
\n     average  of  such\tvalue  shall  be
\n     taken in the same manner as average
\n     cost is to be computed.  …  ….\n<\/p>\n
     ….\n<\/p>\n
     …. …  …. ….\n<\/p>\n
     (6) In this rule, —\n<\/p>\n
     (i) `average  cost’ in  relation to
\n     any asset\tmeans such proportion of
\n     the  actual  cost\tthereof\t as  the
\n     number of\tdays of\t the computation
\n     period during  which such\tasset is
\n     used in  the business  bears to the
\n     total number  of the days comprised
\n     in the said period;\n<\/p>\n
     (ii) `computation period’ means the
\n     period for\t which the  profits  and
\n     gains of  the undertaking\tor hotel
\n     are computed  under sections  28 to
\n     43A. …………………..”\n<\/p>\n
7.   Counsel for  the appellant\t (Revenue), Dr.\t R.R. Misra,
\ncontended that the High Court should have read section 84(1)
\nalong with  Rules 19(1)\t to (6)\t of the Income-tax Rules and
\nheld that  the relief  under Section  84 was  meant only for
\nassets actually\t used and if the assets are not actually and
\ndirectly used  in the  business, the amount representing the
\ncost thereof should not be taken into account in determining
\nthe capital  employed in the undertaking. On the other hand,
\ncounsel for  the assessee, Mr. S. Ganesh, submitted that the
\nproper interpretation  of Section 84 read with Rule 19(1) of
\nthe Rules  only envisages  that the  particular asset should
\nhave been a form of capital put into the business during the
\nrelevant accounting  period and does not refer to the actual
\nuse made  of any  particular asset  during that\t period. The
\nemphasis placed\t by counsel for the Revenue on Rule 19(6) of
\nthe Rules  has no relevance since reference to Rule 19(6) is
\ncalled for  only in cases where the average cost in relation
\nto an asset arises for consideration.\n<\/p>\n
8.   On examining  the rival  pleas, we are of the view that
\nthe reasoning and conclusion of the High Court does not call
\nfor any interference. Section 84(1) of the Income-tax Act is
\nvery clear.  It affords\t relief to  an assessee\t as provided
\ntherein\t the   moment  `the   capital  is  employed  in\t the
\nundertaking’. The Section does not state or specify that the
\nasset should  be actually  used or utilised. After adverting
\nto the\tinterpretation placed  by  the\tHouse  of  Lords  on
\nsimilar or  kindred words  that occurred  in the Finance Act
\n(England) and  also the decision of the Madras High Court in
\nJayaram Mills  Ltd. v.\tCEPT (35  ITR 651),  wherein similar
\nwords were  construed with  reference to  Excess Profits Tax
\nAct, a\tDivision Bench of the Calcutta High Court, in CIT v.
\nIndian Oxygen  Ltd. (113 ITR 109) at pages 119 and 120, laid
\ndown the  law, with  reference to  Section 84 and Rule 19 of
\nthe Income-tax Rules, thus:-\n<\/p>\n
     “Only in  the  computation\t of  the
\n     value of the assets, acquired at or
\n     after the\tcommencing date\t of  the
\n     computation period, it is necessary
\n     to\t determine  their  average  cost
\n     during the entire accounting period
\n     and  for\tthat  purpose  only  the
\n     actual user  of the  assets in  the
\n     business becomes  relevant.  It  is
\n     quite clear  from the  rule that if
\n     an asset  is acquired  prior to the
\n     commencement  of\tthe   accounting
\n     period the\t question of its user or
\n     non-user  is  entirely  immaterial.
\n     Whether such  an asset  is used  or
\n     not, it  will still  be included  i
\n     the   capital   employed\tin   the
\n     business.\n<\/p><\/blockquote>\n
     Looking  at   the\t position   from
\n     another point of view it appears to
\n     us\t that\tthe  moment  capital  is
\n     utilised  for   the   purposes   of
\n     acquiring any  asset for a business
\n     such capital  becomes  employed  in
\n     the  business.  Whether  the  asset
\n     itself  is\t actually  used\t in  the
\n     business or  not,\tso  far\t as  the
\n     capital is\t concerned, it continues
\n     to be employed in the business.
\n     Our view as aforesaid finds support
\n     from  the\t observations\tof   the
\n     majority of  the Law  Lords in  the
\n     case of  Birmingham Small\tArms Co.
\n     Ltd. (1951)  2 All ER 296 (HL). The
\n     Madras High  Court\t has  taken  the
\n     same view\tin the\tcase of\t Jayaram
\n     Mills Ltd. (1959) 35 ITR 651.”<\/p><\/blockquote>\n
\t     (Emphasis supplied)
\n     In the  decision under  appeal, (Alcock  case – 119 ITR\n<\/p>\n
164) the  Bombay High  Court has followed the above Calcutta
\ndecision.\n<\/p>\n
9.   Construing\t the   words  `capital\t employed   in\t the
\nundertaking’, a\t Bench of  the Karnataka  High Court in Ravi
\nMachine Tools  (P) Ltd.\t v. CIT<\/a>\t (114 ITR  459) at page 462,
\nstated the law thus:\n<\/p>\n
     “Section  80J   refers  to\t capital
\n     employed\t in\tan    industrial
\n     undertaking and not the user of any
\n     asset as such. The company acquires
\n     an asset  for its\tundertaking  and
\n     the   capital   employed\tin   the
\n     undertaking is  the amount\t paid to
\n     acquire that  asset.  The\tuser  or
\n     non-user of  the assets so acquired
\n     is immaterial  for the  computation
\n     of the  benefit under Sec.80J. This
\n     is the  view that\twas taken by the
\n     High Court\t of Calcutta  in CIT  v.
\n     Indian Oxygen  ltd. (1978)\t 113 ITR
\n     109 and  also (1959)  35 ITR 651 of
\n     the High  Court of\t Madras (Jayaram
\n     mills  Ltd.   v.  Commissioner   of
\n     Excess  Profits   Tax).  in  Indian
\n     Oxygen’s case  (1978) 113\tITR 109,
\n     after referring to the observations
\n     of the  House of  Lords in the case
\n     of Birmingham  Small Arms\tCo. Ltd.
\n     (1951) 2 All ER 296, it was held —
\n     See (1978) 113 ITR 109, 120 (Cal).
\n     “……it appears\tto us  that  the
\n     moment capital  is utilised for the
\n     purposes of acquiring any asset for
\n     a business,  such\tcapital\t becomes
\n     employed in  the business.\t Whether
\n     the asset\titself is  actually used
\n     in the  business or  not, so far as
\n     the  capital   is\t concerned,   it
\n     continues to  be  employed\t in  the
\n     business.”\n<\/p><\/blockquote>\n
     We\t  entirely   agree   with   this
\n     enunciation…….”.<\/p><\/blockquote>\n
\t     (Emphasis supplied)
\n     We find  that the\tBombay High  Court has\tconsistently
\nfollowed the  decision in  CIT v.  Alcock Ashdown & Co. Ltd.
\n(119 ITR  164), the  decision under appeal in the subsequent
\ncases. See  – CIT  v. Boehringer  Knoll (148 ITR 70), CIT v.
\nHindustan  Polymers  Ltd.  (156\t ITR  860),  CIT  v.  Advani
\nOerlikon Pvt.  ltd. (161  ITR 449), CIT v. Indian Smelting &
\nRefining Co.  Ltd. (169 ITR 562), CIT v. Elpro International
\nLtd.  (177   ITR  20)\tand  CIT   v.  Century\t Spinning  &
\nManufacturing Co.  Ltd. (181 ITR 214). The other High Courts
\nhave also  followed, either  the one  or more  or  all,\t the
\ndecisions reported  in CIT  v. Indian  Oxygen Ltd.  (113 ITR
\n109-Calcutta), Ravi  Machine Tools Pvt. Ltd. v. CIT (114 ITR
\n459-Karnataka) and  the decision  under appeal CIT v. Alcock
\nAshdown & Co. Ltd. (119 ITR 164). See — CIT v. Cibatul Ltd.
\n(115 ITR  879-Gujarat), CIT  v. Mohan  Meakin Breweries Ltd.
\n(122 ITR  203 –\t Himachal Pradesh), Periyar Chemical Ltd. v.
\nCIT (162  ITR 163-Kerala),  CIT v.  Sundaram Industries Ltd.
\n(166 ITR 35 – Madras), CIT v. Southern Agrifurane Industries
\nLtd. (174  ITR 697-Madras)  and CIT  v. Gopi  Chand  Textile
\nMills<\/a> ltd.  (179 ITR  371 – Punjab & Haryana). Our attention
\nwas not invited to any decision taking a contrary view.\n<\/p>\n
10.  In our  opinion, the  law laid  down in  Indian  Oxygen
\nLtd.’s case  (113 ITR  109) and\t followed in  the  decisions
\nunder appeal,  Alcock Ashdown & Co.’s case (119 ITR 164) and
\nother cases  referred to above represents the correct law on
\nthe subject.  We are of opinion, that the moment an asset is
\nacquired or purchased for the purpose of the business, it is
\ncapital employed,  though the  asset as such is not actually
\nutilised or used during the accounting year. In the chain of
\nevents, the  earliest act  or  event,  is  the\tpurchase  or
\nacquisition of\tthe  asset.  That  by  itself  entitles\t the
\nassessee to  get the relief. The “employment” of the capital
\nis done\t or over. The subsequent or later events – including
\nthe actual  user of  the asset\thas nothing  to\t do  in\t the
\nmatter. In  this view,\tthe judgment  under appeal merits no
\ninterference.  The  appeal  is\taccordingly  dismissed\twith
\ncosts.\n<\/p>\n
11.  In Civil  Appeal No.9796  of 1995,\t the judgment  under
\nappeal has  only followed  the earlier\tdecision  in  Alcock
\nAshdown &  Co’s case  (119 ITR\t164). Since  we have already
\ndismissed the  appeal preferred\t by the\t Revenue against the
\ndecision reported  in 119  ITR 164 (Civil Appeal No. 1274 of
\n1980), Civil  Appeal no.  9796 of  1995 is  also  dismissed.
\nThere shall be no order as to costs.\n<\/p>\n
     The appeals are disposed of as above.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of Income … vs M\/S. Filtrone India Ltd.M\/S. … on 5 February, 1997 Author: Paripoornan Bench: B.P. Jeevan Reddy, K.S. Paripoornan PETITIONER: COMMISSIONER OF INCOME TAX,BOMBAY Vs. RESPONDENT: M\/S. FILTRONE INDIA LTD.M\/S. ALCOCK ASHDOWN & CO. LTD. DATE OF JUDGMENT: 05\/02\/1997 BENCH: B.P. JEEVAN REDDY, K.S. PARIPOORNAN ACT: HEADNOTE: JUDGMENT: […]<\/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-81364","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of Income ... vs M\/S. 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