1987-VIL-57-ITAT-

Equivalent Citation: ITD 021, 282, TTJ 028,

Income Tax Appellate Tribunal BOMBAY

Date: 13.01.1987

SHAH GRANITES (P.) LTD.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : R. P. GARG., M. A. A. KHAN.

JUDGMENT

Per Shri R. P. Garg, Accountant Member--This is an appeal by the assessee against the order of the Commissioner (Appeals) for the assessment year 1980-81. It relates to the computation of capital employed for the purposes of deduction under section 80J of the Income-tax Act, 1961 ('the Act')

2. The assessee was a partner in a firm running an industrial undertaking known as Bombay Engg. Industries. The firm was allowed under section 80J deduction for 3 years, namely, assessment years 1977-78 to 1979-80. Thereafter the business of the firm is taken over by the assessee vide deed of retirement dated 17-1-1979 with effect from 1-1-1979. Various assets and liabilities of the business of the firm are taken over by the assessee at their book value. The dispute in this appeal is restricted to the value of plant and machinery taken over by the assessee at their book value at Rs. 4,44,467 whereas its written down value as per the income-tax records of the firm was Rs. 3,54,666. The assessee claims that in computing the capital employed for the purpose of section 80J, the sum of Rs. 4,44,467 has to be included as according to him it is the cost of acquisition for which the assessee had acquired the plant and machinery, whereas according to the department, only the written down value has to be taken in computing the capital employed under section 80J(1A). The appeal of the assessee was also dismissed by the Commissioner (Appeals) by observing as under:

"The appellant took over the industrial undertaking belonging to the firm Eng. Industries on 1-1-1979. The relief under section 80J of the Income-tax Act, 1961, is computed in respect of the industrial undertaking and not a particular assessee. Accordingly the written down value in the hands of the industrial undertaking could only have been taken and not the excess price at which the industrial undertaking was taken over by the appellant-company. It is contended the written down value should be taken as the actual cost under section 43(6) of the Act. Section 43 would be applicable only in respect of section 28 to 41 and not to section 80J. Under section 80J in respect of the undertakings, in the case of assets entitled to depreciation written down value would have to be taken. The ITO has correctly taken the same in computing the capital and accordingly no further relief is called for."

3. It was submitted by the learned representative for the assessee that by virtue of Explanation 1 as read with Explanation 4 to section 80J(1A), the value of the plant and machinery is to be the book value of the firm, that being the actual cost to the assessee within the meaning of section 43(1) of the act. It was further submitted that the ITO himself had adopted the book value of Rs. 4,44,467 for the purpose of granting depreciation. Having adopted the book value for the purposes of granting depreciation, the ITO was not justified in changing the view while computing the capital employed for the purposes of section 80J. He also placed reliance on the decision of the Tribunal, Chandigarh Bench in the case of Lekh Raj Narinder Kumar v. ITO [1986] 16 ITD 452 allowing depreciation on the value of the assets at which the assessee got them from the firm on its dissolution. The learned departmental representative, on the other hand, submitted that the lower authorities were justified in rejecting the claim of the assessee. Deduction under section 80J is available to a newly established undertaking and, therefore, as per clause (II)(i) of section 80J(1A) written down value alone has to be taken into consideration by virtue of Explanation 3 thereto, as the written down value, according to him, could be of asset to the industry and not to the assessee.

4. We have heard the parties and considered the rival submissions very carefully. Before proceeding further, it would be relevant to have a look on the relevant provisions of the Act, Section 80J (1A) reads as under:

"(1A)(I) For the purposes of this Section, the capital employed in industrial undertaking or the business of a hotel shall, except as otherwise expressly provided in this section, be computed in accordance with clauses (II) to (IV) and the capital employed in a ship shall be computed in accordance with clause (V).

(II) The aggregate of the amounts representing the values of the assets as on the first day of the computation period of the undertaking or of the business of the hotel to which this section applies shall first be ascertained in the following manner:

(i) in the case of assets entitled to depreciation, their written down value;

(ii) in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee;

(iii) in the case of assets acquired otherwise than by purchase and not entitled to depreciation, the value of the assets when they became assets of the business;

(iv) in the case of assets, being debts due to the person carrying on the business, the nominal amount of those debts;

(v) in the case of assets, being cash in hand or bank, the amount thereof.

Explanation 1: In this clause and in clause (III), 'computation period' means the period for which profits and gains of the industrial undertaking or business of the hotel are computed under section 28 to 43A.

Explanation 3: In this clause and in clause (V) 'written down value' has the same meaning as in clause (6) of section 43.

Explanation 4: Where the cost of any asset has been satisfied otherwise than in cash, the then value of the consideration actually given for the assets shall be treated as the actual cost of the asset".

Section 43(1) reads as under:

"(1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority : Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees."

Section 43(6) reads as under:

"(6) 'written down value' means:

(a) in the case of assets acquired in the previous year, the actual cost to the assessee:

(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922) or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force:

Provided that in determining the written down value in respect of buildings, machinery or plant for the purposes of clause (ii) of sub-section (1) of section 32 'depreciation actually allowed' shall not include depreciation allowed under sub-clause (a), (b) and (c) of clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi)."

On a careful reading of the provisions aforesaid, two things are certain. One is that section 80J (1A) provides for the computation of capital employed in an industrial undertaking. Section 43, on the other hand, provides for the determination of the actual cost of an asset for granting depreciation. In this respect, each operates in a different filed. Where the assessee and the industry are identifiable with respect to full period of ownership, there would be no difficulty in ascertaining the actual cost or the written down value for the purposes of computing capital employed or for granting depreciation. In that case, both the figures would be the same. But the difficulty would arise in a case, as it arises in the present case, where the assessee had become the owner of an industrial undertaking, which was owned previously by another assessee for a part of the previous year. It is admitted by the assessee and so by the CBDT by issuing a circular, that the deduction under section 80J is available to an industry irrespective of the assessee, who owns it. If an industrial undertaking is owned by one assessee in the first year he will be entitled to section 80J deduction and if it changed ownership in the subsequent year the new owner would be entitled for section 80J deduction. In this view of the matter, the difficulty arises as to which value of the assets of the industrial undertaking should be taken into consideration for the purpose of computing capital employed of the new owner. It is held by the Chandigarh Bench of the Tribunal that the new owner would be entitled to depreciation on that value of the assets for which he has acquired it from the firm on dissolution. But that value may not be the amount which is to be taken into consideration for the purpose of computing the capital under section 80J(1A). We are not impressed with the argument of the learned representative of the assessee that having allowed depreciation on the book value of Rs. 4,44,467, that value alone has to be taken into consideration for computing the capital employed. Depreciation is allowed to an assessee with reference to the amount which is the actual cost whereas section 80J deduction is allowed to an industry with reference to the amount which is its cost of acquisition or its written down value. The emphasis given by the assessee's representative on the words appearing in section 43(1), viz., 'the actual cost of an assessee' is devoid of force. When the definition of a particular term is adopted at different places its meaning has to be understood with necessary adaptation or changes in paints of detail. This is called the rule of mutatis mutandis. We should not forger the context in which the meaning of the term is adopted. When a law directs that a provision made for certain type of cases to apply in another type of case, it has to mean that it shall apply with such changes as may be necessary in the context. The words 'actual cost' and 'written down value' to an assessee as define din clauses (1) and (6) of section 43 and as adopted by Explanations 1 and 3 to section 80J(1A), have to have the same meaning, namely, 'actual cost of the asset' and 'actual cost less all depreciation actually allowed' but with contextual adaptation of section 80J they would mean 'actual cost of the asset to the industrial undertaking' and actual cost to industrial undertaking less all depreciation allowed to it.

5. With this background we hold that the assessee is not right in contending that the value of the plant and machinery for the purposes of computing under section 80J deduction in the hands of the assessee should be the figures at which he has got it on dissolution of the firm and not the written down value of the assets in the hands of industrial undertaking immediately before it was taken over by the assessee.

6. The appeal is dismissed.

 

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