Vildirect: IncomeTax-caselaws-1985-VIL-41-ITAT-

1985-VIL-41-ITAT-

Equivalent Citation: TTJ 026, 378,

Income Tax Appellate Tribunal BOMBAY

Date: 19.07.1985

SHAH CONSTRUCTION CO. LTD.

INCOME TAX OFFICER.

BENCH

Member(s) : I.S. NIGAM., A. V. SUBRAMANIAM.

JUDGMENT

The cross appeals by the assessee and the Revenue emerge out of the assessment for the asst. yr. 1979-80.

2. The assessee is an industrial company engaged in the business of taking contracts and executing works of construction of dams, bridges, roads, building both in India and abroad. During the material accounting year, it had done some engineering work abroad.

3. It may be convenient to take up first the Revenue's appeal. The first ground is in regard to investment allowance claimed under s. 32A. The ITO declined relief in this behalf. But, in the appeal, it was held by the CIT(A) that the assessee is entitled to investment allowance and to reach that conclusion reliance has been placed upon the decision of the Tribunal in the case of Progressive Engineering Company vs. ITO (since reported in (1983) 3 ITD 172 (Hyd)). Claim for investment allowance had also been made in respect of dumpers and that was denied by authorities below on the reason that they are transport vehicles falling within the proviso (2)(b) to s. 32A. In this behalf, the assessee is in appeal and we will consider that question when we take up that appeal.

4. Shri R.d. Mahadeshwar, the ld. Departmental representative mainly depended upon the decision of the Bombay High Court in the case of the assessee itself CIT vs. Sha Construction Co. Ltd. (1982) 30 CTR (Bom) 245 : (1983) 142 ITR 696 (Bom) and contended that investment allowance cannot be granted. In this connection, we were also invited to the decision of the Bombay High Court in the case of CIT vs. N.U.C. Pvt. Ltd. (1980) 126 ITR 377 (Bom). On behalf of the assessee, Shri S.P. Mehra, replied that while the decision relied upon on behalf of the Revenue do not directly deal with the case of investment allowance under s. 32A. He proceeded to submit that the decision of the Special bench of the Tribunal in the case of ITO vs. Hydle Constructions (P) Ltd. (1983) 6 ITD 575 (Del) (SB) and the decision of the Hyderbad Bench of the Tribunal in the case of Progressive Engineering Co. vs. ITO (1983) 3 ITD 172 (Hyd) directly answer this question. He also invited out attention to the decision of the Bombay High Court in the case of CIT vs. Pressure Milling Co. (1980) 126 itr 333 (Bom) and also the decision of th Orissa High Court in the case of CIT vs. N.C. Budharaja & Co. (1980) 122 ITR 212 (Ori).

5. We have gone through the authorities and in our view CIT vs. Shah Construction Co. Ltd. (1982) 30 CTR (Bom) 245 : (1983) 142 ITR 696 (Bom) is not an authority to this appeal where the facts and circumstances are entirely different. In CIT vs. Shah Construction Co. Ltd. (1982) 30 CTR (Bom) 245 : (1983) 142 ITR 696 (Bom), the question was whether the assessee was entitled to certain rebate so as to fall within the proviso (iii) (A). Of Para D of Property. II to Sch. I of the Finance Act, 1964. According to that proviso, the assessee was to have carried on the activity of manufacture or processing of goods the assessee who was carrying on the business activity of constructing dams, bridges etc., was held to be not mainly engaged in the manufacture of proceeding of goods. In CIT vs. N.U.C. private Ltd. (1980) 126 ITR 377 (Bom), the question was whether the assessee in that case was an industrial company wihin the meaning of s. 2(7)(D) of Finance Act, 1966. Here also the question was whether it was in industrial company engaged in the manufacture or processing of goods. Holding that the assessee is not engaged in that activity of manufacture of processing of goods would not be sufficient to result in rejection of the claim for investment allowance under s. 32A. According to cl. (2)(B)(iii) of s. 32A, it is sufficient if the assessee is an industrial undertaking engaged in the "business of construction, manufacture of production of any article or thing, not being an article or thing specified in the list in the Elevanth Schedule" (the words stated in inverted comas are those found in the statute). Even if an industrial under taking is not engaged in the business of manufacture or production of an article of thing, it can make a valid claim for investment allowance if it is engaged in the business of construction of any article or thing. The word "construction" was not in the provisions which were interpreted by the Hon'ble High Court of Bombay either in (1983) 142 ITR 696 (Bom) or (1980) 126 ITR 377 (Bom). For the these reasons, we are of the view that the authorities relied upon by Shri Mahadeshwar are not applicable in deciding the question posed before us.

6. It is clear from the record that business activity of the assessee is not one specified in the list in the Eleventh Schedule. SO we are now to see whether the business of constructing dams, bridges, buildings etc., is a business of construction of any articles or thing, we may now alone say that the same type of business was carried on by Progressive Engg. Co. and it was held to be entitled to investment allowance by the Hyderabad Bench of the Tribunal. The facts are identical. The Special Bench of the Tribunal has in Hydle Construction case (1983) 6 ITD 575 (Del) held that the assessee in that case which was also carrying on civil engineering construction works was eligible for investment allowance. According to these two decisions of the Tribunal, constructing dam, bridge or any other building is an article or thing and that business of construction is sufficient to meet the requirements of cl. 2(iii) of s. 32A.

7. Referring to CIT vs. Pressure Pilling Co. (1980) 126 ITR 333 (Bom), the assessee in the case was carrying on the business of laying foundations of building by a specialised patented method known as "pressure piling" and claimed relied under s. 80J. Their Lordships held that the assessee was manufacturing an article though it finally formed part of the construction ultimately made and that it was entitled to s. 80J relief. In other words, the assessee in that case was held to have engaged in the manufacture or production of article within the meaning of s. 84(2)(iii) of the IT Act, 1961 (Now s. 80J). It is true that (1980) 126 ITR 333 (Bom), is considered and explained in (1983) 142 ITR 696 (Bom). But even so, as already pointed out by us the word "construction" found in s. 32A was not present in any of the provisions interpreted by their Lordships in solving the questions referred to them. It is in this respect we find that (1983) 3 ITD 172 (Hyd and (1983) 6 ITD 575 (Del) are directly applicable to this appeal by the Revenue. The assessee is carrying on the business of civil engineering work which involves construction and the civil engineering activity bring forth dams, bridges, building etc., and they can be said to be a thing so as to fulfil the requirement of 32A(2)(iii). For all the reasons, we are of the view that the assessee was rightly held to be entitled to investment allowance and we confirm the finding of the CIT(A) in this behalf.

8. The second ground raised by the Revenue is in regard to foreign exchange reserve. As mentioned earlier, the assessee has taken up contract work in Middle East Countries. Against such contracts, advances had to be adjusted against running bills submitted by the assessee from time to time. At the end of the accounting year certain foreign country had remained in the reserve and for account purposes they were converted into rupees at the rate prevailing at the end of the year. This was essentially for account purposes. A sum of Rs. 4,59,098 was in foreign exchange reserve account and this was brought to tax by the ITO. In the appeal, the assessee succeeded. Having heard both the parties and considering the facts and circumstances of the case, we are inclined to affirm the orde of the CIT(A), the advances received in foreign currency had not been adjusted during the accounting year. The foreign currency had remained outside India and no conversion had taken place. So far as those facts are concerned, there cannot be any dispute. The ld. Departmental representative relieved upon the decision of the Supreme Court in the case of of Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC) which has also been considered by the first appellate authority. The rule enunciated in this case is not applicable as the facts are entirely different. As pointed out by the first appellate authority, in Sutlej Cotton Mills Ltd., foreign currency had been held by the assessee and conversion had taken place. Such a situation does not obtain here at all. The advances had to be adjusted on future bills. Until such adjustments take place, the money does not assume the character of income. Unless adjustment is made and the receipt results either in profit or loss, the question of taxing does not arise. It is only for accounting purposes the foreign currency reserve had been taken into account and by that it cannot be said that the assessee had made an income of that foreign currency. In our opinion, the view taken by the first appellate authority is in accordance with law and, therefore, no interference is called upon. The deletion of addition of Rs. 4,59,098 is, therefore, confirmed.

9. The third ground raised by the Revenue is in regard to relief under s. 80-O. In the same context we may also consider ground number 5 in the assessee's appeal which is also in regard to relief under s. 80-O. The assessee had executed a contract of construction of Liquid Sulphur Terminal at Iraq. The agreement of the work had been approved by the CBDT vide its letter dt. 11th Jan., 1980, for the purpose of s. 80-O. The amount remitted to India during the accounting year was Rs. 1,20,15,512. It was the claim of the assessee that it was entitled to deduction of a like amount under s. 80-O. The ITO computed and the relief under this provision at Rs. 60,07,756, This was on the basis of the letter of the CBDT dt. 11th Jan., 1980. According to the ITO, 50 per cent of the payment received by the assessee was attributable to recovery of expenses incurred by it in connection with the supply of equipments and only the remaining 50 per cent of the amount that had been sent to India was taken as eligible for relief under s. 80-O, according to the Board's circular dt. 23rd Dec., 1975. In this connection, the CIT(A) was of the view that the ITO had not applied his mind to the question and he set aside the same and restored the issued to him (ITO) with a direction to re-examine the same in the light of the observation made in the appellate order. Against this part of the order, both the Revenue and the assessee feel aggrieved.

10. On behalf of the Revenue, it was contended that hte CIT(A) was wrong in setting aside the issue and sending the matter back to the ITO when all the material was on record and that the issue could have been once and for all decided effectively. The assessee contended that the remand has resulted in setting aside the relief already granted by the ITO apart from the plea that the assessee was entitled to full allowance of Rs. 1,20,15,512 instead to 50 per cent of the same. After a careful consideration of the matter, we are of the view that the remand to the ITO was not proper. The CBDT's letter dt. 11th Jan., 1980 was before the first appellate authority. The circular dt. 23rd Dec., 1975 is also available for consultation with regard to the factual aspects. That the assessee remitted to India Rs. 1,20,15,512 during the accounting year, there is no dispute at all. The question of granting of relief under s. 80-O has to be decided only on a proper consideration of the CBDT's letter dt. 11th Jan., 1980 and its circular dt. 23rd Dec., 1975. Therefore, there was no justification for the first appellate authority to remit the issue to the ITO and we are, therefore, of the view that the same is required to be set aside here. On the above mentioned reasons, the remand order is set aside and we direct that the issue pertaining to s. 80-O shall be considered by the CIT(A) on merits and he shall quantify of deduction under s. 80-O after affording an opportunity to the assessee of being heard.

11. We have thus disposed of all the grounds raised in the appeal by the Revenue. Now taking up the appeal by the assessee, there are five grounds in all, the last (5) being relating to relief under s. 80-O. This, we have already considered in para 9 and our conclusion is found recorded in para 10. What remains to be considered is only grounds No. 1 to 4 and we take up in the order in which they are set out in the memorandum of appeal.

12. The first ground is in regard to disallowance of investment allowance in regard to dumpers. The claim in regard to dumper was to the extent of Rs. 1,19,930. The ITO rejected the claim and that was confirmed by the CIT(A) for identical reasons. The authorities below are of the view that there dumpers are road transport vehicles so a to come within the second proviso to s. 32A(i) to be disentitled to this allowance. These dumpers are automobiles used for shifting or transporting earth removed during the course of construction work. Shri Mehta contended that they are vehicles of special type and, in this connection, our attention was invited to the decision of the Calcutta High Court in the case of Orissa Minerals Development Co. Ltd. vs. CIT (1979) 117 ITR 434 (Cal). Shri Mahadeshwar, the ld. Departmental representative, argued that these dumpers are vehicles registered under the Motor Vehicles Act and there is no reason to look upon them as not falling within the classification of "Road Transport Vehicles" specified in proviso (b) to s. 32A(1). We have already held that the assessee is entitled to investment allowance under s. 32A. The point is whether the dumpers are road transport vehicles so as to fall under the class specified in proviso (b) to s. 32A (1). As explained in the case of Orissa Mineral Department Co. Ltd. what is necessary for us to see is whether these dumpers belong to the category of earth moving machinery or in the category of ordinary motor vehicles and the know this the exact function of the dumpers will provide answer. As it was explained to us, the dumpers, used by the assessee before us, are to remove the earth excavated at the site while laying the foundation for the civil engineering work and it is part of construction activity. It does the work of shovelling the excavated earth in a quicker and expeditious manner. It cannot be classified as an ordinary transport vehicle because its function is of a specialised type suitable to a particular activity in the task of construction work. With regard to Shri Mahadeshwar's argument that dumpers are registered under the Motor Vehicle Act, the same is not relevant as pointed out by their Lordships in (1979) 117 ITR 434 (Cal). The function of the dumpers decide the issue. In our view, the dumpers of the assessee are of a specialised category and, hence we, hold that the dumpers are also eligible for investment allowance as it is directly used in the business of construction, namely, the construction of a project or dam for the purpose of removing the earth. The ground No. 1 in the assessee's appeal is, therefore, held in favour of the assessee and against the Revenue.

13. The Second ground is in regard to disallowance of interest paid to IT Department. The assessee had paid interest of Rs. 2,34,651 and this payment had to be made because of delayed payment of income-tax. The assessee claimed this as business expenditure and that was not allowed by the authorities below. The CIT(A) has considered this aspect in para 3 of his order. As pointed out by him, s. 80V provides for deduction in respect of interest paid by an assessee on monies borrowed for payment of income-tax. The Income-tax liability itself is not an allowance deduction and, as such interest paid for delayed payment of income-tax cannot be a prior allowed since character of the interest amount is the same as the principal liability. In this connection, the decision of the Delhi High Court in the case of Bharat Commerce & Industries Ltd. (1985) 45 CTR (Del) 1 : (1985) 153 ITR 275 (Del), is in point. This authority clearly lays down that interest paid for delayed payment of tax would take the same colour as the original amount liable to be paid. Interest charged by the Department on account of default in payment of Income-tax cannot be brought within the ambit of s. 80V. This can certainly be not treated as business expenditure and, in our opinion, the authorities below rightly disallowed the claim. The revenue succeeds and the assessee fails in regard to ground No. 2.

14. The third ground raised by the assessee is in regard to weighted deduction claimed under s. 35B. The assessee had made a claim of Rs. 70,66,933. The ITO had considered this expenditure and found that the assessee was eligible only to the extent of Rs. 13,10,093. This aspect of the case was considered by the CIT(A) in para 5 of the impugned order. The CIT(A) observes that disallowance was "owing to wrong interpretation of the ITO that the provision was operative only from 1st April, 1981." The CIT(A) disagreed on this question and according to his conclusion the claim of the assessee was considerable on merits. He, therefore, registered the matter to the ITO for a detailed scrutiny of the claim and its disposal on merits in accordance with law.

15. At the time of hearing both the ld. counsel for the assessee and the ld. Departmental representative submitted that all the materials pertaining to the claim are on the record and that this question may also be considered by the CIT(A) himself instead of the ITO as the claim in regard to s. 80-O is being remanded to the CIT(A) for a fresh look. It would be improper if remand is to be made to different forums upon different questions as it will lead to confusion and multiplicity of proceedings. He, therefore, feels it proper that this question relating to the claim of the assessee under s. 35B should also be examined by the CIT(A) and we, therefore set aside the remand order passed by him and direct the CIT(A) to take up this question, consider the same on merits and dispose of the same according to law.

16. The fourth found is in regard to disallowance of a sum of Rs. 2,22,300. This amount was claimed by the assessee as a business loss. The authorities below did not agree. The assessee in contending that it should have been treated as a revenue loss. The facts are that the assessee had placed an order for purchase of machinery and in that behalf a security deposit of Rs. 2,22,300 had been made with the purchaser. Owning to the inability of the assessee, the machine was not purchased and the purchaser forfeited the amount. That is how the amount was lost and the assessee is asking for the same to be treated as a trading loss. If the purpose had gone forward, it would have resulted in acquisition of a capital assets. The payments, therefore, was in the capital filed. This infructuous expenditure cannot assume a different complexion merely because the contract of purchase fall through. Consequently, we hold that the forfeiture had resulted only in a capital loss and the same cannot be treated as a revenue loss. The disallowance is, therefore, confirmed.

17. In the result, the appeal by the Revenue is dismissed except in regard to ground No. 3 pertaining to relief under s. 80-O which is remanded to the first appellate authority for fresh decision on merits. The appeal by the assessee is allowed in part.

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.