Kerala High Court
Travancore Electro-Chemical ... vs Commissioner Of Income-Tax (No. 2) on 11 November, 1994
Equivalent citations: [1995]214ITR195(KER)
JUDGMENT T.L. Viswanatha Iyer, J.
1. The following questions have been referred by the Income-tax Appellate Tribunal, the first four at the instance of the assessee and the fifth at the instance, of the Revenue :
"At the instance of the assessee :
(1) Whether the Tribunal was right in law in holding that the borrowed capital should be deducted in computing the capital employed fqr the purpose of granting relief under Section 80J ?
(2) If the answer to question No. 3 is in the positive whether the Tribunal was right in law in refusing to consider the applicant's contention raised in ground No. 5 of the grounds of appeal before the Tribunal ?
(3) Whether the Tribunal was right in law in holding that the applicant is not entitled to deduct the surtax payable under the Companies (Profits) Surtax Act, 1964, as deduction in computing the total income of the assessee ?
(4) Whether the Tribunal was right in law in holding that the applicant is not entitled to go on appeal on the Income-tax Officer's refusal to grant interest under Section 214 of the Income-tax Act ?
At the instance of the Revenue:
Whether, on the facts and in the circumstances of the case, and also on an interpretation of Section 16(c) of the Finance Act, 1974, is the assessee entitled to development rebate on the eight items listed in paragraph 2 of the order of the Tribunal on the basis that the assessee must be taken to have manufactured this plant within the meaning of the term 'manufacture' appearing in Clause (c) of Section 16 of the Finance Act, 1975?"
2. The first question admittedly stands concluded against the assessee by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308.
3. The second question is dependent on the answer to the third question and will be liable to be answered only if the third question is answered in favour of the assessee. But the third question now stands concluded against the assessee by the decision of a Full Bench of this court in A. V. Thomas and Co. Ltd. v. CIT [1986] 159 ITR 431. In view of the answer to question No. 3, it is unnecessary to answer question No. 2 as it does not arise for consideration. Question No. 2 is, therefore, declined to be answered.
4. So far as the fourth question is concerned, the question is whether the refusal of the Income-tax Officer to grant interest under Section 214 of the Income-tax Act on the excess of the advance tax payments is appealable under Section 246(c) of the Income-tax Act, 1961. The Tribunal held against the assessee relying on an unreported decision in Income-tax References No. 80 and 81 of 1972, a case which arose in relation to the liability for interest under Section 139(8) and Section 215 of the Act. The question of appealability in relation to the liability for interest under Sections 139(8) and 215 of the Act has been the subject of consideration by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. The court considered the question of appealability under Section 246(c) of the Act. The appeal to the Appellate Assistant Commissioner in that case related only to the levy of interest under Sections 139(8) and 215 and no other part of the assessment was subject to the appeal. The Supreme Court observed that where an assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which he is assessed, an appeal lies under Section 246(c). Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all, Their Lordships approved the observations of the Karnataka High Court in National Products v. CIT [1977] 108 ITR 935, where the very same question was in issue and the court held that it is open to an assessee to contend in the appeal against an order of assessment that he is not liable to pay advance tax at all or the amount of advance tax determined as payable by the Income-tax Officer is not correct. But if the assessee does not dispute the amount of advance tax determined as payable by the Income-tax Officer, he cannot merely object to the levy of penal interest or question its quantum. The Karnataka High Court followed the decision in Notional Products [19771 108 ITR 935 (Kar), though that related to the levy of interest under Sections 139(8) and 215 and applied it to a case arising under Section 214 in the decision in CIT v. Bharat Motor Service [1987] 163 ITR 843 (Kar). In that case, the second question referred to the High Court was about the appealability of an Income-tax Officer's refusal to grant interest under Section 214. The Karnataka High Court equated the case with that in National Products [1977] 108 ITR 935 (Kar) and held that the order refusing interest under Section 214 was also appealable when the assessment itself was being challenged on other grounds. We are in agreement with this view.
5. Standing counsel for the Revenue, Sri. P.K. Raveendranatha Menon, however, attempted to draw a distinction between cases of levy of interest under Sections 139(8) and 215, where the assessee is liable for interest and a case under Section 214 where the Department becomes liable to pay interest to the assessee for the excess amount of advance tax paid by the assessee. In either case, the liability for the interest, whether of the assessee or of the Department, depends on the final assessment and when that assessment itself is under challenge, we do not find any reason why the question of refusal of interest under Section 214 cannot be made the subject of appeal just as much as an order charging interest under Section 139(8) or 215. We do not find anything in principle which differentiates a case under Sections 139(8) and 215 from a case which falls under Section 214. We are, therefore, in agreement with the Karnataka High Court and hold that an appeal is maintainable against an order refusing interest when the order of assessment itself is under challenge. We must also note here that any variation in the quantum of tax payable by the assessee will have an impact on the amount of interest payable under Section 214 and as such, it is also advisable that the matter is settled once for all by the appellate authority while dealing with the quantum of assessment. Question No. 4 has therefore to be answered in favour of the assessee and against the Department.
6. The fifth question is one which is referred at the instance of the Revenue and relates to the availability or otherwise of development rebate in respect of eight items mentioned in paragraph 2 of the Tribunal's order. The assessee had installed a new calcium carbide plant with an additional capacity of 10,000 tonnes. While the Income-tax Officer granted development rebate over a portion of the amount invested, he declined the benefit over the balance. The assessee claimed development rebate over the cost of the unit fixed at Rs. 53,63,762. But the Income-tax Officer limited the allowance to an amount of Rs. 47,67,501. Accordingly, he allowed a development rebate of Rs. 11,91,875 as against Rs. 13,26,440 claimed. The disallowance was based on the provisions of Section 16(c) of the Finance Act, 1974. The provisions of Section 33 of the Income-tax Act allowing development rebate were operative only up to May 31, 1974, by virtue of Notification No. 2167 issued by the Government of India on May 28, 1971. But Section 16 of the Finance Act, 1974, extended the benefit to a limited extent and in particular cases. We are concerned with cases covered by Clause (c) of the section. It provided that development rebate will be allowed in respect of any machinery or plant installed by any assessee after May 31, 1974, but before the first day of June, 1975, if the asessee furnished evidence to the satisfaction of the Income-tax Officer that before the first day of December, 1973, he had purchased such machinery or plant or had entered into a contract for purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant had been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant. The assessee contended that it was entitled to the development rebate as according to it, the case fell within the last clause, namely, where the machinery or plant had been manufactured in an undertaking owned by it and steps for the manufacture had been taken earlier. The Income-tax Officer did not accept this contention, nor the Commissioner (Appeals), regarding the eight items referred to by us earlier. But the Tribunal held otherwise. The Tribunal was of the opinion that these eight items had been manufactured by the assessee during the relevant period and it was entitled to the development rebate.
7. This finding is under challenge at the instance of the Revenue in the fifth question raised before us. The assessee's case as could be seen from the grounds of appeal before the Commissioner (Appeals) was firstly that it was not proper to separate the individual items of plant and machinery on which the development rebate had been claimed by the assessee and, secondly that it should have been held that the assessee had taken steps for the manufacture of the plant and machinery before December 1, 1973, and hence the claim should have been allowed in toto to the extent of Rs. 13,26,440. We do not find our way to accept the contention of the assessee. The assessee becomes entitled to the development rebate under the extension granted by Section 16 of the Finance Act, 1974, in a case where the machinery had been manufactured in undertakings owned by it and steps in that direction had been taken before December 1, 1973. The case set up by the assessee was that it had manufactured these items, a case which found acceptance with the Tribunal. But, in doing so, we are afraid the Tribunal has overlooked the clear terms of Sub-clause (c) of Section 16 that the manufacture should be in an undertaking owned by the assessee. What evidently the assessee had contended before the Tribunal was that steps for the erection of the plant had been undertaken before the relevant date and the erection was going on while the eight items in question were cleared. The Tribunal has evidently equated erection of the plant with the manufacture thereof and it was in that light that it allowed the development rebate claimed by the assessee over the eight items. But, in doing so, the Tribunal has overlooked the fact that the section is very clear and cannot comprehend a situation like this of erection of a plant, because it speaks of the machinery or plant being manufactured in an undertaking owned by an assessee : the obvious intention of the Legislature was to extend the benefit of development rebate even to cases where the machinery or plant had been manufactured by the assessee himself instead of procuring it in the open market before the relevant date. Erection of the plant with components collected from time to time is not equivalent to manufacture in an undertaking of the assessee, and therefore, such erection alone cannot qualify for the development rebate. The Income-tax Officer has allowed development rebate in relation to the plant and machinery purchased before December 1, 1973, and the dispute is in relation to those acquired otherwise. The Tribunal's decision does not therefore accord with the tenor of Section 16(c) and, therefore, the allowance of the development rebate in relation to the eight items mentioned in paragraph 2 of its order cannot be sustained. We may state here 'that counsel for the assessee did not press his other contention regarding the integral nature of the plant and machinery, according to us rightly. We are not, therefore, dealing with the matter at length.
8. Questions Nos. 1, 3 and 5 referred to us for our opinion are therefore answered against the assessee and in favour of the Revenue. The fourth question is answered against the Revenue and in favour of the assessee. We decline to answer the second question.
9. The references are answered as above.
10. There will be no order as to costs.