Income Tax Appellate Tribunal - Pune
Goa Shipyard Ltd. vs First Income-Tax Officer on 18 July, 1989
Equivalent citations: [1989]31ITD10(PUNE)
ORDER
R.L. Sangani, Judicial Member
1. This para is not reproduced here as it involves minor issue.]
2. We shall first deal with the departmental appeal for assessment year 1981-82. Ground No. 1 is a general ground. Grounds 2 to 4 relate to the claim for depreciation, investment allowance, and additional depreciation on machinery which had been received under Norwegian Aid. The fact that the abovementioned allowances are allowable is not in dispute. The only dispute is the amount on which the said allowances should be calculated. The assessee has claimed the above allowances of Rs. 9,99,611. The details are as under :
Rs.
CIF value of plant & machinery under 6,76,336
Norwegian aid
Customs duty and. clearance charges 3,05,410
Installation charges incurred 17,865
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9,99,611
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The Income-tax Officer has allowed the abovementioned allowances on Rs. 3,23,275 which is the total of item Nos. 2 and 3 above. According to the ITO the assessee was not required to pay any price for the said plant and machinery which had been received under the Norwegian Aid and as such the CIF value of Rs. 6,76,336 should not be taken into consideration for computing the above-mentioned allowances. The plea of the assessee was that the said amount should be taken into account for calculating the above-mentioned allowances. The assessee went in appeal before the CIT(A). The CIT(A) has held that the above amount was liable to be taken into account for calculating the abovementioned allowances. He relied on Explanation 2 to Section 43(1) of the Income-tax Act, 1961. The department is now in appeal before us and grounds 2 to 4 relate to this controversy.
3. We have heard the parties. Copy of agreement between the assessee and Govt. of India is at pages Nos. 1 to 22 of the paper book. This agreement is for construction of one Exploratory Fishing Vessel (Training version) and one Exploratory Fishing Vessel (Survey version) for the Govt. of India. This agreement is dated 1-12-1977. It is mentioned in this agreement that earlier the Govt. of India had signed an agreement dated 22-11-1975 on Boat Building Programme with the Govt. of the Kingdom of Norway for development of fisheries in India and that under the said agreement the Govt. of Norway had undertaken to provide technical and financial assistance including supply of equipments and materials for the yard and for the vessels for the implementation of Boat Building Programme of the Govt. and for this purpose the assessee Goa Shipyard Ltd. had been selected as one of the Building Yard where two large fishing vessels to be used for exploratory fishing, charting of fishing grounds, evaluation of fishing methods and gear as well as training of personnel would be constructed initially under this contract. It is further mentioned that the vessels which were to be constructed would be delivered to the Govt. for operation by the Exploratory Fishery Project, Bombay and Central Institute of Fisheries, Cochin. It was further mentioned in the said agreement that the Govt. of Norway, being responsible for the administration of the programme, was desirous of getting built Exploratory Fishing Vessel (Survey version) and Exploratory Fishing Vessel (Training version) and that the assessee had undertaken to construct the vessels at their Shipyard in Goa. It was also mentioned in the said agreement that as a first step towards the implementation of Boat Building Programme the Govt. of the Kingdom of Norway had agreed under the agreement dated 22-11-1975 to supply free of cost to the Govt. the equipment and machinery required for strengthening the facilities in the Contractors yard for the construction of the vessels and that the said machinery and equipment would belong to the contractors. A list of said equipments and machineries to be supplied for that purpose was set out in annexures to the agreement.
4. It is under the above agreement that plant and machinery with which we are concerned was given to the assessee. As per the terms of the agreement the said plant and machinery was to belong to the assessee. It is obvious that the said plant and machinery was received by the assessee as gift from the Norwegian Govt. through the Govt. of India towards implementation of Boat Building Programme. It is on this plant and machinery that the abovementioned relief have been claimed. Whether we treat it as gift from Government of India or gift from Government of Norway, the legal position regarding cost to the assessee would be the same.
5. The CIF value of the said plant and machinery, as already stated was Rs. 6,76,336. The question is whether on the above facts the said amount of Rs. 6,76,336 was liable to be taken into account for computing the abovementioned reliefs namely depreciation, investment allowance, additional depreciation and extra shift allowance.
6. The relevant provision is Section 43(1) and Explanation 2 to said section. Section 43(1) lays down that actual cost means actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly met by any other person or authority. Explanation 2 lays down that where the asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be on written down value thereof as in the case of previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, whichever is less.
7. The first submission on behalf of the department was that on the facts of this case it should be held that the cost of plant and machinery in question had been met directly or indirectly by the Norwegian Govt. and as such the CIF value was not liable to be taken into account. We are unable to accept this submission. This is not a case where the assessee has purchased plant and machinery and the cost of plant and machinery purchased by the assessee has been met directly or indirectly by any other person or authority. This is a case where the plant and machinery itself has been given as gift to the assessee. Consequently we are unable to accept this submission that it should be held that the cost of plant and machinery has been met by the Norwegian Govt. We hold that the actual cost to the assessee would be required to be determined in accordance with the provisions of Explanation 2 to Section 43(1) of the Act.
8. As already stated Explanation 2 to Section 43(1) of the Act lays down that where an asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the written down value thereof in the case of previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, whichever is less.
9. In the present case the previous owner was the Govt. of Norway. There was no question of any depreciation having been allowed to the Govt. of Norway in any prior year in respect of plant and machinery in question. The CIF value on which customs duty was paid by the assessee represented fair market value on the date of acquisition. This is not disputed on behalf of the department. In the circumstances the said value should be regarded as the actual cost of the asset to the assessee under Explanation 2 to Section 43(1) of the Act. The submission on behalf of the department was that since no depreciation had been allowed to the Govt. of Norway in respect of the said plant and machinery in any prior year, the written down value in the hands of the Govt. of Norway could not be determined and as such the Explanation 2 would not be applicable. We are unable to accept this submission. Mere fact that no depreciation had been allowed to the Govt. of Norway in any prior year in respect of the said plant and machinery would not lead to the conclusion that Explanation 2 would not be applicable at all. Explanation 2 lays down that either the written down value in the case of previous owner should be taken as cost to the assessee or the market value on the date of acquisition should be taken as cost to the assessee. The lesser of the two figures should be taken as cost to the assessee. The CIF value represents both the value in the hands of the Govt. of Norway and also the market value on the date of acquisition. Consequently the CIF value mentioned above should be taken as cost to the said asset to the assessee under Explanation 2 to Section 43(1) of the Act.
10. The ITO has relied on the decision of the Kerala High Court in the case of Kerala Premo Pipe Factory Ltd. v. CIT [1979] 116 ITR 626. The learned departmental representative has also relied on the said decision. That decision does not support the stand of the department. The Kerala High Court has not expressed any opinion on the point in controversy. The Kerala High Court has recorded the arguments made by the department and the arguments by the counsel of the assessee before it and had restored the matter to the Appellate Tribunal to decide the question in the light of several decisions. Thus the said decision of Kerala High Court is not an authority for the proposition that when the plant and machinery is received by an assessee as gift from foreign Govt., the CIF value of said plant and machinery cannot be regarded as cost to the assessee.
11. In this connection the decision of the Calcutta High Court in the case of Simon Carves India Ltd. v. CIT [1983] 141 ITR 712 is relevant. In that decision the assessee had imported two mobile cranes from UK. Those cranes had been given to the assessee by the company as gifts. In that case the department had not disputed that the depreciation was allowable on the value of the cranes. The question was as to what value should be taken. In that case cranes had been received as gift under certain conditions which affected the value. We are not concerned with the value aspect. What is relevant for our purpose is that the value of property received as gift would be liable to be taken into account for computing depreciation etc. In the present case CIF value represents the market value on the date of acquisition and that amount also represents the value in the hands of the Govt. of Norway. Consequently that value would be liable to be taken into account. In fact in the present case it is not the department's case that any other value would be liable to be taken into account. The case of the department is that the value of plant and machinery would not be liable to be taken into account at all because of the fact that no depreciation had been allowed to the Govt. of Norway in any prior year. We have already held that the fact that no depreciation had been allowed to the Govt. of Norway in any prior year would not render Explanation 2 ineffective. Explanation 2 would be applicable and CIF value would be liable to be taken into account.
12. We may in this connection mention that under the 1922 Act prior to the amendment made by the Indian Income-tax (Amendment) Act, 1953 with effect from 1-4-1952 the position was that in cases of assets obtained by inheritance, gifts etc. the actual cost of such assets was taken to be market value, i.e. real value at the time of gift, inheritance etc. and on that value depreciation was allowable in view of judicial decision in the case of CIT v. Solomon & Son? [1933] 1 ITR 324 (Rangoon) by the Amending Act aforesaid Section 10(5)(c) was inserted, the provisions of which corresponded to those of Explanation 2 to Section 43(1) of the Income-tax Act, 1961. Thus the position now is that where an assessee acquires an asset by way of gift or inheritance its actual cost to him would be itself written down value in the hands of the predecessor-in-title on the date when the gift became effective and that if the market value of the asset on the date of gift or on the date of inheritance was less than the said written down value then the market value would be required to be adopted. We have applied the said principle in deciding this point. We accordingly confirm the order of the CIT(A) on this point and reject the grounds raised by the department.
13 to 23. [These paras are not reproduced here as they involve minor issues.]