Commissioner of Income Tax vs Shahney Steel and Press Works (P.) Ltd.

Raghuvir, J.—The following four questions have been referred to this court for its opinion u/s 256(1) of the Income Tax Act, 1961 ("the Act").

"1. Whether, on the facts and in the circumstances of the case, the liabilities of the particular unit only should be deducted in working out the capital employed in that unit for the purpose of calculating the relief u/s 80J ?

Whether, on the facts and in the circumstances of the case, the relief u/s 80J should be allowed for the entire year and not restricted proportionately to the number of days for which the units have worke ?

Whether, on the facts and in the circumstances of the case, the assessee is entitled to depreciation on land and building ?

Whether, on the facts and in the circumstances of the case, borrowed capital will have to be taken into account for the purpose of ascertaining the capital employed to work out the relief u/s 80J ?"

Among the four questions, the second question is covered by the decision in R.C. No. 284 of 1978, dated August 7, 1984 Commissioner of Income Tax Vs. Uni Sankyo Ltd., (infra). Following the said decision, the question is answered, allowing for the entire year and not to restrict proportionately to number of days for which the units have worked, in favour of the assessee.

The fourth question is also covered by the decision in R.C.No. 75 of 1977, dated December 1,1984, Vinnyallore Industries Ltd. Vs. Commissioner of Income Tax, , against the assessee. Therefore, the question is answered against the assessee.

The first question relates to the interpretation of clause (3) of section 80J and rule 19A of the Act. On a reading of the same, we are of the view that the liabilities of each undertaking only have to be deducted in ascertaining the capital employed by an assessee. That method is the only reasonable method of interpreting sub-rule (3) and rule 19A. A similar conclusion was reached in Indian Oil Corporation Ltd. Vs. S. Rajagopalan, Income Tax Officer, Companies Circle II(1), Bombay and Others, by the Bombay High Court. In that case, the same conclusion was reached by adding the words "in respect of the industrial undertaking in which the capital employed is to be computed". We would avoid adopting that method, but we hold, on an interpretation of the relevant clauses (without adding any words), that the meaning is the same as has been stated by the Bombay High Court. Thus, we answer that the liabilities of a particular unit alone should be deducted for according relief u/s 80J. The answer is in favour of the assessee.

As to the third question, the land and the building in the instant case were purchased under an agreement of sale on March 13, 1971. The consideration for sale is Rs. 3,50,000. The facts show that possession of the land and building was delivered to the vendee-assessee. The vendee paid the consideration to the vendor. There was no deed registered to complete the sale transaction. The question is, is the assessee entitled to depreciation on the land and building. A similar question as respects movable property was considered by this court as respects a transport bus in S.P.B.P. Srirangacharyulu Vs. The Commissioner of Income Tax, Andhra Pradesh, Hyderabad, . In that case, the "C" form document was not executed and the vehicle was not mutated in favour of the vendee. The vendee, in that sense, did not have full legal title to the vehicle. Yet, depreciation was allowed in that case though the decision is more relevant to movableproperty. The reasoning was followed by the Calcutta High Court in Commissioner of Income Tax, Central-I Vs. Steelcrete (P.) Ltd., and applied for machinery. The Allahabad High Court in Additional Commissioner of Income Tax Vs. U.P. State Agro Industrial Corporation Ltd., decided the question in respect of immovable property and permitted depreciation. The Delhi High Court, however, took a contrary view in Commissioner of Income Tax Vs. Hindustan Cold Storage and Refrigeration P. Ltd., . In this regard, it is not necessary to reiterate what was stated in the case of a motor vehicle by this court in S.P.B.P. Srirangacharyulu Vs. The Commissioner of Income Tax, Andhra Pradesh, Hyderabad, as we adopt the reasoning and apply it even to the land and building in question. We answer the third question in the affirmative, in favour of the assessee.

Thus, the above four questions are answered as indicated above. No costs.