Bombay High Court
Commissioner Of Income-Tax vs United Carbon India Ltd. on 27 February, 1991
Equivalent citations: [1991]190ITR622(BOM)
JUDGMENT T.D. Sugla, J.
1. This is a reference by the Department. The assessee is a company and the proceedings relate to its assessment for the years 1970-71 and 1971-72. By an order under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred to this court the following three questions of law :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the cost of technical know-how which was paid for by the assessee by way of shares in the assessee-company is includible in the capital for the purpose of computation of relief under section 80J of the Income-tax Act, 1961, under rule 19A(2), clauses (ii) and (iii) of the Income-tax Rules, 1962, for 1970-71 and 1971-72 assessemnt years ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to relief at 8% under section 80-I on the interest income of Rs. 7,07,390 for the assessement year 1971-72 ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to relief under section 80J on the bank deposit of Rs. 1.40 crores which should be treated as capital employed in the industrial undertaking for the assessment year 1971-72 ?"
2. Briefly stated, the facts relevant for question No. 1 are that the assessee purchased technical know-how from its foreign collaborators for a sum of Rs. 14,34,000. An asset was created in the balance-sheet representing the said amount in the name of technical know-how. However, when the question came up before the Income-tax Officer as regards depreciation on this asset, it was agreed that a sum of Rs. 7,17,000 representing 50% of the total sum should be entitled to depreciation while on the remaining sum of Rs. 7,17,000 depreciation might not be allowed. The question arose whether for the purpose of computing the capital of the assessee-company which is admittedly an industrial undertaking within the meaning of section 80J, the value of that part of Rs. 7,17,000 which represented capital expenditure in respect of which no depreciation or development rebate was allowed should be taken into account. The Income-tax Officer held that this amount did not represent an asset the value of which should be included in the capital computation whereas, for reasons given in their respective orders, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held that the amount was includible in the capital computation. Reference in this regard was made to rule 19A(2)(ii) of the Income-tax Rules.
3. After hearing Dr. Balasubramanian for the Revenue and Shri Dalvi for the assessee, we find that there is no dispute between the parties that the entire sum of Rs. 14,34,000 appeared as an asset in the books of the company under the head "Technical know-how". In the circumstances, we have no difficulty in holding that, to the extent the part of the aforesaid amount represents an asset on which depreciation is allowed or allowable, the value of the asset is includible under rule 19A(2)(i), and, to the extent the value of asset on which no depreciation is allowed or allowable, its value is includible under rule 19A(2)(ii). In this view of ours, we are supported by the Supreme Court decision in the case of Scientific Engineering House P., Ltd. v. CIT (1985) 157 ITR 86. That being so, we answer the first question in the affirmative and in favour of the assessee.
4. The fact relevant for the purpose of the second question are that the amounts on which interest was earned by the assessee to the extent of Rs. 7,07,390 represented the assessee's money required for its business. Since, however, the monies were not required immediately, the assessee made short-term deposits of these monies and earned interest thereon. The question that arose for the purpose of granting relief under section 80-I was whether such an income was a business income so as to earn benefit under that section. The assessee's case was that the language used in section 80-I, viz., "income attributable to the business " was wider than the expression "income derived from the business". On the facts stated above, we are in agreement with the Tribunal that the interest income is attributable to the business income of the assessee which is a priority industry in this case and, therefore, relief under section 80-I was justifiably allowed. Accordingly, the second question is also answered in the affirmative and in favour of the assessee.
5. As regards the third question, the admitted position is that the assessee is an industrial undertaking in existence and that the deposits of Rs. 1.40 crores represented the monies which the assessee had set apart for the expansion programme and for discharging various liabilities of the industrial undertaking. It is not something which has nothing to do with the industrial undertaking. This is the money collected for the purpose of the industrial undertaking, and, therefore, following our court's decision in the case of CIT v. Hindustan Antibiotics Ltd., (1982) 137 ITR 42, we answer the third question also in the affirmative and in favour of the assessee.
6. No order as to costs.