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PETITIONER: COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: MAHALAKSHMI TEXTILE MILLS

DATE OF JUDGMENT: 05/05/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1968 AIR  101            1967 SCR  (3) 957

ACT: Indian Income-tax Act, 1922 (Act 11 of 1922) s. 33-Plea  not raised before department-If can be before Tribiunal.

HEADNOTE: Expenditure on introducing the Casabalanca conversion system in  the  spinning plant of the assessee was not  allowed  as "development  rebate"  by  the Income-tax  Officer  and  the Appellate   Commissioner.   The  Appellate  Tribunal   after inspecting  the factory and considering the  literature  and Government notifications, held that the expenditure,  though not admissible as development rebate, was -admissible as  an allowance  for  current repairs to  the  existing  machinery under s. 10(i) XV of the Income-tax Act.  The High Court, on reference, accepted the Tribunal’s finding and held that the Tribunal had jurisdiction to permit the assessee to raise  a new contention which was not raised before the  departmental authorities.  In appeal by the Commissioner, this Court, HELD : The appeal must be dismissed. Under  sub-s.  (4) of s. 33 of the  Indian  Income-tax  Act, 1922,  the  Appellate  Tribunal is competent  to  pass  such orders  on the appeal "as it thinks fit".  There is  nothing in  the Income-tax Act which restricts the Tribunal  to  the determination  of questions raised before  the  departmental authorities.  All questions whether of law or of fact  which relate  to  the  assessment of the assessee  may  be  raised before  the  Tribunal.   If  for  reasons  rccorded  by  the departmental authorities in rejecting a contention raised by the  asscsseee grant of relief to him on another  ground  is justified, it would be open to the departmental  authorities and  the Tribunal, and indeed they would be under a duty  to grant  that relief.  The right of the assessee to relief  is not restricted to the plea raised by him. [1959 D-F]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 784 of 1966. Appeal  by special leave from the judgment and  order  dated March 12, 1964 of the Madras High Court in Tax Case No.  157 of 1961.

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D.   Narsaraju and R. N. Sachthey, for the appellant. R.   Gopalakrishnan and N. Srinivasan, for the, respondent. The Judgment of the Court was delivered by Shah,  J. The respondent-hereinafter called ’the  assessee’- carries  on the business of manufacture and sale  of  cotton yarn.  In the previous year relevant to the assessment  year 1956-57, the assesses spent Rs. 93,215/- for introduction of "Casablanca  conversion  system"  in  its  spinning   plant. Substantially  this involved replacement of  certain  roller stands and fluted rollers fitted 9 5 8 with  rubber  aprons to the spinning machinery,  removal  of ringframes from certain existing parts, introduction,  inter alia,  of  ballbearing  jockey-pulleys  for  converting  the original  band-drivers to tape-drivers and  other  additions and alterations in the drafting mechanism. The Income-tax Officer disallowed the claim of the  assessee for   Rs.  93,215/-  because  it  was  not   admissible   as "development  rebate" since the introduction  of  Casablanca conversion  system  did  not involve  installation  of  "new machinery".   The  Appellate Assistant  Commissioner  agreed with  the  Income-tax Officer.  In appeal to  the  Appellate Tribunal, besides submitting the claim that expenditure  was allowable as development rebate, the assessee urged that the amount  laid, out for introducing the Casablanca  conversion system  was in any event expenditure allowable under  s.  10 (2)  (v)  of the Indian Income-tax Act.  The  Tribunal  ins- pected the spinning factory of the assessee and studied  the working  of  the. machinery with the  Casablanca  conversion system   in  the  process  of  spinning  yarn.   They   also considered the literature published by the manufacturers  of Casablanca  conversion system and the relevant  notification issued.  by the Ministry of Commerce, Government  of  India, defining  the import policy, and held that as’ a  result  of "the  stress  and strain of production over a  long  period" there was need for change in the plant and that the assessee had  replaced  old  parts  by  introducing  the   Casablanca conversion  system.   In  the  view  of  the  Tribunal   the expenditure   incurred   for  introducing   the   Casablanca conversion  system,  though  not  admissible  as-development rebate,  was admissible as an allowance under s. 10 (2)  (v) of the Indian Income-tax Act. The  Tribunal then referred the following two  questions  to the High Court of Judicature at Madras -               "(1)   Whether  on  the  facts  and   in   the               circumstances  of  the case the  Tribunal  had               jurisdiction to decide whether the sum of  Rs.               93,215/-  constituted  an  allowable  item  of               expenditure under s. 10(2)(v) of the Act ?               (2)   Whether   on  the  facts  and   in   the               circumstances  of  the case, the  sum  of  Rs.               93,215/-  or any portion thereof is  allowable               as an expenditure incurred for current repairs               under S. 10(2) (v) of the Act ?" The High Court accepted the finding recorded by the Tribunal that by the introduction of the Casablanca conversion system no   new   machinery  or  plant  was  installed,   but   the introduction of the system amounted "to fitting of  improved versions  of  certain minor parts" and expenditure  in  that behalf was of revenue nature.  The High-Court also held that the  Tribunal  had jurisdiction to permit  the  assessee  to raise a new contention which was not raised 959 before  the departmental authorities.  The Commissioner  has ,appealed to this Court, with special leave.

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The  Tribunal had evidence before it from which it could  be concluded  that  by introducing  the  Casablanca  conversion system  the assessee made current repairs to  the  machinery and  plant.   The High Court observed  that  certain  moving parts of -the machinery had because of "wear and tear" to be periodically  replaced, and when it was found that  the  old type of replacement parts were not available in the  market, the  assessee introduced the Casablanca  conversion  system, but  thereby there was merely replacement of  certain  parts which  were a modified version of the older parts.   Counsel for  the Commissioner has not challenged these findings  and the   answer  to  the  second  question  recorded   in   the affirmative by the High Court must be accepted. By  the first question the jurisdiction of the Tribunal.  to allow  a plea inconsistent with the plea raised  before  the departmental authorities is canvassed.  Under sub-s. (4)  of s.  33  of the Indian Income-tax Act,  1922,  the  Appellate Tribunal is competent to pass such orders on the appeal  "as it  thinks  fit".  There is nothing in  the  Income-tax  Act which  restricts  the  Tribunal  to  the  determination   of questions  raised before the departmental authorities.   All questions  whether  of law or of fact which  relate  to  the assessment  of  the  assessee  may  be  raised  before   the Tribunal.   If’  for reasons recorded  by  the  departmental authorities   in  rejecting  a  contention  raised  by   the assessee,  grant  of  relief to him  on  another  ground  is justified, it would be open to the departmental  authorities and  the Tribunal, and indeed they would be under a duty  to grant  that relief.  The right of the assessee to relief  is not restricted to the plea raised by him. The Tribunal in the present case was of the opinion that  in order  to  adjust  the liability of  the  assessee,  it  was necessary  to  ascertain the true nature of  the  Casablanca conversion system.  The assessee had, it is true,  contended that  the introduction of the Casablanca  conversion  system was of the nature of machinery or plant which being new  had been  installed  for  the purpose  of  business  within  the meaning  of S. 10 (2) (vi-b) of the Indian  Income-tax  Act. The Tribunal rejected the claim of the assessee, but on that account the Tribunal was not bound to disallow the claim  of the  assessee for allowance of the amount spent if it was  a permissible  allowance on another ground.- The  Tribunal  on investigation of the true nature of the alterations made  by the introduction of the Casablanca conversion system came to the conclusion that it did not amount to installation of new machinery, or plant, but it amounted in substance to current repairs to the existing machinery. 960 The subject-matter of the appeal in the present case was the right  of the assessee to claim allowance for Rs.  93,215/-. whether  the allowance was admissible under one head or  the other  of  sub-s. (2) of S. 10, the subject-matter  for  the appeal remained the same, and the Tribunal having held  that the  expenditure incurred fell within the terms of s.  10(2) (v),  though not under s. 10(2) (vi-b), it had  jurisdiction to admit that expenditure as a permissible allowance in  the computation of the taxable income of the assessee. The High Court was, therefore, right in answering the  first question in the affirmative. The appeal fails and is dismissed with costs. Y.P.                           Appeal dismissed. 961 961

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