Skip to content


Beharilal Ramcharan Cotton Mills Ltd. Vs. Commissioner of Income-tax, Bombay City-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 31 of 1962
Judge
Reported in[1966]62ITR212(Bom)
ActsIncome Tax Act, 1922 - Sections 10(2), 12(3) and 33(4); Appellate Tribunal Rules, 1946 - Rules 12 and 29
AppellantBeharilal Ramcharan Cotton Mills Ltd.
RespondentCommissioner of Income-tax, Bombay City-i
Appellant AdvocateS.P. Mehta, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
.....- section 12 (3) of income tax act, 1922 and rules 12 and 29 of appellate tribunal rules, 1946 - assessee claimed depriciation allowance under section 12 (3) - tribunal did not allow assessee to argue its claim - whether tribunal erred in law in declining to permit assessee to argue its claim to depreciation allowance under section 12 (3) - nothing in provision and rules given which prevents a party from taking a plea in memorandum of appeal before tribunal which it had not urged before income-tax officer or appellate assistant commissioner - act does not prohibit a party from raising a ground in memorandum of appeal which may require tribunal to investigate into questions of fact - tribunal is court of fact - tribunal not justified in not considering case of assessee under section 12..........under section 34 of the act. in the return filed in the reassessment proceedings also the b. r. c. mills claimed depreciation in respect of the aforesaid machinery alleged to have been purchased from the l. r. e. works under section 10(2) (vi) and section 10(2) (via). the case put forward by the b. r. c. mills before the income-tax officer as well as before the appellate assistant commissioner was that after it purchased the machinery from the l. r. e. works, the details of which it had supplied, the b. r. c. mills leased it back to the l. r. e. works. the assessee further pleaded that the lease of the machinery by it to the l. r. e. works was oral till 1st october, 1950, and for the period subsequent to that was under a written lease agreement of date 13th march, 1953, registered on 8th.....
Judgment:

Tambe, C.J.

1. In compliance with the requisition made by this court, the Tribunal has stated the case raising two questions under sub-section (2) of section 66 of the Act. The assessee had taken out a notice of motion praying that the Tribunal be directed to submit further supplementary statement of the case incorporating therein certain documents which the assessee wanted the Tribunal to include and which the Tribunal has not included. Mr. Mehta, learned counsel for the assessee, stated that the assessee was not pressing the notice of motion.

2. We are here concerned with the three assessment years 1949-50, 1950-51 and 1951-52, the relevant accounting period being the financial years ending on 31st March, 1949, 31st March, 1950, and 31st March, 1951. The assessee, Messrs. Beharilal Ramcharan Cotton Mills Ltd., hereinafter referred to as B. R. C. Mills, was at the material time doing the business of running a textile mill in which it was manufacturing yarn and cloth and selling it. The managing agents of B. R. C. Mills are B. R. Sons Ltd. Originally a group of persons called the Gupta Group had acquired a large block of shares of Mayer Mills Ltd. That mill was also doing textile business. This business, since some time before the relevant assessment years, is being carried on by the assessee, B. R. C. Mills. A substantially large block of shares of the B. R. C. Mills is held by the Gupta Group. In the original assessment for the assessment year 1949-50, the assessee in its return filed on 24th January, 1950, claimed to deduct a sum of over Rs. 12 lakhs on account of depreciation, including initial, additional and extra shift depreciation on depreciable assets including certain machinery. The machinery in relation to which depreciation has been claimed includes also machinery which in the reassessment proceedings was claimed by the assessee to have been purchased from another limited company, viz., Laxmiratan Engineering Works, for brevity's sake, hereinafter referred to as L. R. E. Works. Now the claim for depreciation made was on a footing that the entire machinery was being used by the assessee itself for the purposes of its business. In the course of the assessment proceedings the assessee amended its claim for depreciation to a certain extent and the claim for depreciation in respect of the machinery said to have been purchased from L. R. E. Works was revised and it was confined to normal depreciation, extra depreciation and initial depreciation only. The claim amounted to well over two and a half lakhs. It may also be stated that the claim was made under section 10(2) (vi) and 10(2) (via), that is, on the footing that the assessee had used the machinery for the purpose of its textile mills business. This claim was allowed by the Income-tax Officer in his assessment order made on 16th April, 1950.

3. The same Income-tax Officer had jurisdiction over the assessment of L. R. E. Works and in the course of its assessment proceedings the Income-tax Officer discovered a number of facts. He found that L. R. E. Works had obtained a certificate for commencing it business only on 14th July, 1947. Its paid-up capital was over Rs. 9 lakhs. There were several common directors of the B. R. C. Mills as well as L. R. E. Works. The managing agents of L. R. E. Works were also B. R. Sons Ltd., who were the managing agents of the B. R. C. Mills. More than 50 per cent. shares of the L. R. E. Works were held by the Gupta Group and by the B. R. C. Mills. The object with which L. R. E. Works was incorporated was to manufacture heavy machinery that is used by textile mills for the purpose of manufacture of textiles. The Income-tax Officer also found from the balance-sheet of L. R. E. Works as at 30th September, 1949, that machinery which it had purchased at Rs. 16.60 lakhs was sold by it to the B. R. C. Mills for Rs. 20.04 lakhs. On the basis of these facts the Income-tax Officer came to certain tentative conclusions, inter alia, that machinery which the L. R. E. Works had acquired for the purposes of its business, viz., manufacture of heavy machinery used by textile mills, could not be used by the B. R. C. Mills for the purposes of its textile mills business, and therefore the B. R. C. Mills were not entitled to claim any depreciation under section 10(2) (vi) or section 10(2) (via) in respect of the said machinery alleged to have been purchased by the B. R. C. Mills from the L. R. E. Works. After taking necessary steps, the Income-tax Officer on 17th March, 1953, reopened the assessment for the year 1949-50 under section 34 of the Act. In the return filed in the reassessment proceedings also the B. R. C. Mills claimed depreciation in respect of the aforesaid machinery alleged to have been purchased from the L. R. E. Works under section 10(2) (vi) and section 10(2) (via). The case put forward by the B. R. C. Mills before the Income-tax Officer as well as before the Appellate Assistant Commissioner was that after it purchased the machinery from the L. R. E. Works, the details of which it had supplied, the B. R. C. Mills leased it back to the L. R. E. Works. The assessee further pleaded that the lease of the machinery by it to the L. R. E. Works was oral till 1st October, 1950, and for the period subsequent to that was under a written lease agreement of date 13th March, 1953, registered on 8th July, 1953. According to the assessee, though the agreement was executed on 13th March, 1953, it, as its terms disclose, was operative from 1st October, 1950. It may at this stage be stated that in the assessment proceedings of the subsequent two years the assessee had claimed depreciation in respect of the said machinery under section 10(2) (vi) and section 10(2) (via) on identical grounds. The Income-tax Officer rejected the claim of the assessee. The assessee filed an appeal before the appellate Assistant Commissioner and before the Appellate Assistant Commissioner the assessee produced some further evidence in support of its case. The Appellate Assistant Commissioner rejected the claim of the assessee and affirmed the order of the Income-tax Officer. The assessee took further appeals to the Tribunal and in these appeals in respect of these three years the assessee had raised one more contention. In its ground of appeal it contended that the assessee was entitled to claim depreciation under the provisions of section 12(3) or section 10(2) of the Income-tax Act. In other words, the claim of the assessee for depreciation before the Tribunal was founded both under section 10(2) (vi) and section 10(2) (via) as well as under section 12(3) of the Act. Before the Tribunal, counsel appearing for the assessee frankly conceded that the machinery purchased by the assessee from L. R. E. Works was the engineering machinery and thought it was not used for the purposes of the assessee's textile mills business in the sense in which its other machinery, buildings, etc., was used, having regard to the previous history relating to the purchase of the machinery on the loan granted by the assessee, the subsequent purchase of the machinery by the assessee and the lease transaction under which the assessee leaded the machinery to the L. R. E. Works, it must be held that the said engineering machinery was used by the assessee for the purposes of its textile mills business within the meaning of section 10(2) (vi) and as such the assessee was entitled to get depreciation under section 10(2) (vi). In support of his contention reliance was placed on a Supreme Court decision in Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. The Tribunal rejected the claim of the assessee for depreciation under section 10(2) (vi) and section 10(2) (via) on the basis of the statement made by the counsel for the assessee before the Tribunal that the engineering machinery now under consideration was not used for the purposes of the assessee's textile mills business in the sense in which its other machinery, buildings, etc., was so used. The Tribunal further held that the Supreme Court decision had no application to the facts of the case. This is how the Tribunal has distinguished the Supreme Court case from the facts of this case in its appellate order :

'In that case (Supreme Court decision), plant for dyeing silk yarn was actually purchased by the said mills as a fixed asset for the purpose of manufacturing silk cloth and it was used by it for that purpose for several years. It was owing to difficulty in obtaining silk yarn that it could not make use of that plant temporarily and, hence, it was let out to a person on monthly rent.'

4. It is in respect of this machinery that the assessee claimed depreciation. The Supreme Court allowed the claim on the ground that in the circumstances the assessee had exploited the dyeing plant to its best advantage. Distinguishing the case, the Tribunal held that in the present case, on the assessee's own admission, the machinery was not acquired by the assessee as a fixed asset for the purposes of its own business, but was secured by it as an investment made out of the surplus funds and that the engineering machinery at no time before the alleged lease to L. R. E. Works was used by the assessee for the purposes of its textile mills business.

5. Counsel for the assessee then further argued that the assessee at any rate was entitled to claim depreciation under the provisions of section 12(3) of the Act. Counsel was asked whether the claim under section 12(3) was at any time put forward by the assessee before the income-tax authorities and in particular whether the claim was urged before the Appellate Assistant Commissioner. Counsel frankly stated before the Tribunal that such a contention was never taken before the Appellate Assistant Commissioner at any stage for the assessment year 1949-50 and it was not so expressly taken before him for the assessment years 1950-51 and 1951-52 also. The question was then asked whether it was indirectly raised and counsel relied on certain grounds of appeal before the Appellate Assistant Commissioner in which according to him the question was indirectly raised before the Appellate Assistant Commissioner. The Tribunal rejected this argument. The Tribunal held that the ground raised before it in the memorandum of appeal claiming deduction on account of depreciation under section 12(3) was merely an after-thought. It was urged before the Tribunal that the contention was purely one of law and the Tribunal should entertain it. The Tribunal, however, rejected it. This is how the Tribunal has observed in its order :

'We are unable to hold that the contention now sought to be raised before us was raised before the Appellate Assistant Commissioner at any stage and, at any rate, he has certainly not dealt with that contention in that form and the assessee made no grievance of it in its grounds of appeal to the Tribunal. This is merely an after-thought. Mr. Palkhivala submitted that the contention was purely one of law. We do not agree with him. The relevant facts for the purpose of considering that contention, based as it is on section 12(3), have to be investigated. We, therefore, did not permit the assessee to take that point at this stage.'

6. It is in this view of the matter that the Tribunal dismissed the appeals of the assessee for the said three assessment years 1949-50, 1950-51 and 1951-52. The application made by the assessee under sub-section (1) of section 66 was dismissed. The assessee then moved this court and, on a requisition made, the Tribunal has stated the case referring to us the following two questions :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in declining to permit the assessee to argue its claim to depreciation allowance under section 12(3) of the Income-tax Ac

2. In case the answer to question No. 1 is in the affirmative, whether the company is entitled in law to depreciation on the machinery purchased from Messrs. Laxmiratan Engineering Works Ltd., under section 12(3) in the present cas ?'

7. We would first proceed to consider the first question. Mr. Mehta, learned counsel for the assessee, contends that the Tribunal was in error in not permitting the assessee to argue his case under section 12(3). The assessee was not making out a new case in claiming that he was entitled to depreciation under section 12(3). The assessee was only calling in aid the said provision of the Act in support of his contention that he was entitled to depreciation allowance on the facts pleaded by him. Mr. Joshi, learned counsel for the revenue, on the other hand, contends that the assessee was claiming depreciation under section 10(2) (vi) and section 10(2) (via) and this was his case before the Income-tax Officer as well as before the Appellate Assistant Commissioner. In support of that case the assessee has led evidence. Realising that its case would not stand under section 10(2) (vi) or section 10(2) (via), the assessee put up an altogether new case before the Tribunal and claimed that he was entitled to depreciation under section 12(3). The basis of the assessee's claim under section 10(2) (vi) and section 10(2) (via) was that the assessee had used the machinery itself for the purposes of its own business. The stand was quite distinct and different from the basis of the claim now put forward before the Tribunal under section 12(3), which was that the assessee was the owner of the machinery and that the assessee had leased out the machinery. The assessee thus was making out a completely new case and the contention raised was altogether a new contention. The Tribunal was, therefore, justified in not allowing the assessee to raise such a contention. Having regard to the case which the assessee had pleaded right from the beginning, we find it difficult to accept the contentions raised by Mr. Joshi. It is indeed true that before the Income-tax Officer as well as before the Appellate Assistant Commissioner, the assessee had put forward the claim that he was entitled to depreciation under section 10(2) (vi) and section 10(2) (via). But it is not correct to say that the case put forward by the Income-tax Officer and the Appellate Assistant Commissioner was that it was using the machinery in its own business for the purposes of its business. The orders of the Income-tax Officer and the Appellate Assistant Commissioner have not been incorporated in the statement of the case, but the Tribunal in its statement of the case has summarised the facts placed by the assessee both before the Income-tax Officer as well as the Appellate Assistant Commissioner. At page 6 of the statement of the case, the Tribunal observes :

'All along it was the assessee's case before the Income-tax Officer as well as before the Appellate Assistant Commissioner that after it purchased machinery from L. R. E. Works, in the manner described above, it leased it back to it. It was alleged that the lease agreement was oral till October 1, 1950, and that the lease agreement for the period after that date was actually executed on March 13, 1953, and registered on July 8, 1953.'

9. It is thus clear that though before the Income-tax Officer and the Appellate Assistant Commissioner the assessee was calling in aid or relying upon the provisions of section 10(2) (vi) and section 10(2) (via) in support of its claim for depreciation of machinery, the facts on the basis of which this claim was advanced were that the machinery which formerly belonged to L. R. E. Works had been purchased by the assessee from the L. R. E. Works and that this machinery had been leased out by the assessee to the L. R. E. Works during the three assessment years. As the order of the Tribunal indicates, the claim under section 10(2) (vi) and section 10(2) (via) on the basis of these facts was put forward by the assessee on the strength of the decision of their Lordships of the Supreme Court in Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. It is true that the case had no application to the facts of the present case and the Tribunal was right in holding in paragraph 9 of its judgment that the case was distinguishable on facts and has no application to the facts of the present case. But none the less the fact remains that throughout the assessee's case has been that it had purchased this machinery from the L. R. E. Works and it leased it out to the L. R. E. Works during the years of account and it was the L. R. E. Works which had actually used this machinery.

10. Now, before the Tribunal the assessee was claiming or the assessee was seeking to rely on the provisions of section 12(3) of the Act in support of its claim for depreciation allowance. The question to be considered is, whether in raising that contention it was putting forward a new case. Section 12(1) relates to the computation of income from other sources and sub-section (3) provides :

'12. (3) Where an assessee lets on hire machinery, plant or furniture belonging to him, he shall be entitled to allowances in accordance with the provisions of clauses (iv), (v), (vi) and (vii) of sub-section (2) of section 10.'

11. Now, when the assessee was claiming before the Tribunal that it was entitled to depreciation allowance under sub-section (3) of section 12, it was claiming that the machinery belonged to it and that in the relevant years it had let out the machinery to somebody else, namely, the L. R. E. Works. The case which the assessee was asking the Tribunal to consider was not a case which the assessee had not pleaded. As already pointed out, that was the case of the assessee throughout. Thus the position that emerges is that on the same set of facts which the assessee had pleaded right from the beginning, the assessee in the first two courts sought the aid of sections 10(2) (vi) and 10(2) (via) in support of this claim for depreciation allowance. But on the same set of facts and for the same relief before the Tribunal, the assessee was only seeking or calling in aid one more provision of law, namely, the provision of section 12(3). In doing so, in our opinion, the assessee was not putting forward any new case at all. The assessee had pleaded a case and the assessee was entitled to have investigated the case pleaded by it at the hands of the income-tax authorities as well as the Tribunal. The reason given by the Tribunal for not allowing the assessee to raise this contention is that the Tribunal would have to investigate relevant facts for considering the case of the assessee under section 12(3). We have already reproduced the subsection, and the facts relevant for the purposes of considering the claim under section 12(3) are principally two facts, namely, whether the assessee is the owner of the machinery and whether the assessee has leased out the machinery to somebody else in the year of account. But then that had been the case of the assessee throughout. Mr. Mehta stated before us that the Tribunal was not asked nor was any request made that any additional evidence be permitted to be led by the assessee. The assessee had only made a request that the Tribunal should consider whether the assessee is entitled for a deduction under section 12(3) of the Act on the material which was already on record. It is true that the contention of the assessee that it was entitled for depreciation under sections 10(2) (vi) and 10(2) (via) was decided by the Tribunal without deciding the questions of fact arising on the case pleaded by the assessee. The Tribunal has decided the claim of the assessee for depreciation under sections 10(2) (vi) and 10(2) (via) on the basis of the concession made by the counsel on behalf of the assessee that the engineering machinery now under consideration was not used for the purpose of the assessee's textile mills business in the sense in which other machinery, buildings, etc., was used, and that being so the decision of the Tribunal had not proceeded on the footing of a finding either that the machinery did not belong to the assessee or on the footing that it had not leased it to the L. R. E. Works. Now, when the assessee made a request to the Tribunal to allow it to contend that it was entitled to depreciation under section 12(3), the assessee was requesting the Tribunal to investigate the case of the assessee that it was the owner of the machinery and had leased it out. It is true that the Tribunal, had it allowed the request of the assessee, would have been required to consider the evidence on record and record its finding as to whether the case of the assessee that it had purchased the machinery and leased it out to the L. R. E. Works was true or not. That does not, however, mean that the assessee was asking the Tribunal to consider any new case as such which it had not pleaded before the lower authority.

12. The appellate powers of the Tribunal are very wide. Sub-section (4) of section 33 deals with the powers of the Appellate Tribunal in appeal and it provides :

'The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it think fit, and shall communicate any such orders to the assessee and to the Commissioner.'

13. It would be seen that the appellate powers of the Tribunal are very wide and the only limitation thereon is that it must give an opportunity to the parties of being heard before it decides the appeal. The appeal is not restricted only to question of law or usage having the force of law. On the other hand, the Tribunal has powers to decide both questions of fact and questions of law. It has been well settled that a Tribunal is the final court for considering facts and the findings of fact of the Tribunal are binding on this court. Under sub-section (8) of section 5A the Appellate Tribunal has been empowered to regulate its own procedure and in exercise of its powers it has framed rules. Rules 12 and 29 are material for the purposes of our case. Rule 12 provides :

'The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal; but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule :

Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground.'

14. Rule 29 provides :

'The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause... the Tribunal may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.'

15. It would be noticed that what a party is not entitled to do before the Tribunal, without first obtaining the leave of the Tribunal, is to urge a ground which it had not mentioned in the grounds of appeal, or to lead additional evidence, either documentary or oral or by way of filing affidavits. Turning to the facts of the present case, it is not that the appellant had not raised this ground in the memorandum of appeals for all the three years. In the statement of the case the Tribunal has stated that such a ground was raised. The reason which the Tribunal has given is that this ground was not urged before the Income-tax Officer or the Appellate Assistant Commissioner, but was urged for the first time before the Tribunal. The other reason given is that facts relevant for consideration of the contention will have to be investigated. We do not find anything either in the section or in the Rules prescribed by the Tribunal itself for regulating its procedure which prevents a party from taking a ground in the memorandum of appeal before the Tribunal which it had not urged before either the Income-tax Officer or the Appellate Assistant Commissioner. We also do not find anything in the Act or the rules which prohibits a party from raising a ground in the memorandum of appeal, which may require the Tribunal to investigate into questions of fact, provided of course that the appellant in so doing has not asked for permission to lead additional evidence in support of the ground raised by him in his memorandum of appeal. We have already stated that the assessee was asking the Tribunal to consider the case which it had pleaded right from the beginning. The assessee was not asking the Tribunal any permission to lead additional evidence. On the other hand, as stated by Mr. Mehta before us, the request made was that the Tribunal should consider the case, which the assessee had pleaded, on the material already before it. That being the position, in our opinion, the Tribunal, which is a court of fact also, was not justified in not considering the case of the assessee under section 12(3) of the Act on the material that was already on the record.

16. Our answer to the first question, therefore, is in the affirmative, and this brings us to the next question.

17. The Tribunal in its statement of the case has pointed out, and in our opinion rightly, that the question as framed assumes a fact, namely, that the machinery has been purchased by the assessee from the L. R. E. Works. That mistake must have crept in through inadvertence. However, it is not necessary for the purpose of this reference to amend the question and proceed to consider it. It has been stated at the Bar by counsel for the parties that, in view of our answer to the first question, this question should be left to the Tribunal to decide on the material before it. In view of this statement made at the Bar, it is not necessary to proceed to consider this question. It is, therefore, not necessary to answer the question. The Tribunal will consider it on the material before it.

18. In the result, we answer the first question in the affirmative. The Commissioner shall pay the costs of the assessee. The assessee shall pay to the department the costs of the notice of motion.

19. First question answered in the affirmative.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //