Madras High Court
Commissioner Of Income-Tax vs Century Flour Mills Ltd. on 30 April, 1998
Equivalent citations: [1999]239ITR23(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT
1. This is a reference under the Income-tax Act, 1961. The assessee is a company engaged in milling wheat flour. The year of assessment with which we are concerned is 1978-79, the relevant previous year ended on March 31, 1978. For the assessment year 1977-78, the assessee had installed and put to use certain plant and machinery, the cost of which amounted to Rs. 2,16,744 and claimed investment allowance of Rs. 54,186 being 25 per cent, of the cost. Originally, the Income-tax Officer rejected the claim of the assessee for investment allowance, but later on accepted the claim of the assessee by a rectification order dated April 16, 1980, stating that the assessee was eligible for investment allowance claimed which may be considered for deduction on creation of adequate reserves. In the next assessment year 1978-79 with which we are concerned, the assessee claimed carry forward and set off of the investment allowance granted by the said order. The Income-tax Officer rejected the claim of the assessee on the ground that in the year of installation, the assessee had not manufactured any of the Articles specified in the Ninth Schedule to the Act. The Ninth Schedule was substituted by the Eleventh Schedule in Section 32A of the Act by a subsequent amendment made by the Finance (No. 2) Act, 1977, with effect from April 1, 1978. He, therefore, held that the assessee was not entitled to deduction, which was confirmed, on appeal, by the Commissioner of Income-tax (Appeals).
2. The Appellate Tribunal, on appeal by the assessee, however, held that the amendment made by the Finance (No. 2) Act, 1977, with effect from April 1, 1978, was retrospective in character and the investment allowance was available for machinery installed on or after March 51, 1976, and the amendment would apply to the assessment year 1977-78 as well.
3. The Revenue challenged the order of the Appellate Tribunal and the following question of law has been referred to us for our consideration :
"Whether, on the facts and in the circumstances of the case, the assessee was entitled to investment allowance in respect of cost of installation of machinery incurred in the previous year relating to the assessment year 1977-78 in view of the amendment of Section 32A by the Finance (No. 2) Act, 1977, enlarging the scope of that section ?"
4. Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the amendment made by the Finance (No. 2) Act, 1977, is not retrospective in nature and the amendment made would apply only to the assessment year 1977-78 and since the machinery was installed in the year prior to April 1, 1978, the assessee was not entitled to investment allowances as in the relevant previous year, the assessee had not manufactured any of the Articles found in the Ninth Schedule to the Act. He further submitted that it is open to the Income-tax Officer to consider the request of the claim of deduction towards investment allowance in the year of grant of allowance notwithstanding the fact that the preceding Income-tax Officer had determined that the assessee was entitled to investment allowance. He relied upon a decision of the Supreme Court in the case of CIT v. Manmohan Das, [1966] 59 ITR 699 and the decision of the Karnataka High Court in CIT v. Valliappa Textiles Ltd. [1988] 172 ITR 168.
5. We hold that the view of the Appellate Tribunal that the amendment made by the Finance (No. 2) Act, 1977, enlarging the scope of Section 32A in retrospective operation would apply even for the assessment year 1977-78 is plainly erroneous in law. The amendment makes it clear that it would apply only from April 1, 1978, and the effect of amendment is that the investment allowance is allowable on Articles or things not specified in the Eleventh Schedule instead of the corresponding provision that existed prior to the amendment qualifying for investment allowance only the manufacture of Articles or things specified in the Ninth Schedule prior to the amendment. In other words, the scope of the provision is wider. When the Legislature has specifically indicated that the amendment would apply only from April 1, 1978, the Tribunal is not correct in holding that the amendment would apply even for the period prior to April 1, 1978, and the view of the Appellate Tribunal that the amendment is retrospective in nature is plainly erroneous in law. The Tribunal arrived at such a conclusion placing reliance on the Budget Speech by the Finance Minister of the Government of India and the Speech of the Finance Minister does not indicate that the provision was given retrospective effect and Parliament has also not enacted the law with retrospective operation. Therefore, that part of the order of the Appellate Tribunal holding that the amendment is retrospective in nature is not sustainable in law.
6. However, there is another point that arises out of the order of the Appellate Tribunal. The Income-tax Officer while completing the assessment for the assessment year 1977-78, though initially rejected the claim of the assessee for investment allowance, by an order of rectification subsequently allowed the claim of the assessee for investment allowance. It is not disputed that the order has become final and the assessee's contention was that so long as the order operates, the assessee is entitled to take the benefit of the order and is entitled to carry forward the investment allowance provided under Section 32A(3) of the Act. Under Section 32A(3) of the Act, the assessee is entitled to carry forward the amount of investment allowance to the following assessment year and in the subsequent assessment year, the investment allowance can be set off against the income of the subsequent year and the balance remaining can be carried forward to the subsequent assessment year. The provision makes it clear that the succeeding Income-tax Officer has to carry forward the investment allowance earlier granted by the preceding Income-tax Officer and it is not his duty once again to go into the question whether the order passed by the preceding Income-tax Officer granting investment allowance was correct or not. The order passed by the preceding Income-tax Officer is a statutory order and has legal consequences and one such legal effect is to grant the statutory benefit of carrying forward of the unabsorbed investment allowances of the earlier year. Therefore, it is not permissible or open to the succeeding Income tax Officer to sit in judgment over the order passed by the preceding Income-tax Officer and once again determine the question whether the investment allowance granted by the preceding Income-tax Officer was correct or not. The refusal by the succeeding Income-tax Officer in charge of the assessment of income for the subsequent year is quite incompatible with and contrary to the earlier order of the Income-tax Officer granting the relief and allowing it to be carried forward.
7. Now, let us consider the decision relied upon by learned counsel for the Revenue. In CIT v. Manmohan Das, [1966] 59 ITR 699, the Supreme Court held that the question whether the loss in any year may be carried forward to the following year and set off against the income of the subsequent year has to be determined by the Income-tax Officer who deals with the assessment of the subsequent year and the decision rendered by the Income-tax Officer who has computed the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. This decision of the Supreme Court has no application as. it is the duty of the Income-tax Officer dealing with the assessment in the subsequent year to determine the loss of the previous year that may be set off against the profit of the subsequent year. On the other hand, when the Income-tax Officer holds the assessee would be entitled to carry forward of the investment allowance, the assessee would acquire an indefeasible right to carry forward the investment allowance and it is not open to the subsequent Income-tax Officer to deny the relief of carry forward of the investment allowance.
8. The decision of the Karnataka High Court in the case of CIT v. Valliappa Textiles Ltd., [1988] 172 ITR 168, is also distinguishable as in that case a wrong computation of development rebate was made in the earlier year and when it was not fully absorbed, it is held that it would be open to the Income-tax Officer dealing with the subsequent assessment year to determine the correct rate of development rebate and allow the same. The decision of the Karnataka High Court is an authority for the proposition that it a lesser relief was granted in an earlier year, it will be open to the Income-tax Officer dealing with the subsequent assessment year to correct the mistake and allow the relief. On the other hand, the question before us is whether the assessee would be entitled to carry forward the benefit of investment allowance determined in an earlier year, In our opinion, it is not open to the Income-tax Officer dealing with the subsequent year assessment to deny the relief of carry forward of the loss of investment allowance. The decision of the Karnataka High Court in our opinion is to the effect that it will be permissible for the Income-tax Officer to grant the correct relief in the subsequent assessment year. In the instant case the relief was granted to the assessee and it is statutory benefit and it is not open to the Income-tax Officer to deny the relief. The decision of the Supreme Court as well as the decision of the Karnataka High Court are to the effect that if the assessee did not get the relief it will be open to the succeeding Income-tax Officer to grant the correct relief, but the logic cannot be extended to deny the relief granted by a preceding Income-tax Officer. Therefore, the decisions of the Supreme Court as well as the Karnataka High Court are not applicable to the facts of this case.
9. Learned counsel for the Revenue invited our attention to the decision of the Punjab and Haryana High Court in the case of CIT v. Partap Rosin and Turpentine Factory, [1989] 179 ITR 414, and the decision of the Bombay High Court in the case of CIT v. Mutual Steel Industries, [1991] 187 ITR 292, where the courts have taken the view that the development rebate would be granted in the year of creation of the reserve. In our opinion, the eligibility to claim the investment allowance and the grant of deduction are two different concepts. In the instant case, in the year 1977-78, the assessee became eligible for investment allowance, but it was sought to be allowed in the subsequent assessment year against the business income for the assessment year 1978-79. Therefore, the decisions relied upon by learned counsel are not applicable to the facts of this case. In our opinion, the situation is far different as the Income-tax Officer by a statutory order has held the eligibility of the assessee's claim for investment allowance and allowed the same to be carried forward. Since the assessee is statutorily entitled to the benefit of investment allowance, those cases are not applicable to a case where an Income-tax Officer had granted the benefit of investment allowance and once it was granted, the assessee is entitled to the benefit of carry forward of the loss. The Revenue has not taken any steps known to law or authorised by law to cancel the order passed by the Income-tax Officer granting the benefit of investment allowance and so long as the order operates, it is not possible for the Income-tax Officer to wriggle out of the situation created by order and deny the benefit granted under the Act. Therefore, the decisions relied upon by learned counsel for the Revenue have no application to the case of orders passed by the Income tax Officer, granting the benefit of investment allowance, out of which certain legal consequences flow.
10. This court in the case of Seshasayee Paper and Boards Limited v. IAC of I.T., [1986] 157 ITR 342, held that even a wrong order passed by the Income-tax Officer is binding on the Department unless it is set aside by the process known to or authorised by the law. Similarly, in the case of CIT v. A. Samarapuri Chetty, [1992] 195 ITR 371, this court has taken a view that even a void order has legal consequences, unless the order is set aside by the Department in the manner contemplated by the law. Those two decisions make it clear that so long as the order stands, that order should be given effect to ; that the statutory benefit should be given effect from that order and if the Department wants to deny those statutory benefits, it is for the Department to cancel the order and till then, it is impermissible for the Department to deny the benefits in the assessment proceedings for subsequent assessment years. Though we uphold the order of the Appellate Tribunal, we uphold the same not for the reasons stated by the Tribunal, but for other reasons stated above.
11. In view of the same, we answer the question of law referred to us in the affirmative and against the Department. However, in the circumstances, there will be no order as to costs.