COMMISSIONER OF INCOME TAX vs I.A. and I.C. (P) LTD.

DR. B.P. SARAF, J.:

By this reference under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following questions of law to this Court for opinion at the instance of the Revenue:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled for higher investment allowance even though the mandatory condition that the required certificate from the prescribed authority should be furnished along with the return of income, as laid down in s. 32A(2B)(ii) of the IT Act, 1961, had not been fulfilled?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the disallowance in respect of expenditure incurred in provision of remuneration and perquisite to the employee- director of the company is to be computed under the provisions of s. 40(c) and not s. 40A(5) of the IT Act, 1961?"

This reference pertains to asst. yr. 1980-81.

So far as the controversy in question No. 2 is concerned, the learned counsel for the parties are agreed that the controversy therein stands concluded in favour of the assessee by the decision, of the Supreme Court in Commissioner of Income Tax, Delhi (Central-I) Vs. M/s. Continental Construction Ltd., : and decision of this Court in Commissioner of Income Tax Vs. Hico Products (P.) Ltd., . In view of the above position, question No. 2 is answered in the affirmative i.e., in favour of the assessee and against the Revenue.

The only question that survives for consideration is question No. 1. The controversy therein pertains to allowance or investment allowance under s. 32A(2B)(ii) of the Act. The material facts giving rise to this controversy are as follows : The assessee claimed investment allowance at the higher rate or 35 per cent under s. 32A(2B)(ii) of the Act in respect of the machinery and plant installed by it in its industrial undertaking. The ITO did not accept the claim of the assessee for higher investment allowance on the ground that the assessee failed to submit along with its return of income certificate from the prescribed authority as stipulated by that section. It is pertinent to note that the assessee had submitted along with the return a copy of the application made by it to the prescribed authority for issuance of the necessary certificate. Later, on receipt of the certificate, the assessee furnished the same to the ITO in the course of assessment proceedings. The ITO, however, held that since cl. (ii) of s. 32A(2B) of the Act required the assessee to furnish the certificate alone with the return, the requirement of that clause was out fulfilled and hence the assessee was not entitled to investment allowance at higher rate. This order of the ITO was upheld by the CIT(A). However, on further appeal by the assessee, the Tribunal accepted the claim of the assessee of investment allowance at the higher rate and allowed the appeal of the assessee. The Tribunal observed that the assessee having applied for the certificate in time and submitted the same soon after receipt of the same to the ITO before the completion of the assessment, the requirements of cl. (ii) of s. 32A(2B) of the Act were satisfied. Aggrieved by the above order of the Tribunal the Revenue is before us with this reference.

We have heard Mr. BY Jhaveri, learned counsel for the assessee, and Mr. R.V. Desai, learned counsel for the Revenue. There is no dispute in this case about fulfilment of any of the conditions for allowance of deduction by way of investment allowance at a higher rate under s. 32A(2B) of the Act except the condition mentioned in cl. (ii) thereof which requires the assessee to furnish, along with his return of income for the assessment year for which the deduction is claimed, a certificate from the prescribed authority to the effect that the article or thing was manufactured or produced by using technology (including any process) or other know-how developed in a laboratory referred to in sub-s. (2B) or it is an article or thing invented in such laboratory. Admittedly, in the instant case such a certificate from the prescribed authority had not been furnished along with the return of income as the same had not been received from the prescribed authority by the assessee by that time, but the assessee enclosed the application filed before the prescribed authority for such certificate along with the return and on the receipt of the certificate produced the same before the ITO in the course of assessment proceedings. The controversy is whether furnishing of the certificate in such circumstances before the ITO in the course of assessment proceedings can be regarded as fulfilment of the requirements contained in cl. (ii) of s. 32A(2B) of the Act. In other words, the controversy is whether the requirement of furnishing the certificate "along with his return of income" is mandatory or directory. The learned counsel for the assessee submits that it is not mandatory but directory. Reliance is placed in support of this connection on the decision of this Court in Commissioner of Income Tax Vs. Shivanand Electronics, , which deals with s. 80J(6A) of the Act wherein also there is a requirement of furnishing along with his return of income the report of audit in the prescribed form duly signed and verified by the accountant. This Court held in that case that the requirement of filing of audit report along with the return of income is directory and if the assessee submits such a report even after filing of the return of income, but before completion or the assessment, the same may be accepted by the ITO if there is sufficient cause for non-filing of the same along with the return. The learned counsel for the assessee submits that the provision contained in cl. (ii) of s. 32A(2B) is being identical to the provisions contained in s. BOJ(6A) of the Act, the ratio of the said decision is squarely applicable to the interpretation or s. 32A(2B)(ii) of the Act.

Sub-s. (2B) of s. 32A of the Act at the material time stood as under :

"(2B) where any new machinery or plant is installed after the 30th day of June, 1997, but before the lst day of April, 1982, 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-now 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 recognized in this behalf by the prescribed authority, the provisions of sub-s. (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" has 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 his 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 :

(b) "public sector company" means any corporation established by or under any central, State or Provincial Act or a Government company as defined in s. 617 of the Companies Act, 1956 (1 of 1956);

(c) "University" means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under s. 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a university for the purposes of that Act."

As stated earlier, there is no dispute in this case about the fulfilment of any of the conditions of the above sub-section which entitles the assessee to claim investment allowance at the higher rate, except the condition of furnishing along with the return of income the certificate from the prescribed authority as required by cl. (ii) thereof. There is also no dispute about the fact that the assessee had applied for such certificate to the prescribed authority in time and as the same was not received before the submission of the return, a copy of the application was annexed with the return with a statement that the certificate had not been received by that time. It is also an admitted position that on receipt from the prescribed authority, the certificate was furnished to the AO in course of assessment proceedings. The question that arises for consideration is, whether in such circumstances the claim of the assessee for investment allowance at the higher rate could be rejected by the ITO on the technical plea that the certificate was not furnished along with the return of income.

There is no dispute about the fact that the requirement of furnishing certificate is mandatory. The only controversy is, whether the requirement of furnishing the same "along with the return of income" is mandatory. The question that arises for our consideration, therefore, is, whether the ITO can accept the certificate even in the course of assessment proceedings, if he is satisfied and there was a reasonable cause for the failure of the assessee to furnish the same along with the return of income.

We have carefully considered the submissions of the learned counsel for the parties and perused the decision of this Court in CIT vs. Shivanand Electronics (supra) in that case the controversy was in regard to interpretation of sub-s. (6A) of s. 80J of the Act, which reads as follows :

"(6A) Where the assessee is a person other than a company or co-operative society, the deduction under sub-s. (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-s. (2) of s. 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant."

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The question for consideration was whether the requirement of filing audit report along with return of income was mandatory or directory. This Court held:

"...... sub-s. (6A) lays down two conditions which should be fulfilled in order to get the benefit of deduction under s. 80J. The first condition is that the accounts should be audited by an accountant. This condition, as stated earlier, is mandatory. So far as the second condition which requires the assessee to furnish the report along with the return to the ITO is concerned, we feel that for the purpose of determining whether it is mandatory or directory, it can be further sub-divided into two : (i) the assessee should furnish to the ITO a report of the accountant who had audited the accounts in the prescribed form, duly signed and verified by such accountant; (ii) such report should be filed along with the return of income. The first requirement of filing of the report again appears to be mandatory. Failure to file the same is fatal. But that is not so insofar as the requirement of filing it along with the return is concerned. If, in a given case, an assessee fails to file such report along with the return and files it subsequently but before completion of the assessment, it would not be fatal to the claim of the assessee and the ITO will have the power to accept the same if he is satisfied that the delay in filing the same was for good and sufficient reasons. This, however, does not mean that an assessee, as a matter of right, can submit such report at any time before the completion of assessment and if it is so submitted, the ITO is bound to accept the same. Such an interpretation, in our opinion, will amount to substituting the words "along with the return" in sub-s. (6A) by the words "at any time before the completion of the assessment" which is not a permissible mode of interpretation of statutes. We are, therefore, of the opinion that the requirement of filing of the audit report "along with the return" is not mandatory in the strict sense of the term. It is directory in the sense that even if it is not submitted along with the return but subsequently before the completion of assessment, the ITO will have the power to accept the same if he is satisfied with the explanation of the assessee for non-filing of the same along with the return. In that view of the matter, we hold that the requirement of filing the report "along with the return" is directory and if the assessee submits such report even after filing of the return but before completion of the assessment, the ITO may accept the same if he is satisfied that there was sufficient cause for non-filing of the same along with the return."

The ratio of the above decision squarely applies to the interpretation of cl. (ii) of s. 32A(2B) of the Act. Here also we are of the opinion that furnishing of certificate from the prescribed authority as contemplated by cl. (ii) is mandatory. But the requirement of furnishing the certificate along with return of income is directory. If the assessee furnishes the same to the AO before the completion of the assessment and offers satisfactory explanation for his failure to furnish the same along with his return of income. The ITO may consider the same and if he is satisfied with the explanation, ''he may accept the same and allow the claim of the assessee of investment allowance at higher rate under s. 32A(2B) of the Act.

In view of the above legal position, the Tribunal was justified in directing the ITO to consider the claim of the assessee for investment allowance at a higher rate under s. 32A(2B)(ii) of the Act on the basis of the certificate filed in course of the assessment proceedings. The question No. 1 is, therefore, answered in the affirmative, that is in favour of the assessee and against the Revenue. Reference stands disposed of accordingly with no order as to costs.

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