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Commissioner of Income-tax Vs. I.A. and I.C. Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 483 of 1987
Judge
Reported in[1999]239ITR1(Bom)
ActsIncome Tax Act, 1961 - Sections 32A(2B)
AppellantCommissioner of Income-tax
Respondenti.A. and I.C. Pvt. Ltd.
Appellant AdvocateR.V. Desai and ;B.M. Chatterjee, Advs.
Respondent AdvocateB.V. Jhaveri and ;J.I. Patel, Advs.
Excerpt:
.....from prescribed authority - mandatory - requirement of furnishing of certificate along with return of income - directory.;that under clause (ii) of section 32a(2b) of the income tax act. 1961, furnishing of certificate from the prescribed authority as contemplated by clause (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 assessing officer before the completion of the assessment and offers satisfactory explanation for his failure to furnish the same along with his return of income, the income tax officer 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..........that the required certificate from the prescribed authority should be furnished along with the return of income, as laid down in section 32a(2b)(ii) of the income-tax act, 1961, had not been fulfilled ? 2. 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 section 40(c) and not section 40a(5) of the income-tax act, 1961 ?' this reference pertains to the assessment year 1980-81.2. so far as the controversy in question no. 2 is concerned, learned counsel for the parties are agreed that the controversy therein stands concluded in favour of the assessee by.....
Judgment:

B.P. Saraf, J.

1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate 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 Section 32A(2B)(ii) of the Income-tax Act, 1961, had not been fulfilled ?

2. 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 Section 40(c) and not Section 40A(5) of the Income-tax Act, 1961 ?'

This reference pertains to the assessment year 1980-81.

2. So far as the controversy in question No. 2 is concerned, 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 CIT v. Continental Construction Ltd., : [1998]230ITR485(SC) and decision of this court in CIT v. Hico Products Pvt. Ltd., (No. 1) : [1993]201ITR567(Bom) . 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.

3. The only question that survives for consideration is question No. 1. The controversy therein pertains to an allowance of investment allowance under Section 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 of 35 per cent, under Section 32A(2B)(ii) of the Act in respect of the machinery and plant installed by it in its industrial undertaking. The Income-tax Officer 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 the certificate from the prescribed authority as stipulated by that section. It is pertinent to note that the asses-see 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 Income-tax Officer in the course of assessment proceedings. The Income-tax Officer, however, held that since Clause (ii) of Section 32A(2B) of the Act required the assessee to furnish the certificate along with the return, the requirement of that clause was not fulfilled and hence the assessee was not entitled to investment allowance at the higher rate. This order of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). However, on further appeal by the assessee, the Income-tax Appellate Tribunal (the 'Tribunal') accepted the claim of the assessee to 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 Income-tax Officer before the completion of the assessment, the requirement of Clause (ii) of Section 32A(2B) of the Act were satisfied. Aggrieved by the above order of the Tribunal the Revenue is before us with this reference.

4. We have heard Mr. B.V. 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 Section 32A(2B) of the Act except the condition mentioned in Clause (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-section (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 Income-tax Officer in the course of assessment proceedings. The controversy is whether furnishing of the certificate in such circumstances before the Income-tax Officer in the course of assessment proceedings can be regarded as fulfilment of the requirements contained in Clause (ii) of Section 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. Learned counsel for the assessee submits that it is not mandatory but directory. Reliance is placed in support of this contention on the decision of this court in CIT v. Shivanand Electronics, : [1994]209ITR63(Bom) , which deals with Section 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 of the assessment, the same may be accepted by the Income-tax Officer if there is sufficient cause for non-filing of the same along with the return. Learned counsel for the assessee submits that the provision contained in Clause (ii) of Section 32A(2B) being identical to the provision contained in Section 80J(6A) of the Act, the ratio of the said decision is squarely applicable to the interpretation of Section 32A(2B)(ii) of the Act.

5. Sub-section (2B) of Section 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, 1977, but before the 1st 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-how 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 recognised in this behalf by the prescribed authority, the provisions of Sub-section (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.' had 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 Section 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 Section 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 Clause (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 Assessing Officer in the 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 Income-tax Officer on the technical plea that the certificate was not furnished along with the return of income.

6. 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 Income-tax Officer can accept the certificate even in the course of assessment proceedings, if he is satisfied that 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 learned counsel for the parties and perused the decision of this court in CIT v. Shivanand Elec-tronics, : [1994]209ITR63(Bom) . In that case the controversy was in regard to the interpretation of Sub-section (6A) of Section 80J of the Act, which reads as follows (page 66) :

'(6A) Where the assessee is a person other than a company or a cooperative society, the deduction under Sub-section (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 Subsection (2) of Section 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.'

7. The question for consideration was whether the requirement of filing the audit report along with the return of income was mandatory or directory. This court held (page 68) :

'Sub-section (6A) lays down two conditions which should be fulfilled in order to get the benefit of deduction under Section 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 Income-tax Officer 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 Income-tax Officer 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 in so far 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 Income-tax Officer 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 Income-tax Officer is bound to accept the same. Such an interpretation, in our opinion, will amount to substituting the words 'along with the return' in Sub-section (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 beforethe completion of assessment, the income-tax Officer 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 Income-tax Officer 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 Clause (ii) of Section 32A(2B) of the Act. Here also we are of the opinion that furnishing of the certificate from the prescribed authority as contemplated by Clause (ii) is mandatory. But the requirement of furnishing the certificate along with the return of income is directory. If the assessee furnishes the same to the Assessing Officer before the completion of the assessment and offers a satisfactory explanation for his failure to furnish the same along with his return of income, the Income-tax Officer 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 Section 32A(2B) of the Act.

8. In view of the above legal position, the Tribunal was justified in directing the Income-tax Officer to consider the claim of the assessee for investment allowance at a higher rate under Section 32A(2B)(ii) of the Act on the basis of the certificate filed in the course of the assessment proceedings. 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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