Madras High Court
Metal Powder Co. Ltd. vs Deputy Commissioner Of Income Tax on 30 March, 1998
Equivalent citations: (1998)62TTJ(MAD)633
ORDER
P. K. BANSAL, AM.:
This appeal is filed by the assessee against the order of the CIT(A) for the asst. yr. 1987-88. The first ground of appeal is general in nature. Ground No. 4 of the grounds of appeal is not pressed and, therefore, it stands dismissed as not pressed. The rest of the grounds of appeal are dealt with as under.
2. Ground No. 2 deals with the disallowance of extra shift allowance amounting to Rs. 33,462 in respect of computers. The authorised representative of the assessee pointed out that computer is plant and, therefore, the assessee is entitled for extra shift allowance on computers. The learned Departmental Representative pointed out that the assessee has not produced any details as to where the computers are installed and whether the computers were used for the business of the assessee. He relied on the orders of the authorities below. To a question from the Bench as to the nature of the business of the assessee and how far computers are relevant, the authorised representative pointed out to the observation of the CIT(A) that the computers in the present case were very much in the factory premises itself and they are part of the plant used in appellant's business. We have gone through the contentions of the parties and perused the records. We find that the assessee has not filed any material to ascertain whether computer is part of plant in the case of the assessee or not. We are, therefore, inclined to agree with the authorities below disallowing a sum of Rs. 33,462 as extra shift allowance on computers.
3. The third ground of appeal relates to disallowance of investment allowance and depreciation on the borewell. The assessee's authorised representative pointed out that borewell is a plant and, therefore, the assessee should be allowed investment allowance and also depreciation at the rate of 15 per cent. He further relied on the decision of the Calcutta High Court in the case of CIT vs. Hindustan Motors Ltd. (1988) 69 CTR (Cal) 197: (1988) 170 ITR 431 (Cal). The learned Departmental Representative relied on the decisions of the authorities below. We have heard the rival submissions and perused the material on record. We find that the assessee has not produced any material to show whether the borewell is a plant in the case of the assessee and how water is needed for the manufacturing process of the assessee. In the case of CIT vs. Hindustan Motors Ltd., cited supra, there were materials before the authorities that the tubewell was installed for drawing water from subterranean sources and it was necessary for the production and also for the industrial labour. We may also point out that the Supreme Court has also disallowed the investment allowance on digging of borewells to the assessee in the case of CIT vs. N.C. Budharala & Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC). Therefore in the absence of any material placed by the assessee we are inclined to agree with the authorities below that the assessee is entitled to depreciation on borewell at the rate of 10 per cent and investment allowance is not admissible on the borewell.
4. Ground Nos. 5 and 6 relate to the addition of a sum of Rs. 42,967 on account of the amount received by the assessee from insurance claims in respect of damage to the machinery. The authorised representative argued that there was damage to the machinery due to the fire and when loss was claimed the insurance company had paid a sum of Rs, 42,967 and the AO was not correct in holding that the above sum was revenue receipt. In this regard he relied on the decision of the Bench of this Tribunal in ITA No. 1108/Mad/1986, dt. 16th June, 1988, for the asst. yr. 1983-84 and also on the decision of the Madras High Court in the case of C. Leo Machodo vs. CIT (1988) 67 CTR (Mad) 95 .. (1988) 172 ITR 744 (Mad) and also the decision of the Supreme Court in the case of Vania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153: (1991) 191 ITR 647 (SC). The Departmental Representative placed reliance on the order of the AO. He submitted that the receipt is a receipt chargeable under ss. 28(iv) of 10(3) of the Act. The cases reported in (1991) 98 CTR (SQ) 153 : (1991) 191 ITR 647 (SC) and in (1988) 67 CTR (Mad) 95: (1988) 172 ITR 744 (Mad) (supra) are not applicable to the facts of the case. He pointed out that the question involved in the Madras High Court decision (1988) 67 CTR (Mad) 95: (1988) 172 ITR 744 (Mad) was whether any transfer has taken place when there is destruction of property. He also argued that the Madras Bench A of the Tribunal in the aforesaid case has also followed the Madras High Court decision. But the facts of the present case are different. There is no complete destruction of the plant and machinery but there is damage to the plant and machinery which the assessee got repaired. Therefore, the decision of the Tribunal is also not applicable and ' the question involved in both the cases of the assessee relating to the asst. yr. 1983-84 and the decision of the Madras High Court was whether any capital gain arose out of the insurance claim or not. He further pointed out that in these judgments nowhere the question relating to arising of income has been discussed or upheld. He pointed out to pp. 2 and 3 of the assessment order wherein the AO has clearly upheld the character of such receipt to be a revenue receipt and income chargeable to tax. He further pleaded that the principle of res judicata is not applicable to the income-tax proceedings.
5. We have carefully considered the rival contentions and perused the materials on record. We have gone through the judgment of the Supreme Court cited supra and also the Madras High Court and the order of the Tribunal in the assessee's case and carefully in agreement with the contention of the Departmental Representative that in all the three judgments the issue was whether any capital gain arose out of the insurance claim received by the assessee. There is no finding to the effect that whether any income has arisen to the assessee or not. We also agree that principles of res judicata are not applicable to income-tax proceedings. Reliance can be placed on the Supreme Court decision in the case of Dalhousie Investinent Trust Co. Ltd. vs. CIT (1968) 68 ITR 486 (SC). Further in the case of New Jehangir Vakil Mills Co. Ltd. vs. CIT (1963) 49 1TR 137 (SC) the Supreme Court decided that although the ITO is not bound by the rule of res judicata he can reopen a question previously decided only if fresh facts come to light or if the earlier decision was rendered without taking into consideration material evidence. We, therefore, agree that the aforesaid judgments quoted supra are not applicable to the case of the assessee for the year under consideration.
6. The receipt in question has a direct nexus with the business of the assessee. The insurance company has made the payment in order to reduce the assessee's expenditure which it had to incur on the repair so that the machine could be put to working order. The insurance claim received is related to the business assets and therefore it is a payment to compensate the repairs of the machinery. We now go to s. 10(3) which is relevant to the facts of the present case. Sec. 10(3) reads as under :
" 10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included (3) any receipts which are of a casual and non-recurring nature."
It may be noted that s. 10 deals with the exemption of particular types of income from being included in the total income of an assessee. Clause (,3) in particular uses the expression 'any receipts'. We have to read the expression . receipts' as synonymous with the income, since that is the dominant theme and object of s. 10. One may say that the receipt must first be an income, i.e., it must be a revenue receipt and not capital receipt and if it is capital receipt, cl. (3) would not apply. But we do not agree with such interpretation because the expression 'receipt' occurring in cl. (3) must necessarily be revenue receipt and not capital receipt. The word 'receipt' must be understood as synonymous with income. The expression 'income' has been defined in s. 2(24) to include capital gains. It is precisely for this reason that proviso (i) to cl. (3) of s. 10 expressly excludes 'capital gains' chargeable under the provisions of s. 45 from the ambit of the said clause. Accordingly we are of the considered opinion that the sum of Rs. 42,967 received as insurance claim by the assessee from the insurance company is a receipt of casual and non-recurring in nature within the meaning of cl. (3) of s. 10. We, therefore, direct the AO accordingly.
7. The seventh ground of appeal relates to the claim of the assessee that the CIT(A) erred in directing computation of relief under s. 80HH of the eligible units after adjusting losses from the other units. The authorised representative of the assessee simply relied on the decision of the Tribunal (A-Bench, Madras) in the case of the assessee dt. 16th June, 1988, in ITA Nos. 1108/Mad/1986 and 1637/Mad/1985 for the asst. yr. 1983-84, a copy of which was filed before us at the time of hearing. He also relied on the decision of the Orissa High Court in the case of CIT vs. Tarun Udyog (1991) 99 CTR (On) 181 : (1991) 191 ITR 688 (On), the decision of the Karnataka High Court in the case of CIT vs. H.M.7 Ltd. (1992) 108 CTR (Kar) 215 : (1993) 199 ITR 235 (Kar) and the Orissa High Court decision in the case of CIT vs. Agency Marketing Co-operative Society Ltd. (1993) 109 CTR (On) 28 : (1993) 201 ITR 881 (Ori). The Departmental Representative relied on the decision of the Rajasthan High Court in the case of CIT vs. Vishn u Oil & Dal Mills (1996) 132 CTR (Ra]) 132 : (1996) 218 ITR 71 (Raj). He also relied on the decision of the Hon'ble Supreme Court in the case of H.H. Sir Rania Varma (Decd., by LIR) vs. CIT (1994) 119 CTR (Bom) 265.. (1994) 206 ITR 433 (Bom), and also on the Supreme Court decision in the case of CIT vs. Kotagirl Industrial Co-operative Tea Factory Ltd. (1997) 139 CTR (SQ) 359: (1997) 224 ITR 604 (SQ). He argued that it is a settled law by the decision of the Hon'ble Supreme Court and also giving effect to the provisions of s. 80V of the IT Act that the deduction under s. 80HH is available on the net income, i.e., after adjusting of all the losses which the assessee would have incurred even from other industrial units.
8. We have considered the rival submissions and perused the records. The provisions of s. 80HH(1) are as under :
"Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 20 per cent thereof."
This section has referred to the profits and gains derived from an industrial undertaking which should have been included in the gross total income of an assessee. The calculation thereof has to be made on the profits and gains derived from an industrial undertaking. Sec. 80AB is as under:
"Where any deduction is required to be made or allowed under any section (except s. 80M) included in this Chapter under the heading 'C-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income".
In accordance with the scheme of the Act, the income has to be computed. Sec. 2(24) defines income which includes profits and gains, Under s. 2(45), total income has been defined to mean the total amount of income referred to in s. 5, computed in the manner laid down in this Act. Sec. 5 contains the scope of total income which includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person. Sec. 28 of the Act refers to taking of profits and gains of business or profession. The computation has been provided of the income in accordance with the provisions of s. 29, which prescribes that the income referred to in s. 28 shall be computed in accordance with the provisions contained in ss. 30 to 43A. Various deductions which are provided under ss. 30 to 43A, therefore, have to be considered in order to arrive at the gross total income. See. 80A provides that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in ss. 80C to 80U. Sub-s. (2) of s. 80A provides that the aggregate amount of deductions in this chapter shall not in any case exceed the gross total income of the assessee. According to this section, no deduction is available under this chapter if the gross income is a loss or the amount of the deduction in any case shall not exceed the gross total income. The words 'gross total income' have been defined under s. 8013(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. The 'total income', therefoze, which has to be arrived at from the gross total income, refers to the taxable income which is included in the gross total income and from which the deductions under Chapter VI-A are to be given. Sec. 80AB provides that where any deduction is required to be made or allowed under any section (except s. BOM) included under this Chapter under the heading 'C-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. This section makes it clear that in the gross total income, the amount of income of that nature for which the deduction is to be computed alone is to be considered. Sec. 80HH is one of the sections under the heading 'C-Deductions in respect of certain incomes'. The provisions of s. 80HH as reproduced above makes it clear that where the gross total income of the assessee includes any profits and gains derived from an industrial undertaking then this section is applicable. The gross total income which has been referred to in the first part of this section includes the profits and gains derived from an industrial undertaking. See. 80AB mentions that the amount of income of the nature as computed in accordance with the provisions of this Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. See. 80AB contemplates computation of the income in accordance with the provisions of this Act and thereafter the deduction is to be made under Chapter VI-A The income which is derived from an industrial undertaking alone is liable 0 the deduction in s. 80HR The later part of s. 80HH provides that the deduction equity to 20 per cent from such profits and gains is available to the assessee. The woro 'such' refers to the profits and gains which are mentioned in the first part of this section and are included in the gross total income. In other words, from the gross total income of an industrial undertaking, the deduction vailable to 20 per cent of such profits and gains in computing the total income. ThR gross total income will not include something over and above the figure which is included in it by way of profits and gains derived from an industrial undertaking. If a person is having five different sources of income, then the total of the income computed in accordance with the provisions of the Act from all the sources would be considered to be the gross total income and since the benefit is available only for the profits and gains derived from an industrial undertaking, that part of the profits and gains which is computed in accordance with the provisions of the Act alone has to be allowed for deduction.
9. In Carnbay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SQ) 50 (1978) 113 1TR 84 (S0 for the purpose of computation of deduction under s. 80E, it was observed by the apex Court as under at p. 91: "On reading sub-S. (1), it will become clear that three important steps are required to be taken before the special deduction permissible thereunder is allowed and the net total income exigible to tax is determined, First, compute the total income of the concerned assessee in accordance with the other provisions of the Act, i.e., in accordance with all the provisiohs except s. 80E, secondly, ascertain what part of the total income so computed represents the profits and gains attributable to the business of the specified indusiry (here generation and distribution of electricity) and, thirdly, if there be profits and gains so attributable, deduct eight per cent thereof from such profits and gains and then arrive at the net total income exigible to tax."
10. In the case of Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SQ) the earlier decision of the Court in Cloth Traders (P) Ltd. vs. Addl. CIT (1979) 10 CTR (S0 393 : (1979) 118 ITR 243 (SQ was overruled and while interpreting the provisions of s. 80M, it was observed as under at p. 135: "The opening words describe the condition which must be fulfilled in order to attract the applicability of the provision contained in sub-s. (1) of s. 80M. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. 'Gross total income' is defined in s. 80B, cl. (5), to mean the 'total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under s. 280-0'. Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or, in other words, forms part of the gross total income, the condition specified in the opening part of sub-s. (1) of s. 80M would be fulfilled and the provision enacted in that subsection would be attracted."
10. In the aforesaid case, the words 'all such income by way of dividends' was considered to be referring only to the category of income included in the gross total income and also the quantum of income so included and it was considered that what is included in the gross total income would be considered as the income which has to be considered for the purpose of s. 80M.
11. The Madras High Court in the case of CIT vs. Rambal (P) Ltd. (1984) 42 CTR (Mad) 45.. (1988) 169 ITR 50 (Mad) while considering the relief under s. 80-1 by taking into consideration the provisions of ss. 80A and 80B(5) came to the conclusion that the assessee is not entitled to relief under s. 80-1 as the total income computed by the ITO after setting off carried forward loss and unabsorbed depreciation of earlier assessment years, the net taxable income was determined at nil. It was considered that the restrictions as placed under s. 80A have to be complied with before giving the deduction under the Chapter.
12. We have also gone through the following decisions of various High Courts, which have also viewed that the deduction under s. 80HH is available only on the income which is included in the gross total income:
(1) CIT vs. H. M. T. Ltd. (1993) 203 ITR 811 (Kar);
(2) CIT vs. Kerala Solvent Extractions Ltd. (1986) 52 CTR (Ker) 126 : (1987) 165 ITR 174 (Ker);
(3) CIT vs. Vishnu Oil & Dal Mills (supra)., (4) CIT vs. Baliner Lawne & Co. Ltd. (1995) 215 ITR 249 (Cal);
(5) Motilal Pesticides (India) (P) Ltd. vs. CIT (1994) 207 ITR 636 (Del), (6) CIT vs. Venkateswara Transmission Ltd. (1995) 127 C.TR (AP) 2671-(1995) 216 ITR 510 (AP),- and (7) Paushak Ltd. vs. CIT (1994) 210 ITR 535 (Gul).
The Hon'ble Supreme Court in its latest decision in the case of CIT vs. Kotagih Industrial Co-operative Tea Factory Ltd. (supra), while dealing with the deduction under s. 80P has held that for the purpose of computing the deduction under s. 80P the gross total income is to be determined in accordance with the other provisions of the Act. In view of our finding given above and the decisions cited supra, especially the latest Supreme Court decision, we are included to agree with the AO and dismiss this ground of the assessee.
13. In the result the appeal is dismissed.