Calcutta High Court
Assistant Commissioner Of Income Tax vs General Fibre Dealers Pvt. Ltd. (Also ... on 29 January, 1993
Equivalent citations: (1993)46TTJ(CAL)596
ORDER
JORDAN KACHCHAP, J.M. :
The two appeals by the Revenue related to the asst. yrs. 1983-84 and 1984-85 and the cross objection by the assessee relates to the asst. yr. 1983-84. Since common points are involved in these matters and, as such, we dispose them of by this common order.
ITA No. 1626(Cal)/1989 :
2. In this appeal the Revenue have sole grievance against the deletion order of Rs. 44,100 being capital gain, holding that the compensation received on acquisition of a part of the tea garden could not be treated either as business income or as capital gain.
3. It is to be noted that the assessee-company received Rs. 44,100 by way of compensation for acquisition of lands which were surrendered in 1975, 1976 and 1978. The Assessing Officer considered the compensation as capital gain and brought it to tax. The CIT(A) directed to delete the same with an observation that the amount in question should not be treated either as business income or as capital gain.
4. According to Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue, the order of the learned CIT(A) was unjustified because the land in question was not an agricultural land. He emphasised that the Assessing Officer noted that though the land in question was a part of the tea garden, but that was not under any agricultural operation at the relevant time and, as such, the land being not an exempt asset the compensation received against its acquisition was a capital gain which was taxable. He stated that the learned CIT(A) did not examine that fact at the time of deleting the addition.
5. On the other hand, Shri D. K. Kothari, the learned counsel for the assessee strongly supported the order of the learned CIT(A). In the cross-objection also the assessee having taken a ground has supported the order of the learned CIT(A). He stated that the land in question was an agricultural land and formed a part of the tea garden situated in rural area. He stated that the lands were surrendered in 1975, 1976 and 1978 and piecemeal compensation was received. He stated that the land was an agricultural land wherein full cultivation operations were going on like growing green crops, thatch, bamboo, etc. Even the employees used to grow paddy and other crops. He further stated that even in the land revenue record the land was recorded as an agricultural land and in course of his submission the learned counsel for the assessee referred to the certificates issued from the Collectors office as well as the Gram Panchayat Officer. He further stated that the compensation received against the acquisition of agricultural land was not a capital asset under S. 2(14) of the Act and no capital gain, therefore, could be said to have arisen out of that and in support of his above contention he relied on the various decisions of different High Courts :
CIT vs. Borhat Tea Co. Ltd. (1982) 138 ITR 783 (Cal), CIT vs. Sultan & Sons Ltd. (1981) 127 ITR 57 (Cal), CIT vs. All India Tea & Trading Co. Ltd. (1979) 117 ITR 525 (Cal), CIT vs. Sarifabibi (1982) 136 ITR 621 (Guj), Arundbati Bal Krishnan vs. CIT (1982) 138 ITR 245 (Guj), CIT vs. Chhotanagpur General Trading Co. Ltd. (1971) 79 ITR 161 (Cal), CIT vs. K. Anantham Pillai (1974) 94 ITR 122 (Ker).
6. We have heard the rival submissions on both sides and have gone through the appeal records. It is to be seen that the land in question is part and parcel of the tea garden. From the assessees side it has been made clear that the land in question was under cultivation during the relevant period and actually green crops, thatch, bamboo, paddy and other crops were being grown. That apart, the assessee has filed certificates from the Deputy Collector and Gram Panchayat in order to show that the land in question was rural agricultural land. These certificates can be seen at pages 24 to 34 of the paper book which, of course, also includes a certificate about handing over of the land by the assessee and taking over by the Government on different dates. From the Revenue side, however, no material has been brought on record to rebut those findings. It has merely been submitted that the land in question was not an agricultural land but there is no positive evidence as to in what way it was not an agricultural land. The assessee had discharged the onus by producing various certificates that the land in question was an agricultural land during the relevant period. Since the land in question is an agricultural land and, as such, naturally, it cannot be said to be a capital asset in view of S. 2(14) of the Act and the compensation received on acquisition of the land cannot be brought to tax. The various decisions as referred to above on which the assessee has relied strongly support the claim of the assessee and so regard being had to the entire facts and circumstances of the case we do not find merit in the case of the Revenue. The order of the learned CIT(A) on this score is justified and so we confirm it.
7. In the result, the appeal is dismissed.
C. O. No. 90(Cal)/1989
8. In the cross objection the assessee has set forth as many as 7 grounds. Besides that, at the time of hearing the assessee requested for admittance of two additional grounds which were admitted after hearing both sides.
9. The first ground relates to that of supporting the order of the CIT(A) deleting the addition of Rs. 44,100 being the compensation amount which was received by way of compensation on acquisition of agricultural land. This ground stands decided in favour of the assessee in view of the observations as made in the foregoing order passed in ITA No. 1626(Cal)/1989.
10. The second ground relates to Allahabad property as to whether the income received from it is to be assessed under the head Income from house property or Income from business besides allowance of depreciation as well as taking the annual letting values of the same. In fact, the aforesaid issues have already been considered by the Tribunal by its two earlier orders dt. 24th July, 1991 passed in ITA Nos. 2824(Cal)/1988, 69(Cal)/1989 and 182(Cal)/1989 relating to the asst. yrs. 1978-89, 1979-80 and 1980-81 and dt. 18th Aug., 1992 passed in ITA No. 521(Cal)/1989 relating to the asst. yr. 1984-85. In those orders it has been held that the income derived from the Allahabad property is to be assessed as income from business, and not as income from house property. The assessee has also been found to be entitled for depreciation on godown building being a capital asset. The Tribunal has also held that the annual letting value of the property is to be taken at Rs. 3,000 being the actual rent, and not Rs. 24,000 because the assessee was enjoying interest-free loan from M/s. Ashok Woollen Mills Pvt. Ltd.
11. Since the matters in controversy are covered by the aforesaid two earlier orders of the Tribunal and in the appeal record no fresh materials have been brought distinguishing the facts and circumstances of the present case from those of the earlier one and, as such, consistent with the earlier orders and the reasons as assigned therein we dispose of this ground in favour of the assessee.
12. The third ground relates to weighted deduction under S. 35C in respect of agricultural development expenses.
13. This issue is also covered by the earlier order dt. 24th July, 1991 of the Tribunal passed in ITA Nos. 2824(Cal)/88, 69(Cal)/89 and 182(Cal)/89 relating to the asst. yrs. 1978-79 to 1980-81.
14. In this matter, also no fresh materials have been brought on the appeal record to distinguish the earlier facts and circumstances from those of the present case. So, this issue is also disposed of in favour of the assessee for the reasons as assigned in the order under reference.
15. The fourth ground relates to disallowance, of the provision for gratuity amounting to Rs. 29,85,841 and Rs. 4,744 claimed to be on actuarial basis in respect of tea growing and manufacturing business and general business respectively.
16. The Assessing Officer as well as the CIT(A) disallowed the same in view of the provision of S. 40A(7) of the IT Act, 1961.
17. Shri D. K. Kothari, the learned counsel for the assessee submitted that gratuity was a statutory liability payable on retirement or on termination of the services of employees. According to him, gratuity was part and parcel of the Wages payable to employees. It was in the nature of deferred wages. Gratuity as created on the basis of actuarial valuation was allowable as deferred wages. It was added by him that the provision for gratuity was made on the basis of actuarial valuation as so was decided by the Board of Directors and approved by the shareholder by approving the accounts. If the provision for gratuity was not allowed as deduction it would not reflect the real income of the assessee. The assessees case was not covered by S. 36(1)(iv) of the Act; rather, in view of the provisions of S. 28 or S. 37 of the Act the provision for gratuity might be allowed. In support of his contentions Shri Kothari, the learned counsel for the assessee relied on certain decisions of different High Courts :
1. CIT vs. Andhra Prabha P. Ltd. (1980) 123 ITR 760 (Mad),
2. Nagri Mills Co. Ltd. vs. CIT (1981) 131 ITR 257 (Guj),
3. Addl. CIT vs. Madho Mahesh Sugar Mills (1978) 114 ITR 432 (All).
18. On the other hand, Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue strongly supported the order of the learned CIT(A). According to him, in view of the clear provision of S. 40A(7) of the Act deduction of provision for gratuity was specifically prohibited. He also stated that the authorities on which the learned counsel for the assessee relied were not applicable in the facts and circumstances of the present case.
19. We have heard the rival submissions on this point. Sec. 40A(7) was introduced by the Finance Act, 1975 w.e.f. 1st April, 1973 which prohibits deduction of the provision for gratuity. Of course, it does not extend to the provision for contribution to an approved gratuity fund or provision for payment of gratuity for which a liability has arisen during the year. From the materials available in the appeal record it is clear that the assessee is not contributing to any approved gratuity fund. Had it been so in view of the provisions of S. 36(1)(v) the assessee would have been allowed deduction, but the way in which the assessee has claimed deduction of the provision for gratuity it cannot be allowed in view of the provisions of Ss. 28 and 37 of the Act, particularly when there is an express prohibition in view of the provision of S. 40A(7) of the Act. The assessee has relied on the decision of the Honble Madras High Court in the case of CIT vs. Andhra Prabha P. Ltd. (supra), but the facts and circumstances in which the assessee in that case was allowed to have deduction of the provision for gratuity were quite different from the facts and circumstances of the present case. In that case, it was made clear that the provision for payment of gratuity was a liability that arose during the previous year and there was a scientific method of calculation of the same. Here, in the instant case, there is no material to show that the aforesaid two amounts of Rs. 29,85,841 and Rs. 4,744 became liable in the previous year and the aforesaid amounts had been arrived at on a scientific method of calculation. We may add that if those two conditions were there in order to have computation of profit under S. 28 itself the deduction would have been allowed, but, as has already been stated, here, in the instant case, there is no material to show that the determined amounts were as a result of a scientific method of calculation and further they were liabilities of the previous year. The decision of the Honble Gujarat High Court in the case of Nagri Mills Co. Ltd. vs. CIT (supra) is not applicable for the obvious reason that the assessment related to the asst. yr. 1968-69 and by that time the provision of S. 40A(7) was not there. The decision of the Honble Allahabad High Court in the case of Addl. CIT vs. Madho Mahash Sugar Mills (supra) only speaks about the permissibility of deduction under S. 36(1)(v) of the Act which is not the case of the present case. So regard being had to the entire facts and circumstances of the case we do not think that the claim of the assessee for deduction of the provision for gratuity is to be acceded to. The order of the learned CIT(A) on this point is justified. We accordingly confirm it.
20. The fifth ground relates to disallowance of the provision of Rs. 4,70,830 for doubtful debts, loans and advances.
21. The authorities below disallowed the same because it was simply a provision and the debts, loans and advances, etc., were not written off in the books.
22. Shri D. K. Kothari, the learned counsel for the assessee submitted that no doubt the provision was made for old debts being bad, but in fact that was written off in the books of account. The debts, loans and advances were very old and there was no chance of recovering the same and that was why provision was made in the books of account and claimed as deduction and such provision is allowable as deduction under Ss. 36 or 28 of the Act. In support of his submissions be referred to the decision of the Honble Gujarat High Court in the case of Sarangpur Cotton Mfg. Co. Ltd. vs. CIT (1983) 143 ITR 168 (Guj).
23. Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue, while strongly supporting the order of the learned CIT(A), submitted that making provision for bad and doubtful debts could not tantamount to writing off bad debts. He stated that in the appeal record the assessee did not bring anything to show that the debts, loans and advances amounting to Rs. 4,70,830 become bad and that was why the same was written off. He stated also that the decision of the Honble Gujarat High Court in the case of Sarangpur Cotton Mfg. Co. Ltd. vs. CIT (supra) was not applicable. According to him, in that case, it was made clear that the contemplated amount of bad debts must become irrecoverable in the accounting year relating to the assessment year. Shri Chatterjee, therefore, added that in the instant case there was no evidence that the amount in question became irrecoverable in the previous year.
24. We have heard the rival submissions on both sides and have gone through the appeal record including the decision of the Honble Gujarat High Court in the case of Sarangpur Cotton Mfg. Co. Ltd. vs. CIT (supra). To our mind, there appears no merit in the case of the assessee on this point for the obvious reason that there is no demonstrative evidence that amount in question became irrecoverable in the accounting year relating to the assessment year. Making of provision for bad and doubtful debts cannot tantamount to writing off the same in the books of account. On this point, therefore, we find the order of the learned CIT(A) to be justified and so we confirm it.
25. The sixth ground relates to addition of Rs. 7,062 by the Assessing Officer and confirmation of the same by the CIT(A) on account of items of liabilities being unilaterally written off by the assessee.
26. In fact, the identical issue had also come earlier before the Tribunal for the asst. yr. 1984-85 in the case of the assessee itself and the Tribunal by its order dt. 18th Aug., 1992 passed in ITA No. 521(Cal)/89 having relied on the decision of the Honble Calcutta High Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (1983) 140 ITR 286 (Cal), had allowed the liabilities that being written off unilaterally.
27. In respect of the present case also no material has been brought on record to distinguish the facts and circumstances from those of the earlier case and, as such, consistent with the earlier order dt. 18th Aug., 1992 of the Tribunal and the reasons as assigned therein we dispose of this issue in favour of the assessee. The order of the learned CIT(A) is reversed on this point.
28. The seventh ground is general in nature speaking only that at the time of hearing additional grounds may be raised and in fact the assessee raised two additional grounds at the time of hearing.
29. The first additional ground relates to grant of extra shift allowance on building and furniture and the second additional ground relates to claim for depreciation on tea bushes which we admitted after hearing the learned counsel for the assessee as well as the learned Departmental Representative of the Revenue.
30. We have heard both sides on the matter relating to extra shift allowance on building and furniture. In fact, the identical issue had already come before the Tribunal in the case of the assessee itself for the asst. yr. 1978-79 and the Tribunal by its order dt. 24th July, 1991 passed in ITA No. 2824(Cal)/88 allowed such allowance. As no material has been brought on the appeal record bringing any distinguishable features in the facts and circumstances of the present case from those of the earlier case, we, consistent with the earlier order of the Tribunal and the reasons as assigned therein, decide this issue in favour of the assessee.
31. The next additional ground relates to depreciation on tea bushes. In fact, this claim of the assessee is rather unusual. The assessee-companys claim of depreciation on tea bush came for the first time before Tribunal in the asst. yr. 1979-80 but the Tribunal after considering the submissions on both sides restored back the same to the Assessing Officer to decide the claim of the assessee in view of the various observations as were made in its order dt. 24th July, 1991. It is to be noted that thereafter in all subsequent years also the assessee claimed depreciation on tea bushes but the Revenue authorities did not allow it and even in the asst. yr. 1985-86 the matter came before the Tribunal and the Tribunal by its order dt. 30th Sept., 1992 following its earlier order dt. 24th July, 1991, restored the matter back to the Assessing Officer to give a clear finding on the claim of the assessee.
32. At the time of hearing Shri D. K. Kothari, the learned counsel for the assessee having referred to the order dt. 25th Aug., 1992 of the Dy. CIT, Special Range-12, Calcutta passed under S. 251 of the Act in pursuance to the Tribunals order dt. 24th July, 1991 relating to the asst. yr. 1979-80, submitted that the Dy. CIT, Spl. Range-12, Calcutta neither considered nor passed any order on the claim of the assessee regarding depreciation on tea bushes. He was silent on the same even though Tribunal direction was to consider the same for specific finding. The learned counsel emphasised that in the subsequent assessment years also no specific findings were given as to the claim for depreciation on tea bushes and in a mechanical way the same had been disallowed. Even in the asst. yr. 1985-86 the Tribunal recorded back the matter to the Assessing Officer and so, in that manner, the claim of the assessee had been shuttling like a shuttle cock in the hard Court of the Revenue and the soft Court of the Tribunal, but no final decision whatsoever was given. The learned counsel for the assessee, therefore, earnestly requested to decide the claim of the assessee in this assessment year so that either the assessee or the Revenue as the case might be go for reference to the High Court on the basis of the order of the Tribunal on the nature of the decision of the Tribunal. Of course, Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue strongly pressed to restore the matter back to the Revenue authority following the earlier orders of the Tribunal, but, however, considering the manner in which the claim of the assessee was kept in fluid state, we in the interest of justice preferred to decide the matter and open the door to have on the matter in issue a decision either of the jurisdictional High Court or the apex Court of the country, if need would require so because the claim of the assessee is somewhat unusual and as the matters in controversy is not exterior of the record but is very much a subject matter for cogitation and decision of ours. Regarding admittance of additional ground we very well refer to decision of Honble Calcutta High Court in the case of Madhu Jayanti P. Ltd. vs. CIT (1985) 154 ITR 277 (Cal).
33. We have heard the rival submissions on both sides at length. In course of his submissions Shri D. K. Kothari, the learned counsel for the assessee put forward various contentions and also referred to a number of decisions as well as papers compiled in the paper book to the effect that tea bush was a plant to be brought within the meaning of S. 43(3) of the Act and, as such the assessee was entitled to depreciation under S. 32 of the Act. Of course, Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue strongly supported the order of the learned CIT(A) and also urged to consider the various submissions which were put forward by the Revenue at the time of hearing of the matter for the asst. yr. 1979-80 also.
34. Depreciation can be allowed under S. 32 of the Act in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business or profession. The question before us, therefore, is whether the claim of the assessee is correct for depreciation in respect of tea bush which, according to the assessee-company, is a plant. The word plant has been defined in S. 43(3) of the Act. Sec. 43(3) speaks : "Plant" includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. From a plain reading of the section, it is to be noted that no doubt it is an inclusive definition and is not exhaustive yet, it opens a greater scope for inclusion of an article or thing to be embroiled within the meaning of plant because even uncommonly the books has also been included. From S. 43(3) it is to be noted that apart from ships, vehicles, books, etc., it speaks about apparatus, equipment, etc. So, apparatus, tools, equipment are synonymous to plant and even inclusive of the same. Actually, all these terms or words are nothing but names of articles or things. According to Chambers 20th Century Dictionary, plant (not being floral but in technical or industrial or commercial meaning speaks about equipment, machinery, apparatus, etc., for an industrial activity. According to Chambers 20th Century Dictionary, the word apparatus means things prepared or provided, material in set of instruments, tools, natural organs, etc. Oxford Dictionary speaks about an apparatus to be an equipment for doing something, organs effecting a natural process. Compact Edition of Oxford English Dictionary speaks; things collectively in which this preparation consists, and by which its processes are maintained, equipment, material, mechanism, machinery, material appendages or arrangements. Similarly, the word tool, according to Chambers 20th Century Dictionary, means anything necessary to the pursuit of a particular activity. According to Compact Edition of Oxford English Dictionary it is a thing (concrete or abstract) with which some operation is performed, a means of effecting something, an instrument. Similarly, the word equipment, according to Chambers 20th Century Dictionary means; that with which one is equipped; apparatus required for any operation. According to Compact Edition of Oxford English Dictionary, it has a wider meaning to furnish for service to provide with what is requisite for efficient action, as arms, instruments or apparatus of any kind. The word instruments, according to Compact Edition of Oxford English Dictionary, means a thing with or through which something is done or effected, anything that serves or contributes to the accomplishment of a purpose or and, a means of material thing designed or used for the accomplishment of some mechanical or other physical effect, a mechanical contrivance, a tool, implement, weapon, a part of the body having a special function, an organ. Similarly, the word implement, according to Compact Edition of Oxford English Dictionary, means things that serves as equipment or outfit, the apparatus or set of utensils, instruments etc., employed in any trade or executing any piece of work.
35. So, from the aforesaid dictionary meanings, the word plant is synonymous and inclusive of the word apparatus, tools, equipment, instrument and implement defined to be articles or things by which or with the help of which certain function is carried out. To be more specific, it is to be noted that plant has got the characteristics of a functional factor or aspect. In order to understand more clearly the meaning of the word plant in the context of taxation law we may refer to the widely accepted decision of the Honble Gujarat High Court in the case of CIT vs. Elecon Engg. Co. Ltd. (1974) 96 ITR 672 (Guj) which has been affirmed by the Supreme Court and said decision also followed by the Supreme Court in the case of Scientific Engg. House P. Ltd. vs. CIT (1986) 157 ITR 86 (SC). In the case of Elecon Engineering Co. Ltd. (supra) the question that arose was whether the know-how forming the basis of the business of an assessee as well as the drawing and patterns acquired from the foreign company was plant and whether the assessee was entitled for depreciation on them. The Honble Gujarat High Court in that context examined a number of decisions of English Courts as well as High Courts of the country including the Supreme Court, and to begin with the Honble Gujarat High Court has observed :
"The word "plant", though an ordinary English word, is not altogether an easy word to construe. It may have a more or less extensive meaning according to its context. It has come up for interpretation before various Courts on numerous occasions, in the context of different statutes and the catena of judicial decisions shows that it is a word of wide and varied import susceptible of diverse meanings depending upon its setting in the scheme of the statute."
So, from the above conservation of the Honble Gujarat High Court it is manifest that the word plant has got varied as well as extensive meaning to be construed according to the context in which that is to be interpreted. While examining the matter, the Honble Court has referred to the case of Yarmouth vs. France (1889) 19 OBD 647 (OB). In that case, the question was whether a horse could be regarded as a plant and further whether the word plant would be confined to an inanimate objects and whether it would also include an animate object. In that case, it was held :
"There is no definition of plant in the Act; but, an its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business, - not his stock-in-trade which he buys or makes for sale; but, all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business."
This definition of plant is a milestone in the annal of the history of taxation law wherever the question of interpretation of the word plant came thereafter. Aforesaid interpretation of the word plant has been followed in various subsequent decisions in English Courts as well as in the decisions of our country. The interpretation as noted above clearly shows that the word plant is anything which is used for business other than as stock-in-trade and whether it is live or dead and is kept for permanent employment.
36. The Honble Gujarat High Court has next considered the decision in the case of J. Lyons & Co. Ltd. vs. Attorney General (1944) Ch. 281 (Ch. D.). In that case also, the word plant came for interpretation in connection with electric lamps and fittings used for lighting a tea shop. In that case also, the definition given in the case of Yarmouth vs. France (supra) was followed and something more was added. In that case, it was held :
".....plant includes whatever apparatus or instruments are used by a businessman in carrying on his business."
That apart, it was also added :
"The term does not include stock-in-trade, nor does it include the place in which the business is carried on."
In that decision it was made clear that the collection of the words plant or machinery did not necessarily mean an apparatus used by a businessman, in order to qualify as a plant, used for mechanical operations or processes. It was held that the place used by a businessman for carrying on his business was not plant but basically the decision of Yarmouth vs. France (supra) was followed. The next decision which the Honble Gujarat High Court has taken care of is the case of Hinton vs. Maden and Ireland Ltd. (1959) 38 Tax Cases 391 : (1960) 39 ITR 357 (HL). In that case, the question was whether the knives used by cobblers in the shoe factory were plant or not and in that case also the earlier two decisions were considered and the Honble Court recorded as follows :
"Subject to one point, I have no doubt that these knives and lasts are plant in the ordinary sense of the word. It is true that they are numerous, small and cheap. But one trader may have to use a few large articles while another may have to use a large number of small articles, and I see no good ground for distinguishing between them as regards investment allowance. The one point is the durability of these articles. When Lindley L. J. used the phrase permanent employment in the business he was using it in contrast to stock-in-trade which comes and goes, and I do not think that he meant that only very long-lasting articles should be regarded as plant. But the word does, I think, connote some degree of durability, and I would find it difficult to include articles which are quickly consumed or worn out in the course of a few operations. There may well be many borderline cases, but these articles have an average life of three years, and if their cost can fairly be called capital expenditure I cannot refuse to them the description of plant unless the Act discloses some special reasons for doing so."
In that case, it was further observed :
"These machines are undoubtedly plant. They are plant used by the manufacturers in the factory. Each of the machines - each mechanical cobbler - is part of the plant. The knives and lasts, too, are part of the plant."
Yet more, the other decision which the Honble Gujarat High Court has considered is in Jarrold vs. John Good & Sons Ltd. (1968) 40 Tax Cases 681 (CA). In that case, the question was whether certain movable office partitions installed in the office of the assessee could be regarded as plant. That apart, there was a subsidiary contention also that plant would only comprise an apparatus or instrument used in carrying out the actual operation of trade. In that case, referring to the definition of the word plant given in Yarmouths case (supra) it was held "that was best known and most generally invoked". It was further held :
"The dividing line between what is plant and what is not is a narrow one, and the facts of this particular case come near to that dividing line. But, in my judgment, in the circumstances of this case - and I think each case does depend largely on its own circumstances - the partitions should be regarded as something more than a mere setting for the carrying out of the trade; in other words as coming within the definition of plant as contained in S. 279."
As to the subsidiary contention it was held :
"It is clear, I think, that the word plant does not include the walls of the building in which the trade is being carried on. But it may well be going much too far to say that it cannot refer to such part of the building, or such part of the equipment of the building, as performs anything other than a merely passive role, which is how it was described by Mr. Beattie. For my part, I am not at all satisfied that these partitions did perform a passive role. It is certainly true that they did not contain working parts such as a machine contains. Had they done so, it may well be that they would have come within the definition of machinery. But plant is a wider term."
Yet, another decision which the Honble Gujarat High Court considered is IRC vs. Barclay, Curle & Co. Ltd. (1970) 76 ITR 62 (HL). In that case, the main question was whether a dry dock was plant within the meaning of S. 279(1) of the IT Act, 1952. In that case, it was held :
"Undoubtedly, this concrete dry dock is a structure but is it also plant? The only reason why a structure should also be plant which has been suggested or which has occurred to me is that it fulfills the function of plant in the traders operations. And, if that is so, no test has been suggested to distinguish one structure which fulfils such a function from another. I do not say that every structure which fulfils the function of plant must be regarded as plant, but I think that one would have to find some good reason for excluding such a structure. And I do not think that mere size is sufficient."
It was further held :
"In order to decide whether a particular subject is an apparatus it seems obvious that an inquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary."
Yet more, it was further held :
"At the end of the day I find the functional test propounded by Lindley L. J. and by Lord Pearson L. J. to be as good as any, though, as was said in Jarrold (Inspector of taxes) vs. John Good & Sons Ltd., some plant may perform its function passively and not actively..... Thus the dry dock is, despite its size, in the nature of a tool of the taxpayer companys trade and, therefore, in my view, plant."
Apart from the above decisions of English Courts the Honble Gujarat High Court has considered the decision of the Honble Supreme Court in the case of CIT vs. Taj Mahal Hotel (1971) 82 ITR 44 (SC). In that case also, the interpretation of the word plant came with respect to allowance of development rebate on sanitary fittings. The Honble Gujarat High Court having considered those various English decisions as mentioned earlier observed :
"Now it is well-settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it. In the present case, S. 10(5) enlarges the definition of the word plant by including in it the words which have already been mentioned before. The very fact that even books have been included shows that the meaning intended to be given to plant is wide."
The Honble Gujarat High Court also has considered the decision of the Honble Madras High Court in the case of Sundaram Motors Pvt. Ltd. vs. CIT (1969) 71 ITR 587 (Mad). The Honble Madras High Court observed :
"It is indisputable that in these days of advanced commercial enterprise it is difficult to draw a line as to which of the plant or machinery engaged in trade by a businessman could with reasonable certainty be said to be not for carrying on its trade or for purposes of its business or intended to earn income therefrom. The conservative view expressed by the Tribunal that such plant or machinery should be such that income can be deemed to be derived by the direct case of such plant or machinery is, to our minds, a proposition which cannot be warranted having regard to the historic development of law in the grant of such concessions to industries with a view afford an impetus and an encouragement to them to secure more and more of such machinery and plant so that they could be an aid to the developing economy of our country."
The Honble Gujarat High Court also has considered the decision of the Honble Allahabad High Court in the case of CIT vs. Indian Turpentine & Resin Co. Ltd. (1970) 75 ITR 533 (All). The Honble Allahabad High Court held :
"The definition of plant contained in sub-s. (5) of S. 10 is very wide. The term plant includes such articles as books and scientific apparatus. There should, therefore, be no difficulty in treating poles, cables, conductors and switch boards for distribution of electricity as plant within the meaning of cl. (vi) of S. 10(2) of the Act."
The Honble Gujarat High Court after considering and following the above mentioned cases finally analysed and observed :
"On reviewing these authorities, a broad consensus emerges from which the essential characteristics of plant can be clearly gleaned. The word plant in its ordinary meaning, is a word of wide import and in the context of S. 32 it must be broadly construed. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on this business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or Industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on as distinguished from a part of the plant with which the business is carried on. An article to qualify as plant must furthermore have some degree of durability and that which is quickly consumed or worn out in the course of a few operations or within a short time cannot properly be called plant. But an article would not be any the less plant because it is small in size or cheap in value or a large quantity thereof is consumed while being employed in carrying on business. In the ultimate analysis the inquiry which must be made is as to what operation the apparatus performs in the assessees business. The relevant test to be applied is : Does it fulfil the function of plant in the assessees trading activity? Is it the tool of the taxpayers trade? If it is then it is plant no matter that it is not very long lasting or does not contain working parts such as a machine does and plays a merely passive role in the accomplishment of the trading purposes."
The above observation of the Honble Gujarat High Court as mentioned earlier was approved by the Honble Supreme Court in its two decisions reported in (1985 (1986) 157 ITR 86 (SC) (supra) and CIT vs. Elecon Engg. Co. Ltd. (1987) 166 ITR 66 (SC). The Honble Gujarat High Court at one point of discussion condensed the ratio of the decision in the following manner :
(i) That the word plant must be given a wide meaning having regard to the fact that articles like books and surgical instruments are expressly included in the definition of plant;
(ii) that its meaning is not confined only to an apparatus used in mechanical or industrial business or manufacture of finished good from raw materials; and
(iii) that the definition of plant in Yarmouths case as expanded in Jarrolds case furnishes the true apposite test for judging whether a given article is plant.
So, from the variety of decisions referred to above the word plant is not to be confined to the definition within the four corners of S. 43(3) of the Act alone. The word must be construed more according to its context for which interpretation is sought for. From the following references one can appreciate what an amazing varied kinds of articles, things or objects have been considered to be plant by various Courts :
(i) "Building" - R. C. Chemical Industries vs. CIT (1982) 134 ITR 330 (Del);
(ii) "Fencing around oil refinery" - CIT vs. Caltex Oil Refining (P) Ltd. (1976) 102 ITR 260 (Bom);
(iii) "Technical know-how" - CIT vs. Festo Elgi (P) Ltd. (1981) 129 ITR 499 (Mad);
(iv) CIT vs. Vac Met Corpn. (P) Ltd. (1978) 115 ITR 550 (Guj);
(v) CIT vs. McGaw Ravindra Laboratories (India) Ltd. (1981) 132 ITR 401 (Guj);
(vi) CIT vs. Emco Electro (P) Ltd. (1979) 118 ITR 864 (Bom)
(vii) "Books" - Catalysts & Chemicals India (West Asia) Ltd. vs. CIT (1982) 137 ITR 110 (Ker);
(viii) "Concrete structure" - Addl. CIT vs. Madras Cements Ltd. (1977) 110 ITR 281 (Mad);
(ix) "Well" - CIT vs. Warner Hindustan Ltd. (1979) 117 ITR 15 (AP);
(x) "Cables for distribution of electricity" - CIT vs. Indian Turpentine & Resin Co. Ltd. (1970) 75 ITR 533 (All);
(xi) "Sanitary and pipeline fittings" - CIT vs. Taj Mahal Hotel (supra);
(xii) "Safe Deposit vault" - CIT vs. Union Bank of India Ltd. (1976) 102 ITR 270 (Bom);
(xiii) "Air conditioning equipment" - CIT vs. Central Bank of India Ltd. (1976) 103 ITR 196 (Bom);
(xiv) "Cold storage" - CIT vs. Kanodia Cold Storage (1975) 100 ITR 155 (All);
(xv) CIT vs. Yamuna Cold Storage (1981) 129 ITR 728 (P&H) as plant entitled to depreciation on that basis;
(xvi) "Vehicles" - Ambala Bus Syndicate Ltd. vs. CIT (1963) 49 ITR 480 (Punj).
In the recent past the Tribunal, A Bench, Bombay in the case of Ruia Stud & Agricultural Farms (P) Ltd. vs. ITO (1985) 3 TTJ (Bom) 559 : (1985) 14 ITR 429 (Bom) even held horses as plant. In that case also, in view of S. 43(3) of the Act the meaning of the word plant in relation to horses purchased by the assessee-company carrying on business of live stock breeding and having a stud farm for horse breeding, and not for selling the parents horses, came for consideration, and ultimately holding those horses as plant depreciation was allowed.
Recently also, the Tribunal, Hyderabad Bench A, in the case of Singh Poultry Pvt. Ltd. vs. ITO (1989) 28 ITD 336 (Hyd) considered a similar issue. In that case, the assessee-company was engaged in hatchery business. The parent birds which were purchased as one day old chicks were maintained solely and wholly for the purpose of laying egg till its period of fertility. In that case also, relying on the various decisions of English Courts and the Honble Supreme Court as well as other High Courts the parent birds were held to be plant and the assessee was allowed investment allowance.
37. So, coming to the question raised in the present case as to whether the tea bush is to be considered as plant under S. 43(3) of the Act, we have to see whether the tea bush withstand the various tests as laid down or formulated by the various Courts. The business of tea growing, manufacturing and selling is an integrated business of agricultural as well as industrial operations. The tea bush is planted in a systematic manner and in fact it is just like installation of plant, apparatus, equipment, tools, etc. The tea bushes are durable and they have a normal economic life of 40 to 50 years. So, the tea bush though animate is not merely gross materiality. In view of the decision in Yarmouths case (supra) plant need not be a mere gross materiality or abstract material but it can either be goods and chattels, fixed or movable, live or dead. So, the tea bush being a living thing is vary much within the ambit of S. 43(3) of the Act. Therefore, in that view it satisfies the test of durability as one of the criteria set forth in the decision in Hintons case (supra) for it has having normal economic life of 40-50 years. In tea business tea plants are assets and not stock-in-trade. The assessee-company does not carry on business in tea bushes but it does carry on business with or by tea bushes and so in this manner it further satisfies the test as laid down in the decision in Yarmouths case (supra) for it not being stock-in-trade. Those English decision have been accepted by the Honble Supreme Court in (1986) 157 ITR 86 (SC), (1987) 166 ITR 66 (SC) and (1971) 82 ITR 44 (SC). The tea bush is not stock-in-trade. It is tea leaves that become stock-in-trade, the moment the leaves are served from tea bushes. One of the widely accepted characteristics of plant is that of its functional characteristic meaning hereby that with the help of plant or by the plant the business is carried on. That functional aspect or test is very much inherent in tea bush. The tea bush in the business of growing, manufacturing and selling tea becomes instrumental. It is an implement, a thing or a means by which tea is obtained. It is an apparatus employed in the business for obtaining specific results, i.e., production of tea leaves. It is a tool for performing the specific function of growing tea. It can also be said to be an organism to carry out specific industrial process and, therefore, it is an apparatus or tool or implement or instrument and equipage and a requisite article or thing for the purpose of business whereby the assessee is equipped to carry on its business and derive income from sale of tea grown and manufactured by it. So, the tea bush also very much satisfies the functional test of plant. Analysing the things it can be said without hesitation that tea bush fits itself to all tests as laid down for an object or thing or article, whether live or dead, movable or fixed, to be a plant. The tea bush no doubt is a living thing, it has got durability. It has the character of function and that it is an asset in the hands of the businessman, and not stock-in-trade and, that apart, the tea bush is also subject to wear and tear.
38. It can be argued that inputs and outputs are part of plant and, therefore, cannot be considered as a plant under S. 43(3) of the Act. It is to be noted, as has already been mentioned above, that the tea bush does not grow spontaneously but it is planted and tended in a planned and scientific manner after imputing labour, technical know-how, capital, etc. Such plantation of tea bush is done with a motive for carrying on business, so as to get tea leaves. No doubt, tea leaves are part of the tea bush but this aspect does not preclude the tea bush to be a plant because leaves are plucked and become stock-in-trade and tea bush remains an asset to give further yield of leaves. Similar are the cases of poultry chicks and calves from horses. Yet more, we can very well understand the similarity about the input and output in respect of well and books. Water is a natural come out in well. Water is drawn but still we treat the well as plant. Similarly, book remains the same. We only take the knowledge or information contained in the book. From the various angles as discussed above we come to the conclusion that tea bush is also a plant and once we hold it to be plant the assessee-company is entitled for depreciation.
39. In fact, from the accounting point of view as well as keeping in view the various provisions of the IT Act depreciation on tea bush cannot be denied to the assessee. Admittedly, the cost in regard to plantation or tea bush is a capital expenditure. Tea bushes are assets and unless the cost is allowed by way of amortization the profit or loss cannot be properly deduced. Under the entire scheme of the IT Act in the computation of income from this business nowhere is the provision for amortization of the said cost and also nowhere the allowance of depreciation on tea bush has been specifically denied. No doubt, r. 8(2) of the IT Rules is meant for allowance of the cost of replantation but there is no specific provision for allowance of the original cost of plantation. Sec. 33A provides for development allowance specifically in the business of growing, manufacturing and selling tea but, as has been stated earlier, depreciation has not been denied anywhere. In fact, in case of recognised plant and machinery investment allowance is allowed yet there is no bar for allowance of depreciation on them. Even in view of the provision of S. 36(1)(vi), in the case of animals obsolescence allowance is allowed. Still, depreciation on animals is allowable as referred to above - Ruia Stud & Agricultural Farms (P) Ltd. (supra) and Singh Poultry Pvt. Ltd. (supra). In case of tea bushes there is no provision like S. 36(1)(vi) of the Act. Since there is no provision to consider the cost of original plantation as revenue expenditure or as there being no specific provision for amortization of the cost, depreciation on tea bushes is essentially required for a correct arrival of profit or loss in the business. In fact, as has already been stated, in the four corners of the IT Act there is no provision specifically denying the allowability of depreciation on tea bush and legislature has also no such intention; otherwise a negative provision would have existed.
40. In the earlier assessment years the Assessing Officer as well as in some of the cases the CIT(A) did not specifically deny that tea bush was not plant. They denied depreciation only because no rate was prescribed in Appendix-I to r. 5. It is to be further noted that for the asst. yr. 1988-89 in the case of Kamala Tea Co. Ltd. the Revenue accepted the assessees claim for depreciation on tea bush.
41. So, when set together the entire facts and circumstances of the case and the various decisions of different High Courts including the Honble Supreme Court (1974) 96 ITR 672 (Guj) and (1986) 157 ITR 86 (SC) on final analysis, the tea bush can very well be brought within the meaning of plant under S. 43(3) of the Act for the obvious reason that it satisfies all the characteristics of plant. The tea bush, though a living thing and fixed is not merely a gross materiality but has the characteristic of active functionality in ones business, and is not to be merely understood as a technical or mechanical inanimate object only. It is not stock-in-trade but an asset having yet another characteristic of durability, of course, subject to natural wear and tear. It is not the place of business; rather, an object or thing or article the utility value of which enables a businessman to carry on his business. We also come to the conclusion that there being no specific denial of depreciation on tea bush in any of the provision of the IT law nor is that the intention of the legislature and, as such, the assessee-company is entitled to that relief of depreciation. The assessee-company has claimed 100% depreciation on tea bush but in the fitness of the case we restrict the normal depreciation of 15% which according to us will meet the ends of justice. On this point, we reverse the order of the learned CIT(A).
42. In the result, the cross objection by the assessee in partly allowed.
43. In this appeal of the Revenue the first ground relates to deletion of the addition of Rs. 29,748. The Assessing Officer made addition of the aforesaid amount that being outstanding ground rent in view of the provision of S. 43B of the Act. According to the CIT(A), ground rent was neither tax nor duty and, as such, there was no application of S. 43B of the Act and, in that view of the matter, he directed to delete the aforesaid addition of Rs. 29,748.
44. Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue objected to the deletion of the aforesaid amount on the ground that the CIT(A) did not examine the matter in right perspective. According to him, even though that being ground rent was a tax to the Government and, as such, the amount being not paid in the previous year relating to the assessment year and, as such, S. 43B of the Act would hit the same.
45. On the other hand, Shri D. K. Kothari, the learned counsel for the assessee strongly supported the order of the learned CIT(A) and reiterated that ground rent was neither tax nor duty and, as such, there was no application of S. 43B of the Act and in support of his submission he relied on the decision of the Honble Supreme Court in the case of Omprakash Agarwal vs. Giriraj Kishori (1987) 164 ITR 376 (SC).
46. We have heard the rival submissions on both sides. In fact, from the materials available on the appeal record it is gathered that the land in question is a tea garden and the ground rent is payable to the Assam State Government. However, before us there is no material to come to a definite conclusion as to whether the entire land in which the tea garden is situated is a lease-hold property or a settled land. If it is a lease-hold property and the rent is paid by way of lease rent then the lease rent paid may not be counted as tax or duty because it is a contractual liability on the part of the assessee, but if the assessee is a tenant and the rent or the tax of the land is payable to the Assam State Government under the provisions of any Tenancy Act of the Assam State Government in that situation, naturally, it will be a tax and that is a statutory liability and under that circumstance the applicability of S. 43B cannot be denied. No doubt, the learned counsel for the assessee has relied on the decision of the Honble Supreme Court in the case of Om Prakash Agarwal vs. Giriraj Kishori & Ors. (supra), but in that case, a distinction between tax and fees has been drawn and it has been made clear that if the liability to pay money is imposed under the statutory power without the taxpayers consent and the payment is enforced by law and further that if it is an imposition made for public purposes without reference to any special benefit to be conferred on the payer of the tax, under that circumstance the money payable become a tax. Of course, this decision of the Honble Supreme Court will be available by way of help to the assessee only if the land in question which consists the tea garden is a lease-hold property, but if it is a settled property to the assessee as a tenant and the rent of the land is payable under any Tenancy Act of the State Government, in that case, according to this decision of the Honble Supreme Court, the rent payable to the Government will be considered as tax, and if the same is not paid in the previous year for a particular assessment year the provision of S. 43B of the Act will be applicable. As we have already held above, before us there is paucity of materials to arrive at any definite conclusion as to whether the land is a lease hold property or a settled property and so we feel it expedient and just that the aforesaid matter is to be made clear. If the land is a lease-hold property, in that case, the order of the learned CIT(A) can be held to be justified, but if the property is a settled property and the land rent or tax is liable to be paid by the assessee as a tenant to the Assam State Government by dint of any Tenancy Act, in that case, the ground rent or the land rent is to be held as tax and if the aforesaid amount of Rs. 29,748 is not paid before the due date of filing of the return under S. 139(1) of the Act the assessee-company will not be entitled to have deduction and so, in that view of the matter, after setting aside the order of the learned CIT(A) we restore this matter back to him to give a definite finding on the nature and character of the land in relation to its ownership and possession.
47. The next ground relates to deletion of the disallowance of Rs. 73,507 made under S. 43B of the Act relating to Provident Fund. In this matter also, the Assessing Officer disallowed the aforesaid amount of Rs. 73,507 because at the end of the accounting year the aforesaid amount remained outstanding. In fact, the provision of S. 43B with special reference to Expln. 2 inserted by the Finance Act, 1989 with retrospective effect from 1st April, 1984 has come for consideration by various Honble High Courts and the allowability of the tax, duty, cess or fee or provident fund as a deduction, even though not paid in the previous year relating to the assessment year, has been considered elaborately. In view of the decisions of the Honble Calcutta High Court in the case of CIT vs. Sri Jagannath Steel Corpn. (1991) 191 ITR 676 (Cal) and the Honble Patna High Court in the case of Jamshedpur Motor Accessories vs. Union of India (1991) 189 ITR 70 (Pat), even if the tax, duty, cess or fee or provident fund not paid during the previous year relating to the assessment year but paid before the due date of filing of the return of income under S. 139(1) of the Act, as in the case of the assessee, the assessee is entitled to have deduction of the same. Of course, the Honble Delhi High Court in the case of Escorts Ltd. vs. Union of India (1991) 189 ITR 81 (Del) has taken a contrary view that the payment of tax, duty, cess, etc., including provident fund must be paid during the previous year itself. However, the earlier two decisions being in favour of the assessee and one of this being the decision of jurisdictional High Court we dispose of this matter in favour of the assessee and restore back the matter to the CIT(A) to verify whether the aforesaid amount of Rs. 73,507 relating to provident fund was deposited to the proper authority or not before the due date of filing of the return under S. 139(1) of the Act, and in that view of the matter, though we confirm the order of the learned CIT(A), we modify it.
48. The next ground relates to deletion of Rs. 1,62,588 relating to capital gains. According to the Assessing Officer, though the land in question was part of the tea garden but there being no agricultural operations carried on the compensation received on its acquisition was a capital gain and so, in that view of the matter, he added the aforesaid amount of Rs. 1,62,588 to the total income of the assessee. The CIT(A) deleted the addition considering his earlier order because, according to him, the land being an agricultural land was exempt from capital gain. In fact, we have already decided the identical matter relating to the asst. yr. 1983-84 in this very order. The facts and circumstances being same in this year also and, as such, consistent with our above observations and reasons as assigned therein we dispose of this issue in favour of the assessee and confirm the order of the learned CIT(A).
49. The next ground relates to allowance of Rs. 10,71,840 as short-term capital loss. The assessee-company sold shares of M/s. Abhi Vriddhi Pvt. Ltd., a subsidiary company, and sustained a loss of Rs. 10,71,840 in the said transaction. According to the Assessing Officer, the sale transaction of the shares was a colourable device to avoid tax because the shares were sold to Shri D. K. Kothari, Manager, Finance and Secretary of the assessee-company in his individual capacity as well as Karta of an HUF at Rs. 20 per share, whereas the cost of the same was Rs. 100 per share. The Assessing Officer noted that the shares were sold to Shri Kothari even before the completion of one year of incorporation of the subsidiary company and before finalisation of the accounts as on 29th Feb., 1984. It was also noted that the aforesaid subsidiary company, M/s. Abhi Vriddhi Pvt. Ltd., did not carry on any business in the subsequent year and in the accounting year relevant to the assessment year it did sole transaction of sale jute only. Part of the financing relating to acquisition of the shares by Shri D. K. Kothari was done by Shri R. L. Kanoria, Managing Director of the assessee-company. According to the Assessing Officer, the assessee-company in order to avoid tax resorted to a colourable device and so, in that view of the matter, he did not allow the aforesaid claim for a loss of Rs. 10,71,840. The CIT(A) directed to allow the loss when the matter was disputed by the assessee-company in appeal before him according to the learned CIT(A) the assessee-company did not resort to any colourable device but the sale was genuine and in a genuine transaction the loss occurred. In course of hearing, the learned CIT(A) examined the various documents. Against the said order of the CIT(A) now the Revenue have come in appeal before the Tribunal.
50. Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue strongly objected to the order of the CIT(A). In course of his submission he exerted to support the order of the Assessing Officer. He highlighted that in view of the facts found the colourable device as was adopted by the assessee-company was manifest. He particularly emphasised that the transaction was arranged in house only. Explaining the matter he said that the shares of M/s. Abhi Vriddhi Pvt. Ltd. were sold to Shri D. K. Kothari who was no other than the Manager, Finance and Secretary of the assessee-company and even part of the money was provided by Shri R. L. Kanoria, Managing Director of the assessee-company. According to him, the learned CIT(A) without properly considering the fact brought by the Assessing Officer on the appeal record directed to allow the share loss to the assessee-company. He urged that the order of the CIT(A) was unjustified.
51. On the other hand, Shri D. K. Kothari, the learned counsel for the assessee-company reiterated the same contentions as were placed and argued before the learned CIT(A) and, that apart, on our direction he furnished the P&L Account and balance sheet of M/s. Abhi Vriddhi Pvt. Ltd. He particularly emphasised that the shares were sold at the fair price after due bargain and the major part of the shares were still with the buyer. He stated that M/s. Abhi Vriddhi Pvt. Ltd. after its incorporation started dealing in jute but in a short span of period it did suffer a huge loss to the extent of Rs. 16,82,378 and so a considerable amount of share capital of Rs. 21,46,300 was wiped away in the process. The financial condition of M/s. Abhi Vriddhi Pvt. Ltd. was very precarious. The learned counsel for the assessee referred to the P&L Account as well as balance sheet, both provisional as well as final, which were respectively prepared on 15th Feb., 1984 and 29th Feb., 1984. It was added by the learned counsel that in order to have control over Jokai India Ltd. in which M/s. Abhi Vriddhi Pvt. Ltd. was having 62,050 equity shares and with the further intention that the assessee-company did not suffer more loss a genuine transaction was bargained with Shri D. K. Kothari, and only after having obtained the opinion and recommendation of M/s. R. L. Agarwal & Co., Chartered Accountants, the shares were sold to Shri D. K. Kothari at Rs. 20 per share. It was further stated by the learned counsel for the assessee that at the relevant time Shri D. K. Kothari was only in the employment of the assessee-company as a Chartered Accountant and he was not related to Shri R. L. Kanoria. He was introduced into the Board of Directors only later on. The learned counsel having referred to the capital account of Shri D. K. Kothari in the books of Shri R. L. Kanoria, stated that no doubt Shri R. L. Kanoria provided Rs. 60,000 to him but that was only by way of a friendly loan which was paid back later on with interest. It was also stated that Shri D. K. Kothari in order to purchase the shares raised funds from his sister, wife and mother-in-law also. Shri D. K. Kothari still held the major part of the shares of M/s. Abbi Vriddhi Pvt. Ltd. and, of course, sold some of them after due bargain. The learned counsel emphasised that there was no evidence on the appeal record to show that the assessee-company entered in collusion with Shri D. K. Kothari and the loss on sale of shares was improvised to occur. According to the learned counsel, the CIT(A) examined all materials carefully and then only directed to allow the loss in shares. The learned counsel stated that the Assessing Officer was having only a strong suspicion that the sale of shares M/s. Abhi Vriddhi Pvt. Ltd. to Shri D. K. Kothari was a colourable device, but there was no evidence to show demonstratively that the assessee-company in order to avoid tax adopted a colourable device. According to the learned counsel, there was no merit in the case of the Revenue and the order of the learned CIT(A) was justified.
52. We have heard the rival submissions on both sides and have gone through the various papers on the appeal record including the papers compiled in the paper book and as have been referred to by the learned counsel for the assessee. In fact, the Revenue have not been able to prove that the sale transaction of the shares of M/s. Abhi Vriddhi Pvt. Ltd. was a colourable device in order to avoid tax. The closeness of Shri D. K. Kothari being Manager Finance and Secretary of the assessee-company may raise suspicion for some kind of internal arrangement with a motive, but, however strong a suspicion might be, that cannot replace the acceptable evidence. From the P&L Account and balance sheet of M/s. Abhi Vriddhi Pvt. Ltd. it is manifest that the financial position of the company deteriorated to a deplorable condition against its share capital of Rs. 21,46,300. Loans escalated to Rs. 16,82,378. Under such circumstances one can very well appreciate what ought to have been the fair price of the shares. It is to be noted that the price of the shares was recommended to be Rs. 19 per share by M/s. R. L. Agarwal & Co., Chartered Accountants but on bargain Shri D. K. Kothari purchased those shares at Rs. 20 per share and Shri D. K. Kothari still holds the major part of the shares. Shri D. K. Kothari is a qualified Chartered Accountant and at the relevant time he was merely in the service of the assessee-company and so it is not expected that he being a qualified professional man will indulge in collusion with the assessee-company or involve himself in a colourable device of the assessee-company so that the assessee-company may avoid income-tax. In fact, the facts found by the CIT(A) and the reasons recorded by him to allow the aforesaid loss of Rs. 10,71,840 are quite justified. To our mind, the CIT(A) has recorded a reasoned order and so, in that view of the matter it does not require any interference on our part. On this point, we confirm his order.
53. The last ground relates to deletion of disallowance of Rs. 50,203 on account of foreign tour undertaken by Shri R. L. Kanoria. The Assessing Officer disallowed the aforesaid expense that being not for business purposes of the assessee-company. The CIT(A) directed to allow the expense.
54. We have heard the rival submissions on both sides on this point, and have gone through the appeal record. It is to be noted that Shri R. L. Kanoria undertook foreign tour to U. K. for reviving the companys tea export business. His tour to U. K. was duly approved by the Board of Directors vide minutes of the meeting dt. 27th Feb., 1984. It is to be further noted that Shri R. L. Kanoria was granted foreign exchange by the Reserve Bank of India by its letter dt. 3rd March, 1984. After conducting his foreign tour Shri R. L. Kanoria even furnished a report to the Reserve Bank of India vide the companys letter dt. 21st June, 1984 giving the entire details as to the parties with whom business meetings were held and talks were conducted. Considering those documents there remains hardly and doubt that the foreign tour undertaken by Shri R. L. Kanoria was not for business purposes. We may mention here that while directing the Assessing Officer to delete the disallowance, the CIT(A) also considered those documents and then only he recorded his order for deletion. On this point, his order appears to be justified. We accordingly confirm it.
55. The appeal is treated as partly allowed for statistical purposes.