Income Tax Appellate Tribunal - Madras
Kanyakumari District Co-Operative ... vs Income-Tax Officer on 12 February, 1992
Equivalent citations: [1992]41ITD317(MAD)
ORDER
S. Kannan, Accountant Member
1. These two appeals by the assessee give rise to an identical issue. They were, therefore, heard together and are disposed of by a common order.
2. To appreciate the issue in these cases, it is necessary at the outset to state some facts. The assessment for the assessment year 1982-83 was completed on 19-3-1985, determining the unabsorbed depreciation to be carried forward to subsequent year(s) at Rs. 13,68,053. The investment allowance admissible to the assessee under Section 32A of the Act for that assessment year was also quantified at Rs. 7,22,521 and allowed to be carried forward to the subsequent assessment year(s).
The assessment for the assessment year 1983-84 was completed on 31-3-1986. The computation portion of the assessment order reads as follows :
1. Income from business returned Rs. 26,10,390 Less : Gratuity paid and debited to provisions a/c Rs. 31,150
-------------------
Rs. 25,79,240
-------------------
This is adjusted against :
1. Unabsorbed depreciation b/f from 1982-83 Rs. 13,68,053
2. Business loss 1982-83 Rs. 10,501
3. Unabsorbed investment allowance b/f from 1982-83 Rs. 7,97,953
4. C/f business loss in Assessment Year 1981-82 (as per revision order) Rs. 18,733
5. Current years investment allowances Rs. 4,15,024
-----------------
Rs. 26,10,264
---------------
Net loss Rs. 31,024
II. Income from other sources as returned Rs. 15,882
---------------
Net loss representing unabsorbed investment allowance
c/f in 1983-84 Rs. 15,142
---------------
CLOSED AS 'ND' FOR 1983-84.
The assessment for the assessment year 1984-85 was completed on 27-1-1987. The relevant portion of the assessment order reads as under :-
Rs.
Income from business (as per revised statement) (-) 18,43,994
Less: Disallowed under Section 43B (Loss) 885
-------------
18,43,109
Income from other sources 25,306
--------------
(-) 18,17,803
CLOSED AS 'ND' FOR 1984-85
To be carried forward:
(1) Unabsorbed depreciation loss for 1984-85 Rs. 18,17,803
--------------
(2) Unabsorbed investment allowance 1984-85 Rs. 4,48,726
--------------
(3) Unabsorbed investment allowance for 1983-84 (-) 15,142.
--------------
3. Subsequently, invoking the powers vested in him by and under Section 263 of the Income-tax Act, 1961, the Commissioner of Income-tax, Madurai, called for the assessment records of the assessee and examined them. On such an examination, he came to the following two conclusions:-
(a) During the previous year relevant to the assessment year 1982-83, the assessee had suffered a net business loss of Rs. 13,94,062. Section 32A(3), dealing with the carry forward of unabsorbed investment allowance, contemplates the carry forward of unabsorbed investment allowance in two types of cases: (i) cases in which the business income is insufficient to absorb, in full, the investment allowance admissible to the assessee; and (ii) cases in which the business income of the assessee is 'nil' . According to the Commissioner, cases in which business loss has occurred, i.e., cases in which the business results in a negative figure, there can be no question of allowing the assessee the benefit of carry forward of investment allowance. The Commissioner, therefore, concluded first that the benefit of carry forward of investment allowance was wrongly given to the assessee in the assessment for the assessment year 1982-83; and secondly, that the set off of the investment allowance carried forward from the assessment year 1982-83 against the business profits relating to the assessment year 1983-84 was erroneous in that it was prejudicial to the interests of the revenue.
The Commissioner of Income-tax took a similar line in relation to the assessment for the assessment year 1984-85. For that year also, the assessee's business has resulted in a negative figure and that consequently, the Assessing Officer was not justified in allowing the assessee the benefit of carry forward of investment allowance attributable to that assessment year.
4. He accordingly put the assessee on notice of his intention to pass suitable orders on this issue. The assessee responded by contending that there was nothing in the scheme of Section 32A of the Act to warrant the conclusion drawn by the Commissioner of Income-tax, and praying that the proceedings under Section 263 be dropped. The said contention did not find favour with the CIT who passed the impugned orders in revision. In the order in revision relating to the assessment year 1983-84, he directed the Assessing Officer "to complete the assessment afresh after duly disallowing the claim for setting off of the unabsorbed investment allowance brought forward from the assessment year 1982-83". In the order in revision relating to the assessment year 1984-85, he directed the Assessing Officer to withdraw the benefit of carry forward of unabsorbed investment allowance erroneously allowed to the assessee.
5. It is in these circumstances that the assessee is now before us.
6. Shri G. Bhaskar, the learned counsel for the assessee, took us through the facts and circumstances of the case, and contended that the CIT was not justified in interpreting the provisions of Section 32A the way he did. Particularly as respects the order in revision relating to the assessment year 1983-84. Shri Bhaskar made the further point that the CIT could not have interfered with the assessment for the assessment year 1983-84 without first interfering with the assessment for the assessment year 1982-83. And the CIT could not have interfered with the assessment because, the said assessment having been made on 19-3-1985, any recourse to Section 263 of the Act was hit by the bar of limitation even by 31-3-1987. Clearly, the CIT had sought to achieve indirectly what he could not have achieved directly. Shri Bhaskar, therefore, contended that the assessee was entitled to succeed.
7. On his part, Shri Alam, the learned Departmental Representative, strongly supported the impugned orders of the OIT.
8. We have looked into the facts of the case. We have considered the rival submissions.
9. The Income-tax Act, 1961 is basically a fiscal statute; that is to say, its aim and objective is to collect tax. Even so, Parliament, in its wisdom, has incorporated certain provisions into the Act, with a view to achieving the objectives of State policy in diverse fields. In the field of industry, for example, the State policy is obviously to give a fillip to industrialisation of the country. It was, therefore, that Parliament has introduced many provisions into the Income-tax Act, 1961, giving various incentives to industry. Thus, even under the Income-tax Act, 1922, Section 15C provided incentive in the form of tax holiday. The same incentive was continued under the new Act also - See Section 80J and Section 80HH of the Act. The Act also provides incentives directed towards modernisation of plant and machinery- See Section 33 (Development Rebate), and Section 32A (Investment Allowance). We also have incentives in the form of accelerated rates of depreciation - See Section 32(1)(iv), (v) and (vi) (initial depreciation), and Section 32(1)(iia) (additional depreciation).
10. In these matters, the scheme of the Act is first to identify the areas in which it is necessary to give incentives; secondly, to lay down the pre-conditions which must be satisfied before the benefit of the incentives could be claimed; and thirdly, to lay down the mode and mechanics of quantifying the incentives. Having regard to the significant and indeed salutary roles which the incentives are designed to play, Parliament has taken care to ensure that the benefit of the incentives is not lost merely because the assessee did not have adequate taxable income. It was, therefore, that the concept of carry forward of unabsorbed development rebate, investment allowance and the like was incorporated into the Act.
11. A couple of points may here be made. The right to get the benefit of a particular incentive is to be distinguished from the amount or the quantum of the incentive in question. In order to acquire the right to get the benefit of an incentive, the assessee must first establish that it is entitled to the incentive in question. This the assessee will be able to do only if it satisfies the pre-conditions - threshold conditions - prescribed by the statute. Once the 'threshold conditions' are satisfied - there can be no compromise on them - the other provisions of the Act relating to a particular incentive must be so construed as to ensure that the benefit of the incentive reaches the assessee and is not denied on flimsy, technical grounds. In other words, those provisions which confer on the assessee the right to a particular incentive will have to be construed strictly. The other incidental provisions must be so construed as to ensure that the benefit reaches the assessee.
12. We may now examine the provisions of Section 32A, which govern the grant of investment allowance, in the light of the foregoing principles. Investment allowance, like development rebate, is an incentive designed to facilitate modernisation of plant and machinery. The right to get the benefit of investment allowance is conditional upon the assessee's satisfying the 'threshold conditions' laid down by and under Section 32A(2) or, as the case may be, Sections 32A(2B) or 32A(2C). Once the assessee satisfies the threshold conditions, the assessee gets the right to receive the said incentive. If, on the contrary, the assessee fails to satisfy one or more of the threshold conditions, the assessee will not be entitled to the said allowance; and it will not avail the assessee to argue that the provisions of Section 32A, which confer a benefit on the assessee, should be construed liberally. This is because, as pointed out earlier, there can be no compromise on the 'threshold conditions'.
13. Certain incidental conditions have also been prescribed and they are contained in Section 32A(4).
14. We then have Section 32A(3) which is designed to achieve a three-fold objective. It declares first that in cases where the total income [within the meaning of Section 32A(3)] of the assessee is insufficient to absorb the investment allowance admissible to the assessee, then the allowance in question will be limited to the quantum of the total income. In other words, the grant of investment allowance in such cases will be so regulated as to ensure that the total income of the assessee is reduced to 'nil'.
Secondly, the unabsorbed portion of the investment allowance in the aforesaid cases, and the whole of the investment allowances in cases where the total income [within the meaning of Section 32A(3)] is 'nil', is to be carried forward to the following assessment year(s) in the manner stipulated in Clause (ii) of Section 32A(3). The concept of carry forward has obviously been incorporated in the said section with a view to ensuring that the incentive in the form of incentive allowance is as far as possible rendered real and not illusory.
Thirdly, the Explanation to Section 32A(3) details the order in which the investment allowance carried forward from more than one previous assessment year is to be adjusted against the total income of the assessee in the assessment year concerned.
15. One significant aspect of the matter here needs to be highlighted particularly in the context of Section 32A(3)(i); and that is that the investment allowance that is admissible to an assessee under Section 32A(1) is quantified not with reference to the business profits or the total income of the assessee. It is quantified or expressed as a percentage of the actual cost to the assessee of the ship, aircraft, machinery and plant. In other words, the first step is to quantify the total amount of investment allowance which is admissible under Section 32A(1). As already pointed out, if the assessee satisfies the threshold conditions, then it is entitled to the benefit of investment allowance computed in the manner laid down in Section 32A(1). Section 32A(3) merely details the mode and mechanics of adjusting the allowance due to the assessee under Section 32A(1). If the total income of the assessee [within the meaning of Section 32A(3)] is insufficient to absorb in its entirety the investment allowance due to the assessee, then insofar as the assessment year in question is concerned, the quantum of the actual allowance is limited to the quantum of the said total income, the unabsorbed portion of the allowance being carried forward to the subsequent years.
16. In cases where the aforesaid total income is 'nil', no part of the investment allowance due to the assessee under Section 32 A( 1) can be absorbed and consequently this section stipulates that the entirety of the unabsorbed allowance would be carried forward to the subsequent year. Here again the admissibility of the allowance under Section 32A(1) does not depend upon the availability of a positive figure of total income; for, under the scheme of the section, the quantum of the allowance admissible, to the assessee is computed or expressed as a percentage of the actual cost to the assessee of the ship, aircraft, machinery or plant. Though the assessee is entitled to the allowance, no allowance is actually capable of being granted for the simple reason that the assessee's total income is not a positive figure. And the scheme of the Act is to allow the benefit of carry forward of the entirety of the unabsorbed investment allowance in such cases.
17. In matters relating to carry forward of unabsorbed investment allowance, Section 32 A no doubt refers to only two situations, namely, (1) where the total income [within the meaning of Section 32A(3)] of the assessee, though being a positive figure, is insufficient to absorb the investment allowance in its entirety, and (2) cases in which the assessee's total income [again, within the meaning of Section 32A(3)], is 'nil'. At the first blush, it would appear that the scheme has omitted to take into account cases where the total income of the assessee [within the meaning of Section 32A(3)] is a negative figure. A little reflection will, however, reveal that there is no causus omissus here. The legislative intent, clearly, is to give an incentive in the form of investment allowance. Investment allowance, by reducing the total income of the assessee reduces the tax payable by him. If the total income of the assessee is more than sufficient to absorb the allowance, no difficulty arises. Difficulty, however, arises in cases where either the total income is not sufficient to absorb in full the investment allowance due to the assessee, or where there is no total income at all to start with. Since the legislative intent is to allow the assessee the benefit of carry forward of unabsorbed investment allowance, Section 32A(3)(i) stipulates that in the former type of cases the sum to be allowed by way of investment allowance shall be only such amount as is sufficient to reduce the said total income to 'nil'. But the Legislature did not stop there. It went on to provide that in such cases, the unabsorbed portion will be carried forward to the subsequent assessment year(s).
18. That leads us on to the third category of cases where there is no total income to start with. In cases falling under this category, the Legislature has clearly provided that the entirety of the investment allowance will be fully carried forward to the subsequent year(s). Clearly, the third category of cases is not only a residuary category but also one that presents a picture diametrically opposite to the one presented by the first category. In other words, while the first category comprises cases where the total income is more than sufficient to absorb in full the investment allowance, the third category comprises cases in which there is no total income to start with. True, the section has labelled this category as category of cases in which the total income of the assessee is 'nil'. Even so, as we see it, there is no warrant, either in law or in logic, to come to the conclusion that when the section talks of 'nil' total income, it talks only of zero total income and not of losses. Conceptually speaking, cases of losses are also cases of 'nil' income.
19. Even assuming that conceptual nuances warrant the formation of a separate category in respect of loss cases, we are not prepared to take such a hyper-technical view as had found favour with the CIT. This is because whilst a strict construction is warranted while determining whether the assessee has a right to the allowance, liberal construction is indicated in cases where the assessee, though lawfully entitled to the allowance, is not able to reap the full benefit either because of paucity of profits or even because of losses. A strict, sterile adherence to the letter of the law invariably spills the essence of law to the ground. We, therefore, hold that the assessee is entitled to the benefit of carry forward of unabsorbed investment allowance even in cases of losses.
20. In the case before us, it is not the case of the Commissioner of Income-tax that the assessee did not acquire the right to investment allowance, to start with. His case is also not that the quantum of the allowance was wrongly calculated. His case is that the assessee incurred losses in the two years of accounting in question, and that, ergo, the assessee is not entitled to the benefit of carry forward of the investment allowance. As we see it, the said conclusion of the Commissioner of Income-tax goes counter to the very scheme of the Act. We, therefore, hold that the CIT was not justified in passing the impugned orders in revision. We, therefore, set aside the two orders in question and restore that of the Assessing Officer.
21. In the result, the assessee's appeals are allowed.