Madhya Pradesh High Court
Commissioner Of Income-Tax vs Everest Cold Storage on 16 January, 1996
Equivalent citations: [1996]220ITR241(MP)
Author: A.K. Mathur
Bench: A.K. Mathur
JUDGMENT
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer of this court :
" Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax was correct in law in invoking his jurisdiction under Section 263 of the Income-tax Act, 1961 ?"
2. The brief facts giving rise to this reference are as follows: The assessee is a partnership-firm deriving income from business of running a cold storage and ice factory. In the course of assessment proceedings, it claimed an investment allowance under Section 32A of the Act on the plant and machineries installed in the cold storage plant. This was allowed by the Income-tax Officer. The assessee also claimed relief under Section 80J of the Act in respect of the cold storage. The Income-tax Officer also allowed relief under Section 80f of the Act. Since there was not enough profit during the years under consideration for allowing the relief under Section 80J, the Income-tax Officer recorded a finding that the relief under Section 80J admissible to the assessee during the years under consideration shall be carried forward to be set-off against the profits of the future years. Subsequently, the Commissioner of Income-tax scrutinised the records and came to the conclusion that the Income-tax Officer had erred in his decision to the prejudice of the Revenue on both the points. Therefore, the Commissioner of Income-tax exercised the jurisdiction under Section 263 of the Act and issued a show-cause notice to the assessee. The assessee appeared before the Commissioner and submitted that the Income-tax Officer had committed no error and there was no prejudice to the Revenue in the original assessment order. However, the Commissioner of Income-tax disagreeing with the contention raised by the assessee, passed an order under Section 263 of the Act on September 6, 1983, and directed a re-inspection in the matter by the Income-tax Officer. Aggrieved by this order, the assessee approached the Tribunal and the Tribunal reversed the finding of the Commissioner of Income-tax and held that the Income-tax Officer was right in granting reliefs to the assessee. Hence, the Revenue approached the Tribunal for making a reference to this court and as such the Tribunal has referred the aforesaid question for answer of this court.
3. We have gone through the record and heard learned counsel for the parties. In fact, it appears to us that the order of the Commissioner of Income-tax passed under Section 263 of the Act is not perverse, but it is based on proper appreciation of the facts and the law.
4. Now, coming to the question whether the assessee is entitled to investment allowance on the cold storage or not, the reasoning given by the Tribunal for permitting the investment allowance on the cold storage with reference to the definition given in the Factories Act is that since cold storage is a "factory" and is, therefore, a manufacturing unit, the assessee is entitled to the benefit of investment allowance. This reason on the face of it appears to be erroneous. The definition of "factory" given in the Factories Act is given in a different context and the same cannot be used for the purpose of finding out whether the unit is a manufacturing unit under the Income-tax Act. This was totally an erroneous approach on the part of the Tribunal and this court in Mittal Ice and Cold Storage v. CIT [1986] 159 ITR 18 has negatived this contention and observed as follows (headnote) :
" The operation of a cold storage plant does not result in bringing into existence any new and distinct marketable commodity. The articles or goods preserved in a cold storage plant remain the same as they were prior to such preservation. There is no manufacture or production of 'cool air' because no marketable product is brought into existence by the operation of a cold storage plant.
Therefore, an assessee who operates a cold storage plant is not entitled to claim investment allowance under Section 32A in respect of machinery of the cold storage plant."
5. Therefore, the finding given by the Tribunal is erroneous on the face of it and the view taken by the Commissioner of Income-tax is well-founded and he rightly exercised the jurisdiction under Section 263 of the Act for setting aside the order of assessment made by the Income-tax Officer and remanding the matter to the Income-tax Officer for fresh investigation.
6. Coming to the next question regarding investment allowance on the ice manufacturing plant, since a combined account of the cold storage as well as the ice plant was maintained, it was not possible to ascertain the exact amount for giving the benefit of investment allowance on the ice manufacturing plant under Section 32A of the Act, but at the same time the Commissioner has held that ice plant is a manufacturing unit and is entitled to be given investment allowance under Section 32A of the Act. Therefore, he has remitted the matter for investigation by the assessing authority and rightly so.
7. It is true that when both the accounts are combined it is difficult to ascertain how much of the investment has been made on the ice plant so as to show the investment under Section 32A of the Act distinctly. However, the Commissioner has already taken a view that ice plant is entitled to the benefit under Section 32A of the Act being a manufacturing unit, therefore, he has left it open to the Assessing Officer to investigate into this specific aspect and allow the claim of the assessee keeping in view the above finding. This view of the Commissioner is also justified.
8. Now, coming to the question regarding deduction under Section 80J of the Act, both the units, i.e., cold storage and the ice plant are combined units and there is a composite unit as registered under the Industries Act. But there is no such material on record to show that they are inter-mingled with each other and one cannot survive without the other. It is not always necessary that a storage plant should have ice manufacturing plant also. It may be possible, and some times it may not be possible, but that can be found out only on investigation of the entire plant. Therefore, this matter has also been left open by the Commissioner of income-tax to investigate whether both are so interconnected with one another and in fact one machinery is used for cold storage and manufacturing of ice. The Tribunal has assumed it so, but there is no such evidence available on record. It is also pointed out that the assessee increased the capacity of cold storage by 1,400 M. T. which commenced production from March 9, 1980, whereas the ice factory commenced production from January 15, 1979. It is, therefore, not possible to ascertain the income from the cold storage because of the joint account kept by the assessee, and in that view, the Commissioner observed that the cold storage as a whole and the ice factory as separate unit will be entitled to deduction under Section 80J if the conditions prescribed in that section are fulfilled. Therefore, we leave this matter still open for investigation by the Assessing Officer.
9. Learned counsel for the Revenue has invited our attention to a decision of the Kerala High Court in CIT v. Travancore Rayons Ltd. [1987] 164 ITR 134 and submitted that where it is not possible to ascertain the facts from the joint accounts, then the benefit of Section 80J may be denied to such units. It is observed in that case that no separate accounts are maintained and it becomes necessary to make an allocation of all the liabilities, apart from the liability directly related to the new unit. It is also observed that it is not possible to find out from the accounts, the profits the assessee has derived from the new establishment. In other words, the assessee itself has treated the new plant as forming part of the existing business. In this connection, Shri Nema, learned counsel for the assessee, invited our attention to the decision of the Supreme Court in Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195. In that case also, their Lordships while disposing of the petition observed as under (page 207) :
" We may observe that we are not required to consider in these appeals how profit will be actually calculated in order to determine the quantum of exemption of six per cent. of the profits on the capital employed. If difficulties are insurmountable and, therefore, profit cannot be ascertained, that will be a different question in the course of practical application of the section. That kind of a possible difficulty should not weigh in the true construction of Section 15C. In the present case the assessee claimed profit and there was no difficulty about ascertainment of the exempted profit as separate books of account were kept and the undertakings were at separate places."
10. Section 15C of the 1922 Act is pari materia with Section 80J of the 1961 Act. This decision has been followed by their Lordships in CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367 (SC). Thus, wherever it is possible to calculate the profit attributable to the new unit from the joint account, the benefit of Section 80J should be given to the assessee. In fact, Section 80J is meant for encouraging the entrepreneurs for establishment of new industrial undertaking and the said provision is mainly for the benefit of new entrepreneurs and it should be construed positively and, therefore, if it is possible to grant the benefit, the Tribunals and the courts should adopt a positive approach. It is, therefore, open for the Income-tax Officer to ascertain whether segregation of accounts is possible and if it is possible the benefit of Section 80J of the Act should be given to the assessee subject to fulfilment of other conditions prescribed in that section. The Commissioner, therefore, Observed that this exercise should be done by the Income-tax Officer and it is further observed that in case such segregation of accounts is not possible for allowing the relief, the relief allowed under Section 80J of the Act should be withdrawn for the assessment years 1980-81 and 1981-82. He also directed the Income-tax Officer to make spot inspections of the machineries used in the new unit before deciding the issue one way or the other. This approach of the Commissioner also appears to be well justified and there is no reason why the Tribunal should reverse this finding.
11. Lastly, regarding carry forward of the unabsorbed depreciation and carry forward of the relief under Section 80J to be set-off against the profits of future years, their Lordships of the Supreme Court in Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512 held that unabsorbed depreciation can be carried forward to the next assessment year and to future years if it is not possible to absorb the same against the partners' profit. Thus, it is clear that the unabsorbed depreciation has to be apportioned among the partners and if it cannot be absorbed, then it will revert to the firm. Therefore, since this view has already been taken by the Supreme Court, we do not propose to refer to any further decision on this aspect. This view has been reiterated by their Lordships in CIT v. Singh Transport Co. [1993] 200 ITR 574. Similar is the position regarding carry forward of the relief under Section 80J as held by this court in CIT v. Caps and Caps [1989] 179 ITR 235. Therefore, on both these aspects, the view taken by the Commissioner is correct.
12. In the result, the view taken by the Commissioner is right. Hence, we answer this reference in favour of the Revenue and against the assessee.