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CASE NO.: Appeal (civil)  5950-5952 of 2007

PETITIONER: Commissioner of Income Tax, Madras

RESPONDENT: M/s Lucas T.V.S. Ltd. Padi Chennai

DATE OF JUDGMENT: 14/12/2007

BENCH: Dr. ARIJIT PASAYAT & P. SATHASIVAM

JUDGMENT: J U D G M E N T (Arising out of SLP (C) Nos.24479-24481 of 2005) Dr. ARIJIT PASAYAT, J.  

1.      Leave granted.       2.      Challenge in these appeals is to the order passed by a  Division Bench of the Madras High Court dismissing the Tax  Case Appeals as according to the High Court the case at hand  is covered against the revenue in view of the order passed  earlier by the High Court in Southern Asbestos Cement Ltd. v.  Commissioner of Income Tax  (259 I.T.R. 631).

3.      These appeals relate to assessment years 1989-90, 1991- 92 and 1992-93. The core issue is the allowability of  investment allowance under Section 32A of the Income Tax  Act, 1961 (in short the \021Act\022). The assessing officer was of the  view that it is only to be allowed in one assessment year and  not several assessment years. The Tribunal and the High  Court appear to have proceeded on the basis that in view of  Section 43A(1) of the Act the allowance was to be granted in  different assessment years.        4.      Sections 32A and 43A(1) of the Act read as under:

Section 32A- INVESTMENT ALLOWANCE.  (1)     In respect of a ship or an aircraft or  machinery or plant specified in sub-section  (2), which is owned by the assessee and is  wholly used for the purposes of the  business carried on by him, there shall, in  accordance with and subject to the  provisions of this section, be allowed a  deduction, in respect of the previous year  in which the ship or aircraft was acquired  or the machinery or plant was installed or,  if the ship, aircraft, machinery or plant is  first put to use in the immediately  succeeding previous year, then, in respect  of that previous year, of a sum by way of  investment allowance equal to twenty-five  per cent. of the actual cost of the ship,  aircraft, machinery or plant to the  assessee:        Provided that in respect of a ship or  an aircraft or machinery or plant specified  in sub-section (8B), this sub-section shall  have effect as if for the words  "twenty-five

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per cent", the words "twenty per cent" had  been substituted :             Provided further that no deduction  shall be allowed  under this section in  respect of \026 (a) Any machinery or plant installed in any  office premises or any residential  accommodation, including any  accommodation in the nature of a guest- house;  (b) Any office appliances or road  transport vehicles;  (c) Any ship, machinery or plant in  respect of which the deduction by way of  development rebate is allowable under  section 33; and  (d) Any machinery or plant, the whole of  the actual cost of which is allowed as a  deduction (whether by way of  depreciation or otherwise) in computing  the income chargeable under the head  "Profits and gains of business or  profession" of any one previous year.  Explanation : For the purposes of this sub- section, "actual cost" means the actual cost of  the ship, aircraft, machinery or plant to the  assessee as reduced by that part of such cost  which has been met out of the amount released  to the assessee under sub-section (6) of section  32AB.  (2) The ship or aircraft or machinery or plant  referred to in sub-section (1) shall be the  following, namely :-   (a) A new ship or new aircraft acquired after  the 31st day of March, 1976, by an assessee  engaged in the business of operation of ships or  aircraft;  (b) Any new machinery or plant installed after  the 31st day of March, 1976 -   

(i) For the purposes of business of  generation or distribution of electricity or  any other form of power; or  (ii) 454 in a small-scale industrial  undertaking for the purposes of business  of manufacture or production of any  article or thing; or  (iii) In any other industrial undertaking for  the purposes of business of construction,  manufacture or production of any article  or thing, not being an article or thing  specified in the list in the Eleventh  Schedule :        Provided that nothing contained in clauses  (a) and (b) shall apply in relation to, -   (i) A new ship or new aircraft acquired, or  (ii) Any new machinery or plant installed,   after the 31st day of March, 1987 but  before the 1st day of April, 1988, unless  such ship or aircraft is acquired or such  machinery or plant is installed in the  circumstances specified in clause (a) of  sub-section (8B) and the assessee

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furnishes evidence to the satisfaction of  the Assessing Officer as specified in that  clause;  (c) Any new machinery or plant installed after  the 31st day of March, 1983, but before the 1st  day of April, 1987, for the purposes of business  of repairs to ocean-going vessels or other  powered craft if the business is carried on by  an Indian company and the business so carried  on is for the time being approved for the  purposes of this clause by the Central  Government. Explanation : For the purposes of this sub- section and sub-sections (2B), (2C) and (4), -   (1)(a) "new ship" or "new aircraft" includes a  ship or aircraft which before the date of  acquisition by the assessee was used by any  other person, if it was not at any time previous  to the date of such acquisition owned by any  person resident in India;  (b) "New machinery or plant" includes  machinery or plant which before its installation  by the assessee was used outside India by any  other person, if the following conditions are  fulfilled, namely :-   (i) Such machinery or plant was not, at any  time previous to the date of such installation by  the assessee, used in India;  (ii) Such machinery or plant is imported into  India from any country outside India; and  (iii) No deduction on account of depreciation in  respect of such machinery or plant has been  allowed or is allowable under the provisions of  the Indian Income-tax Act, 1922 (11 of 1922),  or this Act in computing the total income of any  person for any period prior to the date of the  installation of the machinery or plant by the  assessee,  (2) An industrial undertaking shall be deemed  to be a small-scale industrial undertaking, if  the aggregate value of the machinery and plant  (other than tools, jigs, dies and moulds)  installed, as on the last day of the previous  year, for the purposes of the business of the  undertaking does not exceed, -  (i) In a case where the previous year ends  before the 1st day of August, 1980, ten lakh  rupees;  (ii) In a case where the previous year ends after  the 31st day of July, 1980, but before the 18th  day of March, 1985, twenty lakh rupees; and  (iii) In a case where the previous year ends after  the 17th day of March, 1985, thirty-five lakh  rupees,   and for this purpose the value of any  machinery or plant shall be, -  (a) In the case of any machinery or plant owned  by the assessee, the actual cost thereof to the  assessee; and  (b) In the case of any machinery or plant hired  by the assessee, the actual cost thereof as in  the case of the owner of such machinery or  plant.  (2A) The deduction under sub-section (1) shall  not be denied in respect of any machinery or  plant installed and used mainly for the

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purposes of business of construction,  manufacture or production of any article or  thing, not being an article or thing specified in  the list in the Eleventh Schedule, by reason  only that such machinery or plant is also used  for the purposes of business of construction,  manufacture or production of any article or  thing specified in the said list.  (2B) Where any new machinery or plant is  installed after the 30th day of June, 1977 but  before the 1st day of April, 1987, for the  purposes of business of manufacture or  production of any article or thing and such  article or thing -  (a) Is manufactured or produced by using any  technology (including any process) or other  know-how developed in, or  (b) Is an article or thing invented in,  a  laboratory owned or financed by the  Government, or a laboratory owned by a public  sector company or a University or by an  institution recognised in this behalf by the  prescribed authority 463 ,  the provisions of  sub-section (1) shall have effect in relation to  such machinery or plant as if for the words  "twenty-five per cent.", the words "thirty-five  per cent" had been substituted, if the following  conditions are fulfilled, namely :-  (i) The right to use such technology (including  any process) or other know-how or to  manufacture or produce such article  or thing  has been acquired from the owner of such  laboratory or any person deriving title from  such owner;  (ii) The assessee furnishes, along with the  return of income for the assessment year for  which the deduction is claimed, a certificate  from the prescribed authority to the effect that  such article or thing is manufactured or  produced by using such technology (including  any process) or other know-how developed in  such laboratory or is an article or thing  invented in such laboratory; and  (iii) The machinery or plant is not used for the  purpose of business of manufacture or  production of any article or thing specified in  the list in the Eleventh Schedule.  Explanation : For the purposes of this sub- section, -   (a) "Laboratory financed by the Government"  means a laboratory owned by any body  [including a society registered under the  Societies Registration Act, 1860 (21 of 1860)]  and financed wholly or mainly by the  Government;                     xx            xx               xx (c) "University" means a University established  or incorporated by or under a Central, State or  Provincial Act and includes an institution  declared under section 3 of the University  Grants Commission Act, 1956 (3 of 1956), to be  a University for the purposes of that Act.  (2C) Where any new machinery or plant, being  machinery or plant which would assist in  control of pollution or protection of

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environment and which has been notified 466  in this behalf by the Central Government in the  Official Gazette, is installed after the 31st day  of May, 1983 but before the 1st day of April,  1987, in any industrial undertaking referred to  in sub-clause (i) or sub-clause (ii) or sub-clause  (iii) of clause (b) of sub-section (2), the  provisions of sub-section (1) shall have effect in  relation to such machinery or plant as if for the  words "twenty-five per cent", the words "thirty- five per cent" had been substituted.  (3) Where the total income of the assessee  assessable for the assessment year relevant to  the previous year in which the ship or aircraft  was acquired or the machinery or plant was  installed, or, as the case may be, the  immediately succeeding previous year [the total  income for this purpose being computed after  deduction of the allowance under section 33  and section 33A, but without making any  deduction under sub-section (1) of this section  or any deduction under Chapter VI-A is nil or is  less than the full amount of the investment  allowance, -   (i) The sum to be allowed by way of investment  allowance for that assessment year under sub- section (1) shall be only such amount as is  sufficient to reduce the said total income to nil;  and  (ii) The amount of the investment allowance, to  the extent to which it has not been allowed as  aforesaid, shall be carried forward to the  following assessment year, and the investment  allowance to be allowed for the following  assessment year shall be such amount as is  sufficient to reduce the total income of the  assessee assessable for that assessment year,  computed in the manner aforesaid, to nil, and  the balance of the investment allowance, if any,  still outstanding shall be carried forward to the  following assessment year and so on, so,  however, that no portion of the investment  allowance shall be carried forward for more  than eight assessment years immediately  succeeding the assessment year relevant to the  previous year in which the ship or aircraft was  acquired or the machinery or plant was  installed or, as the case may be, the  immediately succeeding previous year.  Explanation : Where for any assessment year,  investment allowance is to be allowed in  accordance with the provisions  of this sub- section in respect of any ship or aircraft  acquired or any machinery or plant installed in  more than one previous year, and the total  income of the assessee assessable for that  assessment year [the total income for this  purpose being computed after deduction of the  allowance under section 33 and section 33A,  but without making any deduction under sub- section (1) of this section or any deduction  under Chapter VI-A] is less than the aggregate  of the amounts due to be allowed in respect of  the asset aforesaid for that assessment year,  the following procedure shall be followed,

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namely :-    (a) The allowance under clause (ii) shall be  made before any allowance under clause (i) is  made; and   (b) where an allowance has to be made under  clause (ii) in respect of amounts carried forward  from more than one assessment year, the  amount carried forward from an earlier  assessment year shall be allowed before any  amount carried forward from a later  assessment year.  (4) The deduction under sub-section (1) shall be  allowed only if the following conditions are  fulfilled, namely :-   (i) The particulars prescribed 468 in this  behalf have been furnished by the assessee in  respect of the ship or aircraft or machinery or  plant;  (ii) An amount equal to seventy-five per cent of  the investment allowance to be actually allowed  is debited to the profit and loss account of any  previous year in respect of which the deduction  is to be allowed under sub-section (3) or any  earlier previous year [being a previous year not  earlier than the year in which the ship or  aircraft was acquired or the machinery or plant  was installed or the ship, aircraft, machinery or  plant was first put to use] and credited to a  reserve account (to be called the "Investment  Allowance Reserve Account") to be utilised \026   (a) For the purposes of acquiring, before the  expiry of a period of ten years next following the  previous year in which the ship or aircraft was  acquired or the machinery or plant was  installed, a new ship or a new aircraft or new  machinery or plant [other than machinery or  plant of the nature referred to in clauses (a), (b)  and (d) of the second proviso  to sub-section (1)]  for the purposes of the business of the  undertaking; and   (b) Until the acquisition of a new ship or a new  aircraft or new machinery or plant as aforesaid,  for the purposes of the business of the  undertaking other than for distribution by way  of dividends or profits or for remittance outside  India as profits or for the creation of any asset  outside India :          Provided that this clause shall have effect  in respect of a ship as if for the word "seventy- five", the word "fifty" had been substituted.  Explanation : Where the amount debited to the  profit and loss account and credited to the  Investment Allowance Reserve Account under  this sub-section is not less than the amount  required to be so credited on the basis of the  amount of deduction in respect of investment  allowance claimed in the return made by the  assessee under section 139, but a higher  deduction in respect of the investment  allowance is admissible on the basis of the total  income as proposed to be computed by the  Assessing Officer under section 143, the  Assessing Officer shall, by notice in writing in

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this behalf, allow the assessee an opportunity  to credit within the time specified in the notice  or within such further time as the Assessing  Officer may allow, a further amount to the  Investment Allowance Reserve Account out of  the profits and gains of the previous year in  which such notice is served on the assessee or  of the immediately preceding previous year, if  the accounts for that year have not been made  up; and, if the assessee credits any further  amount to such account within the time  aforesaid, the amount so credited shall be  deemed to have been credited to the Investment  Allowance Reserve Account of the previous year  in which the deduction is admissible and such  amount shall not be taken into account in  determining the adequacy of the reserve  required to be credited by the assessee in  respect of the previous year in which such  further credit is made :   

    Provided that such opportunity shall not  be allowed by the Assessing Officer in a case  where the difference in the total income as  proposed to be computed by him and the total  income as returned by the assessee arises out  of the application of the proviso to sub-section  (1) of section 145 or sub-section (2) of that  section or the omission by the assessee to  disclose his income fully and truly.  (5) Any allowance made under this section in  respect of any ship, aircraft, machinery or plant  shall be deemed to have been wrongly made for  the purposes of this Act \026  (a) If the ship, aircraft, machinery or plant is  sold or otherwise transferred by the assessee to  any person at any time before the expiry of  eight years from the end of the previous year in  which it was acquired or installed; or  (b) If at any time before the expiry of ten years  from the end of the previous year in which the  ship or aircraft was acquired or the machinery  or plant was installed, the assessee does not  utilise the amount credited to the reserve  account under sub-section (4) for the purposes  of acquiring a new ship or a new aircraft or new  machinery or plant [other than machinery or  plant of the nature referred to in clauses (a), (b)  and (d) of the second proviso to sub-section (1)]  for the purposes of the business of the  undertaking; or  (c) If at any time before the expiry of the ten  years aforesaid, the assessee utilises the  amount credited to the reserve account under  sub-section (4) for distribution by way of  dividends or profits or for remittance outside  India as profits or for the creation of any asset  outside India or for any other purpose which is  not a purpose of the business of the  undertaking,  and the provisions of sub-section  (4A) of section 155 shall apply accordingly :        Provided that nothing in clause (a) shall  apply -  (i) Where the ship, aircraft, machinery  or plant is sold or otherwise transferred by the

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assessee to the Government, a local authority,  a corporation established by a Central, State or  Provincial Act or a Government company as  defined in section 617 of the Companies Act,  1956 or (1 of 1956); or  (ii) Where the sale or transfer of the ship,  aircraft, machinery or plant is made in  connection with the amalgamation or  succession, referred to in sub-section (6) or  sub-section (7).  (6) Where, in a scheme of amalgamation, the  amalgamating company sells or otherwise  transfers to the amalgamated company any  ship, aircraft, machinery or plant, in respect of  which investment allowance has been allowed  to the amalgamating company under sub- section (1), -  (a) The amalgamated company  shall continue to fulfil the conditions  mentioned in sub-section (4) in respect of the  reserve created by the amalgamating company  and in respect of the period within which such  ship, aircraft, machinery or plant shall not be  sold or otherwise transferred and in default of  any of these conditions, the provisions of sub- section (4A) of section 155 shall apply to the  amalgamated company as they would have  applied to the amalgamating company had it  committed the default; and  (b) The balance of investment allowance, if any,  still outstanding to the amalgamating company  in respect of such ship, aircraft, machinery or  plant, shall be allowed to the amalgamated  company in accordance with the provisions of  sub-section (3), so, however, that the total  period for which the balance of investment  allowance shall be carried forward in the  assessments of the amalgamating company and  the amalgamated company shall not exceed the  period of eight years specified in sub-section (3)  and the amalgamated company shall be treated  as the assessee in respect of such ship, aircraft,  machinery or plant, for the purposes of this  section.  (7) Where a firm is succeeded to by a company  in the business carried on by it as a result of  which the firm sells or otherwise transfers to  the company any ship, aircraft, machinery or  plant, the provisions of clauses (a) and (b) of  sub-section (6) shall, so far as may be, apply to  the firm and the company.  Explanation : The provisions of this sub- section shall apply only where -  (i) All the  property of the firm relating to the business  immediately before the succession becomes the  property of the company;  (ii) All the liabilities of the firm relating to the  business immediately before the succession  become the liabilities of the company; and  (iii) All the shareholders of the company were  partners of the firm immediately before the  succession.    (8) The Central Government, if it considers  necessary or expedient so to do, may, by  notification in the Official Gazette, direct that  the deduction allowable under this section shall

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not be allowed in respect of any ship or aircraft  acquired or any machinery or plant installed  after such date as may be specified 475 therein.  (8A) The Central Government, if it considers  necessary or expedient so to do, may, by  notification in the Official Gazette, omit any  article or thing from the list of articles or things  specified in the Eleventh Schedule.  (8B) Notwithstanding anything contained in  sub-section (8) or the notification of the  Government of India in the Ministry of Finance  (Department of Revenue) No. G.S.R. 870(E),  dated the 12th June, 1986, issued thereunder,  the provisions of this section shall apply in  respect of, -  (a)(i) A new ship or new aircraft  acquired after the 31st day of March, 1987 but  before the 1st day of April, 1988, if the assessee  furnishes evidence to the satisfaction of the  Assessing Officer that he had, before the 12th  day of June, 1986, entered into a contract for  the purchase of such ship or aircraft with the  builder or manufacturer or owner thereof, as  the case may be;  (ii) Any new machinery or plant installed after  the 31st day of March, 1987 but before the 1st  day of April, 1988, if the assessee furnishes  evidence to the satisfaction of the Assessing  Officer that before the 12th day of June, 1986,  he had purchased such machinery or plant or  had entered into a contract for the purchase of  such machinery or plant with the manufacturer  or owner of, or a dealer in, such machinery or  plant, or had, where such machinery or plant  has been manufactured in an undertaking  owned by the assessee, taken steps for the  manufacture of such machinery or plant :          Provided that nothing contained in sub- section (1) shall entitle the assessee to claim  deduction in respect of a ship or aircraft or  machinery or plant referred to in this clause in  any previous year except the previous year  relevant to the assessment year commencing on  the 1st day of April, 1989;  (b) A new ship or new aircraft acquired or any  new machinery or plant installed after the 31st  day of March, 1988, but before such date as  the Central Government, if it considers  necessary or expedient so to do, may, by  notification in the Official Gazette, specify 477a  in this behalf.  (8C) Subject to the provisions of clause (ii) of  sub-section (3), where a deduction has been  allowed to an assessee under sub-section (1) in  any assessment year, no deduction shall be  allowed to the assessee under section 32AB in  the said assessment year (hereinafter referred  to as the initial assessment year) and a block of  further period of four years beginning with the  assessment year immediately succeeding the  initial assessment year.  

     5.      Learned counsel for the appellant submitted that Section

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43A(1) relates to fluctuations of foreign exchange and its effect  on the valuation of the assets. It has nothing to do with the  question as to whether it is allowable in one year. Therefore,  the decision relied upon by the High Court has no application.        6.      Learned counsel for the respondent fairly accepted this  position.  

7.      In that view of the matter, we set aside the impugned  order of the High Court, remit the matter to it for fresh  adjudication after formulating the question of law involved.       8.      The appeals are allowed to the aforesaid extent. No costs.