Sri Y C Kallinatha, Bangalore V. Deputy Commissioner of Income tax, Bangalore

ITA 728/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8511 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BIJU
• Assessee Lawyers: S V RAVISHANKAR
• Keywords: Depreciation; Additional depreciation; Retrospective amendment
• Section: 72(1); 10B; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ITA NO.728/BANG/2016 ASSESSMENT YEAR : 2009- 10 SHRI. Y. C. KALLINATHA, # B-89, 5 TH CROSS, RAJAJINAGAR INDL ESTATE, RAJAJINAGAR, BANGALORE-560044. PAN : AFXPK7979N VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 9(1), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI. S. V. RAVISHANKAR, ADVOCATE REVENUE BY : SHRI. M. K. BIJU, JCIT DATE OF HEARING : 08.02.2017 DATE OF PRONOUNCEMENT : 15 .02.2017 O R D E R PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 11.02.2016 FOR THE ASSESSMENT YEAR 200 9-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: ITA NO.728/BANG/2016 PAGE 2 OF 8 ITA NO.728/BANG/2016 PAGE 3 OF 8 2. THE ONLY ISSUE RAISED IN THE APPEAL OF THE REVEN UE IS REGARDING CLAIM OF ADDITIONAL DEPRECIATION UNDER SE CTION 32(1)(IIA) IN THE SUBSEQUENT YEAR OF INSTALLATION O F THE NEW MACHINERY. 3. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO NOTED THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATI ON OF RS.6,83,163/- IN RESPECT OF MACHINERY WHICH WAS INS TALLED DURING THE FINANCIAL YEAR RELEVANT TO THE EARLIER AY I.E., 2008-09. ACCORDINGLY, THE AO HAS DISALLOWED THIS CLAIM OF AD DITIONAL DEPRECIATION. THE ASSESSEE CHALLENGED THE ORDER OF THE AO BEFORE THE CIT(A) AND CONTENDED THAT SINCE THIS MACHINERY WAS INSTALLED IN THE LATTER HALF OF THE FINANCIAL YEAR RELEVANT T O THE ASSESSMENT YEAR 2008-09 AND CONSEQUENTLY ONLY 10% BEING 50% OF THE ADDITIONAL DEPRECIATION WAS CLAIMED BY THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR, THEREFORE THE BALANCE OF 10% OF AD DITIONAL DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE IN TH E PRESENT ASSESSMENT YEAR. THE CIT(A) HAS NOT ACCEPTED THE C LAIM OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY THE AO. ITA NO.728/BANG/2016 PAGE 4 OF 8 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RI TTAL INDIA PVT. LTD., 380 ITR 423 WHEREIN THE HONBLE HIGH COURT, I N THE IDENTICAL FACTS AND CIRCUMSTANCES, HAS HELD THAT TH IS PROVISION IS A BENEFICIAL LEGISLATION AND SHOULD BE GIVEN LIBERAL INTERPRETATION. ACCORDINGLY, THE HONBLE HIGH COURT HAS UPHELD THE DECISION OF THIS TRIBUNAL IN ALLOWING THE ADDITIONAL DEPRECIATI ON BEING ONETIME BENEFIT TO ENCOURAGE THE INDUSTRIALIZATION IN THE SUBSEQUENT YEAR. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT THERE IS NO PROVISION UNDER SECTION 32(1)(IIA) TO EXTEND THE BENEFIT OF ADDITIONAL DEPRECIATION IN TH E SUBSEQUENT YEAR OF THE INSTALLATION OF NEW MACHINERY. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSES SEE HAS INSTALLED THIS MACHINERY DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09 AND SINCE THE MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS DURING THE FINANCIAL YEAR 20 09-08, THE ASSESSEE CLAIMED ONLY 10% ADDITIONAL DEDUCTION ON T HIS ACCOUNT. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS AGAIN CLAIMED BALANCE 10% ADDITIONAL DEPRECIATION ON THE SAID MAC HINERY WHICH WAS DISALLOWED BY THE AO AS WELL AS BY CIT(A). 6. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE F ELL FOR THE CONSIDERATION IN HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ITA NO.728/BANG/2016 PAGE 5 OF 8 CIT(A) VS. RITTAL INDIA PVT. LTD., (SUPRA). THE HO NBLE HIGH COURT, AFTER ANALYZING THE PROVISIONS OF SECTION 32 (1)(IIA) OF THE ACT, HAS HELD IN PARAS 7 TO 11 AS UNDER: 7. SECTION 10A WAS FURTHER AMENDED BY THE FINANCE ACT OF 2003 WITH RETROSPECTIVE EFFECT FROM 1.04.2001. FOR THE PURPOSES OF THE PRESENT CASE, THE AMENDMENTS INTRODUCING SECTIO N (1A); MAKING THE PROVISIONS OF SUB-SECTION (4) SUBJECT TO THE PR OVISIONS OF SECTIONS (1) AND (1A) AND MAKING THE BENEFIT OF THE PROVISIONS OF SECTIONS 32, 32A, 33, 35 AND CLAUSE (IX) OF SECTION 36(1) AND ALSO SECTIONS 72(1) AND 74(1) AND (3) OPERATIVE FROM THE ASSESSMENT YEAR 2001-2002 ALONE WOULD BE SIGNIFICANT. 8. THE CARDINAL PRINCIPLES OF INTERPRETATION OF TAXIN G STATUTES CENTERS AROUND THE OPINION OF ROWLATT, J. IN CAPE B RANDY SYNDICATE V. INLAND REVENUE COMMISSIONER [1921] 1 KB 64 WHICH HAS VIRTUALLY BECOME THE LOCUS CLASSICUS. THE ABOVE WOU LD DISPENSE WITH THE NECESSITY OF ANY FURTHER ELABORATION OF TH E SUBJECT NOTWITHSTANDING THE NUMEROUS PRECEDENTS AVAILABLE I NASMUCH AS THE EVOLUTION OF ALL SUCH PRINCIPLES ARE WITHIN THE FOU R CORNERS OF THE FOLLOWING OPINION OF ROWLATT, J. '. . . . . . . . . IN A TAXING ACT ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMENT. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMPTION AS TO A TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED. ONE CAN ON LY LOOK FAIRLY AT THE LANGUAGE USED.' 9. THE AMENDMENT OF SECTION 10A OF THE ACT, BY THE FI NANCE ACT, 2000 WITH EFFECT FROM 1.4.2001, SPECIFICALLY U SES THE WORDS 'DEDUCTION OF PROFITS AND GAINS DERIVED BY AN ELIGI BLE UNIT FROM THE TOTAL INCOME OF THE ASSESSEE'. THERE ARE OTHER PROVISIONS OF SECTION 10A, AS AMENDED, WHICH COULD BE SUGGESTIVE OF THE FACT THAT BY THE AMENDMENT MADE BY FINANCE ACT, 2000, SECTION 10A HAD CHANGED ITS COLOUR FROM BEING AN EXEMPTION SECTION TO A PROVISION PROVIDING FOR DEDUCTION. YET, SECTION 10A CONTINUED TO REMAIN IN CHAPTER III OF THE ACT WHICH CHAPTER DEALS WITH INC OMES WHICH DO NOT FORM PART OF THE TOTAL INCOME. THERE ARE SEVERA L CIRCULARS THAT HAVE BEEN PLACED BEFORE US BY THE CONTESTING PARTIE S TO EXPLAIN THE PURPOSE AND OBJECT OF THE AMENDMENT. HAVING LOOKED AT THE AFORESAID CIRCULARS, ISSUED FROM TIME TO TIME, WHAT WE FIND IS A FAIR AMOUNT OF AMBIGUITY THEREIN AS TO THE TRUE NATURE A ND EFFECT OF THE AMENDMENT. SPECIFICALLY, WE MAY REFER TO CIRCULAR N O. 7 DATED 16.07.2013 AS WELL AS CIRCULAR NO. 01/2013 DATED 17 .01.2013 WHICH APPEAR TO BE CONFLICTING AND CONTRADICTORY TO EACH OTHER; IN THE FORMER CIRCULAR THE PROVISION, I.E., SECTION 10 A IS REFERRED TO AS PROVIDING FOR DEDUCTIONS WHEREAS THE LATER CIRCULAR USES THE ITA NO.728/BANG/2016 PAGE 6 OF 8 EXPRESSION 'EXEMPTION' WHILE REFERRING TO THE PROVI SIONS OF SECTIONS 10A AND 10B OF THE ACT. EVEN THE INCOME TAX RETURN FORMS I.E. FORM NO. 1 DATED 17.08.2001 AND FORM NO. 6 FOR THE ASSESSMENT YEAR 2012-13 ARE EQUALLY CONTRADICTORY. THE APPELLA NT REVENUE WOULD, HOWEVER CONTEND THAT, EX FACIE, FROM THE LAN GUAGE APPEARING IN SECTION 10A IT IS CRYSTAL CLEAR THAT THE AFORESA ID PROVISION OF THE ACT, AS AMENDED BY FINANCE ACT, 2000 PROVIDES FOR D EDUCTIONS FROM THE GROSS TOTAL INCOME, NOTWITHSTANDING THE USE OF THE WORDS 'TOTAL INCOME' IN SECTION 10A. EXEMPTIONS PROVIDED FOR UND ER THE OLD SECTION 10A HAVE BEEN DISCONTINUED BY THE LEGISLATU RE. ACCORDING TO THE REVENUE, WHERE THE PURPORT AND EFFECT OF THE STATUTE IS CLEAR FROM THE LANGUAGE USED THERE IS NO SCOPE TO TURN TO CHAPTER NOTES OR THE MARGINAL NOTES SO AS TO UNDERSTAND SECTION 1 0A TO BE AN EXEMPTION SECTION ON THE BASIS THAT THE SAID PROVIS ION IS STILL INCLUDED IN CHAPTER III OF THE ACT. RELIANCE IN THI S REGARD HAS BEEN PLACED ON THE DECISION OF THIS COURT IN TATA POWER CO. LTD. V. RELIANCE ENERGY LTD. [CIVIL APPEAL NOS. 3510-3511 O F 2008, DATED 6-5-2009] WHEREIN AT PAGE 687, IT IS HELD THAT: '89. CHAPTER HEADINGS AND THE MARGINAL NOTES ARE PA RTS OF THE STATUTE. THEY HAVE ALSO BEEN ENACTED BY PARLIAMENT. THERE CANNOT, THUS, BE ANY DOUBT THAT IT CAN BE USED IN AID OF TH E CONSTRUCTION. IT IS, HOWEVER, WELL SETTLED THAT IF THE WORDINGS OF T HE STATUTORY PROVISION ARE CLEAR AND UNAMBIGUOUS, CONSTRUCTION O F THE STATUTE WITH THE AID OF 'CHAPTER HEADING' AND 'MARGINAL NOT E' MAY NOT ARISE. IT MAY BE THAT HEADING AND MARGINAL NOTE, HO WEVER, ARE OF A VERY LIMITED USE IN INTERPRETATION BECAUSE OF ITS N ECESSARILY BRIEF AND INACCURATE NATURE. THEY ARE, HOWEVER, NOT IRREL EVANT. THEY CERTAINLY CANNOT BE TAKEN INTO CONSIDERATION IF THE Y DIFFER FROM THE MATERIAL THEY DESCRIBE.' 10. THE REVENUE FURTHER CONTENDS THAT BY VIRTUE OF THE AMENDMENT MADE BY FINANCE ACT, 2000, DEDUCTIONS UND ER SECTION 10A ARE REQUIRED TO BE MADE AND ALLOWED AT THE STAG E OF COMPUTATION OF TOTAL INCOME UNDER CHAPTER VI OF THE ACT NOTWITHSTANDING THE ABSENCE OF ANY SPECIFIC PROVISI ON IN CHAPTER VI TO THE SAID EFFECT. IN FACT, THE REVENUE CONTENDS T HAT IN VIEW OF THE CLEAR LANGUAGE OF SECTION 10A, AS BROUGHT ABOUT BY THE AMENDMENT, A PARALLEL OR CONSEQUENTIAL AMENDMENT IN CHAPTER VI OF THE ACT WAS WHOLLY UNNECESSARY. 11. ON THE OTHER HAND, ON BEHALF OF THE ASSESSEES, IT IS CONTENDED THAT THOUGH THERE MAY BE SOME FEATURES OF DEDUCTION BROUGHT IN BY THE AMENDMENT TO SECTION 10A, AS FOR EXAMPLE, DISALLOWANCE OF PROFITS IN REGARD TO DOMESTIC SALES , THE LEGISLATIVE INTENT IN RETAINING SECTION 10A IN CHAPTER III OF T HE ACT WOULD CLEARLY DEMONSTRATE THE TRUE NATURE OF THE SAID PRO VISION OF THE ACT EVEN AFTER AMENDMENT THEREOF BY THE FINANCE ACT OF 2000. ITA NO.728/BANG/2016 PAGE 7 OF 8 DEDUCTIONS FROM THE TOTAL INCOME WHICH IS NOWHERE E NVISAGED UNDER THE ACT AND THE REFERENCE TO THE TOTAL INCOME OF THE UNDERTAKING, REFERRED TO IN SEVERAL SUB- SECTIONS O F SECTION 10A, WOULD INDICATE THAT THE TOTAL INCOME REFERRED TO IN SECTION 2(45) HAS NO APPLICATION TO THE COMPUTATION UNDER SECTION 10A AND THE REFERENCE THEREIN IS ONLY TO THE TOTAL INCOME OF TH E ELIGIBLE UNIT/UNDERTAKING. THE PROVISIONS OF SECTION 10A(6), AS AMENDED BY FINANCE ACT OF 2003 RETROSPECTIVELY WITH EFFECT FRO M 1.4.2001, HAS ALSO BEEN STRESSED UPON TO CONTEND THAT WITH EFFECT FROM THE ASSESSMENT YEAR 2001-02 LOSSES AND UNABSORBED DEPRE CIATION OF ELIGIBLE UNITS WOULD BE ALLOWABLE FOR SET OFF IMMED IATELY ON THE EXPIRY OF THE PERIOD OF TAX HOLIDAY I.E. 10 YEARS. THE PROVISIONS OF SECTIONS 32, 32A, 33, 35 AND PART OF 36 DO NOT SEPA RATELY APPLY TO AN ELIGIBLE UNIT DURING THE PERIOD OF TAX HOLIDAY. DURING THE SAID PERIOD THE DEDUCTION UNDER THE AFORESAID SECTIONS O F THE ACT ARE DEEMED TO HAVE BEEN MADE. SIMILARLY, UNDER SECTION 10A(6)(II) LOSSES REFERRED TO IN SECTION 72(1) OR 74(1) AND 74 (3) ARE ALSO ELIGIBLE TO BE CARRIED FORWARD TO THE ASSESSMENT YE AR FOLLOWING THE END OF THE HOLIDAY PERIOD COMMENCING FROM THE ASSES SMENT YEAR 2001-02. ALL THESE, ACCORDING TO THE LEARNED COUNSE LS FOR THE ASSESSEES, SUGGEST THAT, THOUGH HETEROGENEOUS ELEME NTS EXIST IN SECTION 10A, THE PROVISION IS REALLY AN EXEMPTION P ROVISION. ALTERNATIVELY, ACCORDING TO THE LEARNED COUNSELS, E VEN IF SECTION 10A IS UNDERSTOOD TO BE PROVIDING FOR DEDUCTIONS, T HE STAGE OF SUCH DEDUCTIONS WOULD BE IMMEDIATELY AFTER COMPUTATION O F PROFITS AND GAINS OF BUSINESS AND BEFORE THE AGGREGATE OF INCOM ES UNDER DIFFERENT HEADS OF OTHER LOSS MAKING ELIGIBLE UNITS OR NON-ELIGIBLE UNITS OF THE ASSESSEE ARE TAKEN INTO ACCOUNT. IN OT HER WORDS, IT IS IMMEDIATELY AFTER THE COMPUTATION OF PROFITS AND GA INS OF BUSINESS OF THE UNDERTAKING THAT THE DEDUCTION UNDER SECTION 10A IS REQUIRED TO BE MADE. THERE IS NO QUESTION OF SUCH DEDUCTIONS BEING COMPUTED AT THE STAGE OF APPLICATION OF PROVISIONS OF CHAPTE R VI OF THE ACT. 4. RESPECTIVELY FOLLOWING THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW QUA THIS ISSUE AND ALLOW THE CLAI M OF THE ASSESSEE REGARDING THE ADDITIONAL DEPRECIATION. ITA NO.728/BANG/2016 PAGE 8 OF 8 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF FEBRUARY, 2017. SD/- SD/- (S. JAYARAMAN) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE. DATED: 15 TH FEBRUARY, 2017. /NS/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.