Hindusthan Gas and Industries Ltd. vs Commissioner of Income Tax

Suhas Chandra Sen, J.—The following four questions of law have been referred to this Court by the Tribunal u/s 236(1) of the income tax Act, 1961 (''the Act''): " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sale proceeds of import entitlements amounting to Rs. 2,25,335 were assessable as the assessee''s business income?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the weighted deduction u/s 35B of the income tax Act, 1961, was not allowable on the following export promotion expenses:

(a) Export inspection charges paid to Export Inspection Agency

Rs. 22,200

(b) Bank charges paid for negotiation of Export Bills

Rs. 12,420.

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee''s claim for allowance of Rs. 21,82,764 on account of interest payable under the Deferred Payment Scheme, was not admissible during the relevant accounting year 1979-80?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the depreciation amounting to Rs. 18,324 was not admissible in respect of the diesel generating set lying in the custody of Industrial Plants Ltd.?"

The assessment year involved in this reference is the assessment year 1980-81, for which the relevant period of account is the financial year ending on 31-3-1980.

Question No. 1 is now concluded by the judgment of this Court in the case of Jeewanlal (1929) Ltd. Vs. Commissioner of Income Tax, Following the said decision, this question has to be answered in the affirmative and in favour of the revenue.

Question No. 2 (a) is now concluded by the judgment of this Court in the case of Union Carbide India Ltd. Vs. Commissioner of Income Tax, Following that decision question No. 2(a) is answered by saying that the Tribunal was not right in its decision in this regard. Question No. 2 (b) relates to bank charges. This point in now concluded by several judgments passed by this Court including the case of Bharat General and Textile Industries Ltd. Vs. Commissioner of Income Tax, We, therefore, hold that the bank charges paid for negotiation of Export Bills would not qualify for weighted deduction.

Mr. Bhattacharjee, appearing for the assessee, has submitted that he will not press question No. 3. Therefore, we decline to answer question No. 3.

Question No. 4 relates to the claim of depreciation amounting to Rs. 18,324. The facts relevant for the purpose of this question were considered by the Tribunal in the assessee''s own case in respect of earlier assessment year, a copy of which has been annexed to the statement of case.

After considering the previous year''s case, the Tribunal observed as follows:

"In the instant case, as we have found earlier the lease agreement pertaining to the diesel generating set expired on 30-11-1974. The lease was not renewed or could not be renewed due to the lock out declared in the factory premises of Industrial Plants Ltd. The assessee admittedly did not receive any hire charges on account of the generating set leased out to Industrial Plants Ltd. in the assessment year 1979-80. Due to the declaration of lock out, the assessee was prevented from operating the diesel generating set. In such circumstances the question of active or passive user of the generating set cannot arise. We would, accordingly, uphold the Commissioner (Appeals) ''s order on this point."

There is no dispute that in order to get advantage of the depreciation allowance, the assessee has to establish actual user of the plant or machinery in respect of which depreciation is claimed. It has also been held in several cases that passive user of an asset is sufficient for obtaining depreciation allowance.

The business of the assessee-company was to lease out generating sets. The lease in the instant case expired on 30-11-1974 but the assessee- company did not get back the diesel generating set because of the lock out declared in the lessee''s factory. Lock outs and strikes are the usual business hazards that a company has to face in course of running of the business. The fact that the lock-out was not in the assessee''s own business does not make any difference to the position. The assessee had leased out a generating set in course of its business. It could not get back the set even after the lease period because of the lockout in the lessee''s factory. This is a happening which was incidental to the assessee''s business of leasing out generating sets. The assessee itself was not actually running the generating sets. The assessee''s business was leasing out the generators. The generating set was being used by the assessee and is still being used by the assessee in its business of leasing out generating sets. Therefore, the claim of the assessee has to be allowed. Accordingly, question No. 4 is to be answered in the negative and in favour of the assessee. In view of the above, the questions referred to are answered as follows:

Question No. 1 is answered in the affirmative and in favour of the revenue.

Question No. 2 is answered as follows:

2 (a) is answered in the negative and in favour of the assessee;

2 (b) is answered in the affirmative and in favour of the revenue. Answer to question No. 3 is declined.

Question No. 4 is answered in the negative and in favour of the assessee.

There will be no order as to costs.

Bhagabati Prasad Banerjee, J.

I agree.