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Commissioner of Income-tax Vs. Simmonds Marshall Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 36 of 1966
Judge
Reported in[1977]106ITR374(Bom)
ActsIncome Tax Act, 1961 - Sections 80J and 84; Income Tax Rules, 1962 - Rule 19
AppellantCommissioner of Income-tax
RespondentSimmonds Marshall Ltd.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateM.M. Vakil, Adv.
Excerpt:
.....act, 1961 and rule 19 of income tax rules, 1962 - whether in computing capital in accordance with rule 19 nominal amounts of debts or their average values should be taken into consideration - according to rule 19 process of averaging to be resorted to only in case of assets which can be used in business and not to an asset in nature of debt due to assessee - held, nominal value not average value of debts to be taken into consideration while computing capital. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying..........the rule has led me to the conclusion that it is used in antithesis to what may be called the real value of assets which, in regard to the other clauses, is sought to be arrived at by the process of averaging. since that process is, as already pointed out above, from its very nature, inapplicable to assets of the type of debts due to the assessee, the rule making authority has advisedly used the word 'nominal' to indicate that the amount which is actually named has to be taken into account in computing the capital for the purposes of section 84 of the act. a reference to the shorter oxford dictionary as well as webster's dictionary shows that the word 'nominal' means what is named in contradistinction to what is real. giving to the word 'nominal' that connotation, in my opinion, it is.....
Judgment:

Vimadalal, J.

1. This is a reference at the instance of the Commissioner under section 256(1) of the Income-tax Act, 1961, relating to assessment years 1962-63 and 1963-64. The assessee-company is engaged in the business of manufacture and sale of self-locking nuts used in various industries. It is an industrial undertaking and it is not disputed that, under section 84 of the Income-tax Act, 1961, it is entitled to a rebate of tax on profits not exceeding 6 per cent. annum on the capital employed in the undertaking. For that purpose, the capital employed in an industrial undertaking has to be computed under rule 19 of the Income-tax Rules, 1962, which is in the following terms :

'19. Computation of capital employed in an industrial undertaking or a hotel. - (1) For the purpose of section 84, the capital employed in an undertaking or a hotel to which the said section applies shall be taken to be -

(a) in the case of assets acquired by purchase and entitled to depreciation -

(i) if they have been acquired before the computation period, their written down value on the commencing date of the said period;

(ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period;

(b) in the case of assets acquired by purchase and not entitled to depreciation -

(i) if they have been acquired before the computation period, their actual cost to the assessee;

(ii) if they have been acquired on or after the commencing date of the computation period, their average cost during the said period;

(c) in the case of assets being debts due to the person carrying on the business, the nominal amounts of those debts;

(d) in the case of any other assets, the value of the assets when they become assets of the business :

Provided that if any such asset has been acquired within the computation period, only the average of such value shall be taken in the same manner as average cost is to be computed.'

2. It was contended on behalf of the assessee before the Income-tax Officer that in computing the capital employed in its undertaking, the nominal amount of the debts due to it on the last day of the relevant previous year should be taken into account under clause (c) of rule 19 quote above, and that the proviso occurring in sub-rule (1) of rule 19 being a proviso only to clause (d), has no application in regard to clause (c). That contention was rejected by the Income-tax Officer who held that the proviso governed both clauses (c) and (d) of rule 19(1), and it was, therefore, held by him that the average value of all the current assets acquired during the relevant year should be taken into account for the computation of the capital employed in the undertaking, and the assessment orders pertaining to the assessment years in question were passed on that footing. The assessee appealed to the Appellate Assistant Commissioner by two separate appeals, one in respect of each assessment year. As far as the appeal relating to assessment year 1962-63 was concerned, the Appellate Assistant Commissioner who heard it agreed with the view of the Income-tax Officer. As far as the appeal relating to assessment year 1963-64 was concerned, the Appellate Assistant Commissioner who heard it, however, took the contrary view, holding that the proviso which follows clause (d) applies only to that clause and not to clause (c) of sub-rule (1) of rule 19, and he, accordingly, directed the Income-tax Officer to compute the capital by taking the nominal amounts of the debts due as at the end of the relevant year. A consolidated appeal was preferred to the Tribunal in which it was held that the proviso governed only clause (d) of rule 19(1), and it was, therefore, directed by the Tribunal that the capital employed in the undertaking should be computed by the Income-tax Officer by taking the nominal amount of the debts due to the assessee. It is from that order of the Tribunal that this reference has arisen, and the following question has been submitted for our opinion :

'Whether, on the facts and in the circumstances of the case, in computing the capital in accordance with rule 19 of the Income-tax Rules, 1962, the nominal amounts of the debts, or their average values, should be taken into consideration ?'

3. There can be no doubt and, indeed, that is not the contention of Mr. Joshi, that the proviso in question cannot to all the clauses of sub-rule (1) of rule 19, for the simple reason that clauses (a) and (b) contain a built-in provision for averaging the cost of the assets referred to therein. What has, however, been contended by Mr. Joshi on behalf of the revenue is that the proviso applies not merely to clause (d), but also to clause (c) of sub-rule (1) of rule 19. There are several reasons why I cannot accept Mr. Joshi's submission in that behalf. First and foremost, the very nature of the asset referred to in clause (c), viz., the debt due to the assessee, which may in the course of the same year vary from time to time, is such that it is incapable of averaging the same. It was sought to be contended on behalf of the revenue that, after all, a debt due to the company would be in respect of some amount or some goods or property which has gone out of the assets of the company, and if, therefore, the process of averaging is applied in regard to the assets and profits of an assessee, it would automatically result in the averaging of the debts due to the assessee which would be included therein. This argument, though on first impression somewhat attractive, cannot be accepted, for it must lead to the conclusion that clause (c) of sub-rule (1) of rule 19 is redundant. It is an accepted canon of construction of statutes and statutory rules that an interpretation cannot be given to a clause of a rule or statute which renders it superfluous or redundant. In my opinion, therefore, the court must proceed to interpret clause (c) on the basis that it is not redundant. If an interpretation of that nature is put upon clause (c), it must follow that if the proviso is applicable to it, it would require the averaging of debts separately from the other assets, a process which from the very nature of such an asset, is admittedly not possible. I would, therefore, take the view that a debt due to the assessee as an asset does not admit of averaging and that the proviso which follows clause (d) cannot, therefore, have any application to it. The next reason for rejecting the submission of Mr. Joshi is the significant use of the word 'nominal' in clause (c). It appeared to me somewhat difficult to understand the precise connotation of the word 'nominal' used in clause (c), but a careful analysis of the rule has led me to the conclusion that it is used in antithesis to what may be called the real value of assets which, in regard to the other clauses, is sought to be arrived at by the process of averaging. Since that process is, as already pointed out above, from its very nature, inapplicable to assets of the type of debts due to the assessee, the rule making authority has advisedly used the word 'nominal' to indicate that the amount which is actually named has to be taken into account in computing the capital for the purposes of section 84 of the Act. A reference to the Shorter Oxford Dictionary as well as Webster's Dictionary shows that the word 'nominal' means what is named in contradistinction to what is real. Giving to the word 'nominal' that connotation, in my opinion, it is clear that it excludes the process of averaging which is to be resorted to in the case of clauses (a), (b) and (d) for the purpose of arriving at what was thought to be real value of those assets.

4. The next reason for not accepting the submission of the revenue is that the word 'value' which is used in the proviso in question does not occur in clause (c), obviously because it has no application in the case of assets in the nature of debts due to the assessee within the terms of clause (c). Whereas the other assets mentioned in sub-rule (1) of rule 19 are capable of bearing a value, or of having their value assessed in a particular manner, there is no question of a debt having any value, and the use of the word 'value' in the proviso in question and its significant omission in clause (c), therefore, also indicates that the proviso was never intended to apply to clause (c), which is the clause with which we are concerned in this reference. The next and the last reason for rejecting the submission of Mr. Joshi on behalf of the revenue is that clause (i) of sub-rule (6) of rule 19 makes it clear that the process of averaging is to be resorted to only in the case of assets which can be 'used' in the business, and not to an asset in the nature of the debt due to the assessee which be said to be an asset used in the business within the terms of sub-clause (i) of sub-rule (6) of rule 19. For all these reasons, in my opinion, the view taken by the Tribunal is correct, and the question referred to us must be answered in favour of the assessee.

S.K. Desai, J.

5. I agree, and have nothing to add.

The Court.

6. The question referred to us is answered as follows :

7. In computing the capital in accordance with rule 19 of the Income-tax Rules, 1962, it is the nominal amount of the debts due to the assessee, and not their average value, that is to be taken into consideration. The Commissioner must pay the assessee's costs of the reference.


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