Orissa High Court
Utkal Machinery Ltd. vs Commissioner Of Income-Tax on 24 March, 1987
Author: R.C. Patnaik
Bench: R.C. Patnaik
JUDGMENT S.C. Mohapatra, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee, the following question of law has been referred to this court by the Income-tax Appellate Tribunal, Cuttack Bench:
" Whether, on the facts and in the circumstances of the case, the assessee was not entitled to set off and/or adjust the unabsorbed development rebate of Rs. 5,57,794 for the assessment year 1968-69 against the income of the present assessment year ? "
2. The assessee is a subsidiary of a public limited company carrying on the business of manufacture and supply of heavy machineries. In the assessment year 1976-77, it claimed that the development rebate is to be deducted in preference to the unabsorbed depreciation. The claim of the assessee was turned down at all stages. The unabsorbed depreciation being adjusted, there was no balance left for adjustment of the unabsorbed development rebate. Aggrieved by the rejection of its claim, the assessee moved under Section 256(1) of the Income-tax Act for a reference and on consideration of the said application, reference has been made by the Appellate Tribunal for the opinion of this court.
3. Depreciation is set off under Section 32 of the Act and development rebate is set off under Section 33 thereof. Section 72(2) of the Act provides that effect shall first be given to the provisions of Sub-section (1) where any allowance or part thereof is under Section 32(2) of the Act which provides that unabsorbed depreciation shall be carried forward to be deemed to be the depreciation in the year of assessment. In Section 72(2), no provision has been made in respect of the development rebate in spite of the fact that unadjusted development rebate is also carried forward. Therefore, in view of the specific provision under Section 72(2) of the Act, depreciation is to be adjusted first. Only thereafter the question of setting off the unabsorbed development rebate would arise.
4. Mr. A. K. Ray, learned counsel for the assessee, submitted that the carrying forward of the unadjusted depreciation is for unlimited period whereas the carrying forward of development rebate is only for eight years. Accordingly, the benefit given under the Act should be given effect in a manner by which the assessee gets full benefit. He relied upon a decision of the Supreme Court in CIT v. J. H. Gotla [1985] 156 ITR 323, where it has been held that the plain literal interpretation of a statutory provision which produces a manifestly unjust result is to be avoided. The Supreme Court observed (at page 339):
"Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning."
5. However, the said observation has no application to the present case. When, the Legislature categorically provided in Section 72(2) that the unadjusted depreciation is to be taken into account first, the same does not produce any manifestly unjust result. The Gujarat High Court in the decision in CIT v. Gujarat State Warehousing Corporation [1976] 104 ITR 1, the Karnataka High Court in the decision in Mysore Paper Mills Ltd. v. CIT [1979] i 17 ITR 132 and the Kerala High Court in the decision in Calicut Modern Spinning and Weaving Mills Ltd. v. CIT [1985] 153 ITR 810 have held that the unabsorbed depreciation shall have precedence over the unabsorbed development rebate for being set off. The legislative intention being clear in Section 72(2), there is no scope for taking any other view since the preference to unabsorbed depreciation does not produce any manifestly unjust result.
6. The answer to the question, therefore, is that the assessee is not entitled to set off and/or adjust the unabsorbed development rebate of Rs. 5,57,794 for the year 1968-69 against the income of the assessment year 1976-77.
7. In the result, the reference is answered in favour of the Department and against the assessee. No costs.
R.C. Patnaik, J.
8. I agree.