Gujarat High Court
Banaskantha District Co-Operative ... vs Commissioner Of Income-Tax on 27 September, 1993
Equivalent citations: [1994]210ITR962(GUJ)
Author: M.B. Shah
Bench: J.M. Panchal, M.B. Shah
JUDGMENT M.B. Shah, J.
1. This reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Income-tax Act"), is made at the instance of the assessee, Banaskantha District Co-operative Milk Producers' Union Limited, Palanpur, for the assessment year 1973-74. The assessee, a co-operative society, purchases milk from various villages and, after some processing, the milk is distributed to the consumers. It also produced butter and Ghee. The assessment was completed by the Income-tax Officer and, as per the order dated March 19, 1976, the loss of Rs. 5,29,880 was determined. The assessee, inter alia, claimed that the value of assets of Rs. 10,92,237 purchased out of Government grants and loans should be included in the computation of capital employed. The assessee also contended that half of the profits earned by the assessee during the accounting year relevant to the assessment year under consideration should be added to the aggregate value of the assessee's assets. Both the contentions are rejected by the Tribunal. Thereafter, at the instance of the assessee, the following questions are referred for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the cost of the assets of the assessee to the extent of Rs. 10,92,237 being the amount given to it by the Gujarat Government by way of grant and loan should be taken into account in computing the capital employed by it for the purpose of section 80J of the Income-tax Act, 1961?
2. Whether, on the facts and in the circumstances of the case, 50 per cent. of the profits earned by the assessee during the accounting year relevant to the assessment year 1973-74 is to be taken into account in computing the capital employed by it for the purpose of section 80J of the Act?"
2. Mr. Shan, the learned advocate for the assessee, agrees that the question regarding the grant being taken into consideration in computing the capital employed by the assessee is concluded by the decision of this court in the case of CIT v. Kaira District Co-operative Milk Producer's Union Ltd. [1979] 116 ITR 319. However, he has contended that for loan amount from which plant and machinery are purchased cannot be excluded in computing the written down value of the assets.
3. The relevant section 80J provides for deduction which can be allowed on the gross total income of the assessee. It, inter alia, provides that in computing the total income of the assessee, a deduction of the amount calculated at the rate of six per cent, per annum on the capital employed in the industrial undertaking in respect of the previous year relevant to the assessment year is to be allowed. The capital employed is to be computed in the manner specified in sub-section (1A). Clause (I) of sub-section (1A) provides that the capital employed in an industrial undertaking or the business of a hotel shall, except as otherwise expressly provided in this section, be computed in accordance with clauses (II) to (IV) and the capital employed in a ship shall be computed in accordance with clause (V). For the purpose of this reference, the relevant provision is clause (II)(i) and Explanation 3, which are as under :
"(II) The aggregate of the amounts representing the values of the assets as on the first day of the computing period of the undertaking or of the business of the hotel to which this section applies shall first be ascertained in the following manner :
(i) in the case of assets entitled to depreciation, their written down value;. . . .
Explanation 3. - In this clause and in clause (V), 'written down value' has the same meaning as in clause (6) of section 43."
So, for calculating "written down value", we have to refer to clause (6) of section 43 which defines "written down value". It, inter alia, provides that in the case of assets acquired in the previous year, the actual cost to the assessee shall be the "written down value". The phrase "actual cost", according to clause (1) of section 43, means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Therefore, if the State Government has given a grant for purchase of any assets, that amount is required to be reduced while calculating the actual cost. The result would be that the "written down value" would also be to that extent required to be reduced and while computing the benefit which is required to be granted under section 80J, that amount is required to be excluded. further, while dealing with the same question, under section 84 of the Income-tax Act read with rule 19 of the income-tax rules, which are replaced by section 80J, this court has negatived a similar contention in the case of Kaira District Co-operative Milk Producer's Union Ltd. [1979] 116 ITR 319 and held that the assessee was not entitled to take into account the amount of grant-in-aid given by the government in the computation of the capital employed by the assessee for the purchase of machinery. In this view of the matter, it can be held that the Tribunal was right in holding that while computing the capital employed by the assessee for the purpose of section 80J of the Income-tax Act, the Government grant should not be taken into account.
4. However, with regard to the loan, there is no discussion by the Tribunal. It is mentioned in the order that the assessee had been paid by the Government certain amounts by way of repayable loan and another amount by way of outright grant. It is also mentioned in the statement of case that the State Government has given to the assessee an amount of Rs. 10,92,237-50 per cent. of the amount as grant-in-aid and the remaining 50 per cent. as loan. According to the Department, the assets of the assessee are purchased by this amount while according to the assessee, it has no direct nexus to the purchase of the plant and machinery. The Tribunal has not given a definite finding that, while calculating the actual cost of the assets as provided under section 43(1), the Tribunal has taken into consideration the amount received by the assessee by way of loan. Nor has the Tribunal discussed the nature of the loan or the exact amount towards the loan received by the assessee. Section 43 nowhere provides that while computing the "written down value" of the assets, it is required to be reduced by that portion of the cost thereof, if any, as has been met by loan directly or indirectly by any other authority. No such provision is pointed out at the time of hearing. Therefore, in our view, it is difficult to hold that for arriving at the written down value of the assets, the assets purchased by the assessee are required to be reduced by the portion of the cost by which it has purchased the assets by obtaining loan from any other authority including the Government.
5. Hence, question No. 1 is answered partly in the affirmative and partly in the negative by holding that the written down value of the assets of the assessee to the extent of the amounts received by it as grant from the Government of Gujarat should not be taken into account in computing the capital employed by it for the purpose of section 80J of the income-tax Act, whereas the loan amount is required to be taken into account. In other words, question No. 1 in so far as it pertains to grant is answered in the negative, i.e., in favour of the Revenue and against the assessee and as regards loan, the same is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
6. Regarding question No. 2, admittedly, the Tribunal has not taken into account the provisions of section 80J. Learned counsel for the assessee submitted that in view of the retrospective operation of sub-section (1A) of section 80J from April 1, 1972, this question may not be decided at this stage. The Tribunal may be directed to decide it in accordance with the amended provisions. Admittedly, the amended provisions are not considered by the Tribunal. Hence, question No. 2 is not answered at this state and it is for the Tribunal to decide it in accordance with the provisions of sub-section (1A) of section 80J of the Income-tax Act.
7. The reference is answered accordingly with no order as to costs.