Vildirect: IncomeTax-caselaws-1977-VIL-296-BOM-DT

1977-VIL-296-BOM-DT

Equivalent Citation: [1978] 114 ITR 870, 1978 CTR 534

BOMBAY HIGH COURT

Date: 23.11.1977

HUKAM CHAND MILLS LIMITED

COMMISSIONER OF INCOME-TAX (CENTRAL), BOMBAY

BENCH

Judge(s) : CHANDURKAR., DESAI

JUDGMENT

The judgment of the court was delivered by

CHANDURKAR J.--The assessee is a public limited company which had its registered office at Indore which was a part of the erstwhile Holkar State. The textile mill of the assessee is also at Indore and the assessee-company was assessed to income-tax under the provisions of the Indian Income-tax Act, 1922, for the assessment years 1938-39 to 1949-50 in the status of " non-resident " except for the assessment year 1940-41, 1941-42 and 1948-49, for which it was held to be a resident and ordinarily resident-company. The assessee was charged to tax in respect of the assessment year 1948-49 in respect of remittances made for purchase of stores and income from interest on securities. In respect of the said assessment year 1948-49, the assessment was challenged and the income in respect of remittances which was originally brought to tax was deleted. The assessee, however, did not challenge its status by filing any second appeal and thus the income liable to tax under the Indian Income-tax Act, 1922, was income falling under section 4(1)(a) and section 4(1)(c) read with section 42 of the Indian Income-tax Act, 1922. Now, for determining the income liable to tax and to determine the world income of the assessee, it was necessary to calculate and allow as a deduction the depreciation in respect of the assets of the business. No depreciation was considered in respect of the assessment year 1948-49. The assessee's total world income was computed after taking into account depreciation year after year. The assessee was, however, taxed in respect of its total income. Thus, a part of the depreciation which had entered into computation of income found liable for tax under the Indian Income-tax Act, and which income was calculated on proportionate basis alone was the depreciation actually allowed. The Indian Income-tax Act, 1922, was extended to Part B States with effect from 1st April, 1950, by the Finance Act of 1950 and the assessee was assessed to tax as " resident and ordinarily resident " from the assessment year 1950-51 onwards. For the assessment year 1953-54 and the subsequent years up to the assessment year 1959-60, the assessee had raised a contention that for the purpose of allowing depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922, the written down value as defined in section 10(5)(b) should be taken to be the original cost of the assets. This contention was also raised in respect of the assessment years 1950-51, 1951-52 and 1952-53. We are, however, in this reference concerned only with the assessment years 1953-54 to 1959-60. An alternative contention was raised that in arriving at the written down value, only such depreciation should be deducted as had been actually allowed in making the assessment in the past under the Indian Income-tax Act, 1922. The Tribunal had finally accepted the alternative contention of the assessee. This decision was in respect of the assessment years 1950-51, 1951-52 and 1952-53. The matter came to this court in a reference and this court took the view that in the case of the assessee, only that part of the depreciation as had entered into the computation of the income liable to tax under the Indian Income-tax Act, can be taken into account to determine the written down value of the business assets under section 10(5)(b) of the Act and not the full depreciation calculated in determining the total world income having regard to the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. In the same decision, Paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was held to be a valid provision of law. This decision is reported in Hukumchand Mills Ltd. v. Commissioner of Income-tax [1963] 47 ITR 949 (Bom). The assessee carried the matter to the Supreme Court and the Supreme Court upheld the view of this court referred to above. The decision of the Supreme Court is reported as Hukumchand Mills Ltd. v. Commissioner of Income-tax [1967] 63 ITR 232, where the Supreme Court has taken the view that only that part of the depreciation which entered into the computation of the taxable income of the assessee under the Act for the assessment years prior to 1950-51 could be treated as depreciation (actually allowed) and not the total depreciation which went into the computation of its total world income. When the matter went back to the Tribunal, having regard to the decision of the Supreme Court in respect of the assessment years 1950-51, 1951-52 and 1952-53, the matter was remanded to the Income-tax Officer with a further direction that even in respect of the assessment years in question, the Income-tax Officer shall take into consideration all the relevant materials and also such material as may be placed before him by the assessee and also after considering whether the Industrial Tax Rules of 1927 have been made for the levy of the tax and for the ascertainment and determination of the income of cotton mills or whether it is any law relating to tax on profits of business or rules of Part B States relating to income-tax or super-tax within the meaning of rule 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950. Before the Tribunal a contention regarding the validity of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, was raised on several grounds. The Tribunal followed the decision of the Supreme Court in Commissioner of Income-tax v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 280 and rejected the contention of the assessee. The other contention raised before the Tribunal related to a deduction of the sums of Rs. 5,723 and Rs. 16,735 for the years 1956-57 and 1957-58, respectively, being the amount of expenses incurred in making some roads within the compound of the mills. The Tribunal took the view that the expenditure incurred was of a capital nature and that it was properly disallowed. The only other material contention which needs to be noticed is that a claim regarding deduction of legal expenses of Rs. 1,500 being the amount of fees paid to Eastern Law Consultants, in respect of appeals arising out of certain proceedings taken against the assessee-company for contravention of rules 47(4) and 51 read with rule 96(c) and (d) and rule 210 and rule 226 of the Central Excise Rules, was made by the assessee. This contention also came to be negatived by the Tribunal having regard to the decision of the Supreme Court in Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax [1961] 41 ITR 350. We are not concerned with the other questions raised before the Tribunal in appeal because these were the contentions on which the following questions have been referred to this court by the Tribunal under section 66(1) of the Indian Income-tax Act :

" (1) Whether, in view of the facts and circumstances, the company is entitled to depreciation on the original cost as on January 1, 1949, for the assessment year 1950-51, i.e., the original cost should be taken as written down value and depreciation to be allowed on such original cost and the written down value for subsequent years be arrived at by reducing the block, i.e., assets by depreciation on such written down value ?

(2) Whether, in view of the facts and circumstances, that the mill-company has been charged to tax for the income-tax assessment years 1938-39 to 1949-50 under the status of ' non-resident ' except for the assessment years 1940-41, 1941-42 and 1948-49, the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, could be invoked ?

(3) Whether the provisions of paragraph 2 of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, apply and were correctly applied to the facts of the case ?

(4) Whether in view of the facts and circumstances of the case, the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, Paragraph 2, is a legal and valid piece of legislation ?

(5) Whether the expenditure incurred for construction of the new approach road in the factory premises is allowable as a revenue outgoing ?

(6) If the answer to the above question No. 5 is in the negative, whether the company is entitled to depreciation in respect of expenditure incurred for the construction of new approach roads in the factory premises ?

(7) Whether, in view of the facts and circumstances of the case, the legal fees paid for contesting the levy of penalties and fine by the Deputy Superintendent of Central Excise, Indore, is a permissible deduction in computing the assessable income ? "

It is fairly conceded by Mr. Vyas on behalf of the assessee that question No. 4 which relates to the validity of the Taxation Laws (Part B States) (Removal of Difficulties) Order, 1950, is concluded by a Division Bench decision of this court referred to above in Hukumchand Mills Ltd. v. Commissioner of Income-tax [1963] 47 ITR 949 (Bom). In view of this decision question No. 4 has to be answered in the affirmative and in favour of the revenue.

It is also fairly stated by Mr. Vyas appearing for the assessee that questions Nos. 1, 2 and 3 need not be answered in the present reference in view of the fact that the Tribunal has remanded the matter to the Income-tax Officer with a direction that the matter should be decided in accordance with the decision of the Supreme Court in Hukumchand Mills Ltd. v. Commissioner of Income-tax [1967] 63 ITR 232, as also other considerations set out by the Tribunal in its order. Questions Nos. 1, 2 and 3, therefore, need not be answered.

It is also fairly stated by Mr. Vyas that the controversy raised in question No. 5 is also decided by the Supreme Court against the assessee in Travancore-Cochin Chemicals Ltd. v. Commissioner of Income-tax [1977] 106 ITR 900. In that case, the Supreme Court has held that by having a new road constructed for the improvement of transport facilities, the assessee had acquired an enduring advantage for its business and the expenditure incurred by the assessee was of a capital nature. In view of this decision, question No. 5 is answered in the negative and in favour of the revenue.

So far as question No. 6 is concerned, also, the matter stands concluded by the decision of this court in Commissioner of Income-tax v. Colour-Chem Ltd. [1977] 106 ITR 323 (Bom). This court in that decision has taken the view that roads and roadways laid out by the assessee for the purposes of linking several factory buildings within the factory premises and which have been used for the purpose of carrying raw materials and finished products and workers, must be regarded as buildings within the meaning of sub-clause (vi) of section 10(2) of the Indian Income-tax Act, 1922, and like factory buildings, these roads or roadways will also deteriorate by reason of constant use to which they were being put. This court, therefore, has taken the view that the roads or roadways will have to be regarded as part of the factory buildings entitled to depreciation. In view of this decision, question No. 6 will have to be answered in the affirmative and in favour of the assessee.

With regard to the last question in respect of legal fees paid for contesting the levy of penalties and fine in the proceedings for breach of the Central Excise Rules, Mr. Vyas has stated that he does not desire the question to be answered in view of the smallness of the amount involved. Question No. 7 thus need not be answered.

In the result, questions Nos. 1, 2 and 3 need not be answered.

Question No. 4 is answered in the affirmative and in favour of the revenue.

Question No. 5 is answered in the negative and against the assessee.

Question No. 6 is answered in the affirmative and in favour of the assessee.

Question No. 7 need not be answered.

No order as to costs.

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