Bombay High Court
Commissioner Of Income-Tax vs Tyresoles Concessionaries Pvt. Ltd on 22 November, 1994
Equivalent citations: [1995]213ITR660(BOM)
JUDGMENT
DR. B.P. Saraf J.
1. By this reference at the instance of the Revenue made under section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal, Bombay Bench "B", Bombay, has referred the following two questions of law to this court for opinion :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the unabsorbed development rebate of Rs. 6,54,000 carried forward in the case of the amalgamating company, Bombay Barges and Ships Pvt. Ltd., in the assessment for 1975-76 should be set off against the profits of the assessee, the amalgamated company for the same assessment year, in spite of the provisions of section 33(2) (ii) read with section 33(3)(b) ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that relief under section 80J to which the amalgamating company, Bombay Barges and Ships Pvt. Ltd., was entitled in respect of ships which became the property of the amalgamated company, Tyresoles Concessionaries (P.) Ltd., could be also claimed by the latter assessee-company for the balance of the period of five years in terms of section 80J(2) and in spite of the provisions of section 80J(5)(ii) ?"
2. The assessee is a limited company engaged in the business of retreading types. Pursuant to a scheme of amalgamation, an associated concern of the assessee called Bombay Barges and Ships Pvt. Ltd. (hereinafter referred to as "Bombay Barges") which was engaged in the business of carrying cargo in barges, merged with the assessee-company with effect from January 1, 1975. The assessee had been following the financial year as its previous year, whereas the amalgamating company (Bombay Barges) had been following the calendar year as the previous year. On February 1, 1975, Bombay Barges made a petition to this High Court praying for sanction of the scheme of its amalgamation with the assessee which was sanctioned with effect from January 1, 1975. As a result, on and from January 1, 1975, the assets and liabilities of the amalgamating company stood taken over by the assessee.
3. After amalgamation of Bombay Barges, the assessee-company made a claim for deduction of unabsorbed development rebate of Bombay Barges amounting to Rs. 15,06,435 which was composed of two amounts : (a) Rs. 8,12,435, being development rebate relating to the assessment year 1974-75, and (b) Rs. 6,94,000, being development rebate relating to the assessment year 1975-76. The above claim of the assessee was founded on the provisions of section 33(3) of the Act. The Income-tax Officer, who made the assessment of the income of the amalgamating company (Bombay Barges) for the assessee years 1974-75 and 1975-76, the relevant previous years being calendar year ending December 31, 1973, and December 31, 1974, allowed it to carry forward the unabsorbed development rebate in both the years. The assessee-company (amalgamated company) claimed the benefit of carry forward and set off of unabsorbed development rebate of the amalgamating company by filing revised returns for the assessment years 1974-75 and 1975-76. The Income-tax Officer upheld the claim of the assessee for set off of the carried forward unabsorbed development rebate of Bombay Barges for the assessment year 1974-75 amounting to Rs. 8,12,435. He, however, rejected the claim in regard to the other item of Rs. 6,94,000 on the ground that being the unabsorbed development rebate of Bombay Barges for the assessment year 1975-76, question of carry forward and set off of the same, in the very same year, viz., assessment year 1975-76 did not arise.
4. The assessee appealed to the Commissioner of Income-tax (Appeals), who affirmed the above order of the Income-tax Officer. It was held that the unabsorbed development rebate of Bombay Barges for the assessment year 1975-76 could be allowed to be adjusted in the hands of the assessee-company in its assessment for the assessment year 1976-77 and not in the assessment for the assessment year 1975-76. While arriving at the above conclusion, the Commissioner (Appeals) observed that Bombay Barges having amalgamated with the assessee-company with effect from January 1, 1975, there could not be any outstanding development rebate in respect of the assessment year 1975-76, because such assessment could be made on or after April 1, 1975. It was, however, held that the development rebate allowable to Bombay Barges in the assessment year 1975-76 which remained unabsorbed could be carried forward and set off by the assessee-company only in the next assessment year, viz., 1976-77.
5. The assessee-company appealed against the above order of the Commissioner (Appeals) to the Income-tax Appellate Tribunal ("the Tribunal"). The controversy before the Tribunal was whether the assessee-company, who was the amalgamated company, was entitled to set off the carried forward development rebate determined in the hands of amalgamating company for the assessment year 1975-76 in its own assessment for the very same assessment year. The Tribunal, on consideration of the provisions of section 33(3)(b) of the Act, held that the assessee-company was entitled to claim set off of the unabsorbed development rebate of the amalgamating company for the assessment year 1975-76 in its own assessment for the very same year. Aggrieved by this finding of the Tribunal, the Revenue applied under section 256(1) of the Act for reference of the question of law arising therefrom to this court for opinion. Being satisfied that this controversy gives rise to a question of law, the Tribunal has referred question No. 1. We shall shortly deal with the same.
6. The Tribunal has also referred another question, viz., question No. 2, which pertains to the claim of relief under section 80J in respect of ships which had been acquired by the amalgamating company prior to the amalgamation.
7. Material facts pertaining to this question are as follows : The assessee-company made a claim for relief under section 80J in respect of three barges belonging to the Bombay Barges, which were taken over by it under the scheme of amalgamation with effect from January 1, 1975. This claim was made in respect of the period from January 1, 1975, to March 31, 1975, the period during which those three barges were utilised by the assessee-company. The assessee-company claimed relief under section 80J of the Act of a sum of Rs. 2,56,866 at the rate of six per cent. of the written down value of all these barges. The Income-tax Officer rejected the claim of assessee on the ground that there was no provision in the Income-tax Act to grant such relief in case of taken over by the amalgamated company from the amalgamating company. According to the Income-tax Officer, the provisions of section 80J did not permit any such allowance.
8. The assessee appealed to the Commissioner of Income-tax (Appeals) against the above finding of the Income-tax Officer. Reliance was placed by the assessee on a circular of the Central Board of Direct Taxes ("the Board") being Circular No. 15/5/63-II(AI) dated December 13, 1963, under which instructions were issued to the Income-tax Officers to allow benefit of relief due to a new industrial undertaking in cases where the undertaking changed hands during the period for which relief was due to it. The Commissioner, however, did not accept this contention of the assessee on the ground that condition (ii) of section 80J(5) was not fulfilled. The assessee went in further appeal to the Tribunal. The Tribunal recorded a finding that so far as the ships in questions are concerned, all the conditions of section 80J were fully satisfied. The Tribunal also examined the provisions of section 80J of the Act and observed that there was no dispute that the ships acquired by the Bombay Barges were eligible for relief under section 80J, which could have been granted but for the amalgamation. The Tribunal also perused the instructions of the Central Board of Direct Taxes regarding grant of relief under section 80J and observed that the instructions contained therein should be construed broadly and the relief admissible to a new industrial undertaking should also be extended to ships. The Tribunal, therefore, held that the assessee-company was entitled to relief under section 80J in respect of ships acquired by Bombay Barges and there was no justification for denying the same.
9. Aggrieved by this finding of the Tribunal, the Revenue applied under section 256(1) of the Act for reference of question of law arising therefrom. The Tribunal on being satisfied that a question of law did arise out of its above order, referred question No. 2 to this court for opinion.
10. We shall first deal with question No. 1. There is no dispute about the fact that under section 33(3)(b) of the Act, an amalgamated company, is entitled to carry forward and set off the unabsorbed development rebate outstanding to the amalgamated company. Section 33(3) provides :
"33. (3) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, machinery or plant in respect of which development rebate has been allowed to the amalgamating company under sub-section (1) or sub-section (1A), -
(a) the amalgamated company shall continue to fulfil the conditions mentioned in sub-section (3) of section 34 in respect of the reserve created by the amalgamating company and in respect of the period which in which such ship, machinery or plant shall not be sold or otherwise transferred and in default of any of these conditions, the provisions of sub-section (5) of section 155 shall apply to the amalgamated company as they would have applied to the amalgamating company had it committed the default; and
(b) the balance of development rebate, if any, still outstanding to the amalgamating company in respect of such ship, machinery or plant shall be allowed to be amalgamated company in accordance with the provisions of sub-section (2), so, however, that the total period for which the balance of development rebate shall be carried forward in the assessments of the amalgamating company and the amalgamated company shall not exceed the period of eight years specified in sub-section (2) and the amalgamated company shall be treated as the assessee in respect of such ship, machinery or plant for the purposes of this section and section 34."
11. On a plain reading of this provision, it is clear that the balance of development rebate outstanding to the amalgamating company has to be allowed to the amalgamated company in accordance with the provisions of sub-section (2) of section 33. The amalgamated company shall be treated as the assessee in respect of such ship, etc., for the purposes of sections 33 and 34. Clause (ii) of Sub-section (2) of section 33 provides that the amount of development rebate, to the extent to which it has not been allowed as stated in clause (i) thereof, shall be carried forward to the following assessment year. Section 33(2), so far as relevant, at the material time stood as under :
"(2) In the case of a ship acquired or machinery or plant installed after the 31st day of December, 1957, where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be, (the total income for this purpose being computed without making any allowance under sub-section (1) or sub-section (1A) of this section or sub-section (1) of section 33A or any deduction under Chapter VI-A or section 280-O) is nil or is less than the full amount of the development rebate calculated at the rate applicable thereto under sub-section (1) or sub-section (1A), as the case may be, -
(i) the sum to be allowed by way of development rebate for that assessment year under sub-section (1) or sub-section (1A) shall be only such amount as is sufficient to reduce the said total income to nil; and
(ii) The amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so however, that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year, as the case may be."
12. There is no dispute in this case about the fact that the amalgamating company was entitled to deduction on account of development rebate in respect of the ships in question in the assessment year 1975-76. There is also no controversy about the fact that the amount of development rebate to the tune of Rs. 6,94,000 could not be allowed in the hands of the said company in its assessment for the said assessment year due to non-availability of income. It had, therefore, to be carried forward to the following assessment years, viz., assessment year 1976-77. As in the meantime, the ships in question were transferred by the amalgamating company to the amalgamated company in pursuance of the scheme of amalgamation, the balance of development rebate outstanding to the amalgamating company in respect of such ships could be allowed to be carried forward by the amalgamated company in accordance with the provisions of sub-section (2) which, as stated earlier, allows carry forward of unabsorbed development rebate to the following assessment year. From a reading of clause (b) of sub-section (3) and clause (ii) of sub-section (2), it becomes abundantly clear that unabsorbed development rebate can be carried forward by the amalgamated company "only in the following assessment year". In the instant case, development rebate remained unabsorbed in the assessment of the amalgamating company for the assessment year 1975-76. If the said company had continued, it would have been entitled to the benefit of carry forward of the same in the following assessment year viz., 1976-77. As it got amalgamated in the meantime with the amalgamated company, that benefit would be available to the amalgamated company in the same assessment year, i.e., 1976-77, in which the amalgamating company would have been entitled to it.
13. In this view of the matter, we are of the clear opinion that the Tribunal was not correct in holding that the unabsorbed development rebate of Rs. 6,54,000 carried forward in the case of amalgamating company, Bombay Barges and Ships Pvt. Ltd., for the assessment year 1975-76 could be set off against the profits of the assessee-company which is the amalgamated company in the very same assessment year, despite the clear provisions of section 33(2)(ii) read with section 33(3)(b) of the Act. The unabsorbed development rebate of Bombay Barges for the assessment year 1975-76 can be allowed to be carried forward by the assessee-company only in the assessment year 1976-77 and the following assessment years as provided in section 33(2)(ii) of the Act and not in the assessment year 1975-76.
14. So far as the next question is concerned, we find that the amalgamated company claimed relief under section 80J for the period from January 1, 1975, to March 31, 1975. This relief was refused by the Income-tax Officer on the ground of non-fulfilment of the conditions of section 80J(5). So far as the fulfilment of the conditions of section 80J(5) is concerned, we find that there is a clear and categorical finding of the Tribunal that all the conditions were fulfilled. The only question to be decided is whether having regard to the provisions of section 80J of the Act, the assessee-company is entitled to claim development rebate for the balance period of five years. We have carefully perused the provisions of section 80J of the Act. Relief under that section is available only to those industrial undertakings which fulfil all the conditions specified in sub-section (4) thereof, the relevant conditions for the present purpose being conditions (i) and (ii). Sub-section (4) of section 80J, so far as relevant, read as follows :
"(4) This section [section 80J] applies to any industrial undertaking which fulfils all the following conditions, namely :-
(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence;
(ii) it is not formed by the transfer to a new business of machinery, or plant previously used for any purpose;
(iii) it manufactures or produces articles, .....;
(iv) in a case where the industrial undertaking manufactures or produces articles, the undertaking employees ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in manufacturing process carried on without the aid of power;"
15. On a careful perusal of the provisions of section 80J as a whole and the clear and categorical finding of the Tribunal that the assessee-company has fulfilled all the conditions of section 80J of the Act, we are of the clear opinion that the assessee-company (amalgamated company) is entitled to relief under section 80J for the balance of the period of five years in terms of section 80J of the Act.
16. In the result, the two questions referred to us are answered as follows :
The first question is answered in the negative and in favour of the Revenue, the second question is answered in the affirmative and in favour of the assessee.
17. This reference is disposed of accordingly. In the facts and circumstances of the case, we make no order as to costs.