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international Computers Indian Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)5ITD60(Mum.)
Appellantinternational Computers Indian
Respondentincome-tax Officer
Excerpt:
.....passed under section 263 of the income-tax act, 1961 ('the act').4. the assessee had claimed development rebate under section 33 of the act at 25 per cent on the computer systems hired out by it. the ito completed the assessments on 14-9-1976 for 1973-74 and on 25-6-1977 for 1974-75, without allowing the assessee's claim, on the ground that the computer systems were mere office appliances and so did not qualify for development rebate. the assessee appealed to the commissioner (appeals), who held that the ground given by the ito to reject the claim of the assessee for development rebate was not tenable. he, therefore, directed the ito to grant development rebate according to law. the order of the commissioner (appeals) is dated 17-10-1978 for both the years under consideration. the.....
Judgment:
Commissioner has jurisdiction to revise the order giving effect to appellate order and doctrine of merger would be applicable only in respect of original order and not on the subsequent order passed by the assessing officer.

It is the original assessment order that gets merged in the appellate order but the order giving effect to the appellate order remains an independent order unaffected by any merger. The Commissioner could, therefore, exercise his jurisdiction under section 263 in respect of such order.

1. These two appeals filed by the same assessee are heard together and disposed of by this common order for the sake of convenience.

2. The assessee is a company deriving income from business in selling and/or leasing out computers. The assessment years involved in these appeals are 1973-74 and 1974-75. The assessee follows the year ended 30th September as its previous year.

3. The present appeals are directed against the order dated 25-11-1980 of the Commissioner passed under Section 263 of the Income-tax Act, 1961 ('the Act').

4. The assessee had claimed development rebate under Section 33 of the Act at 25 per cent on the Computer Systems hired out by it. The ITO completed the assessments on 14-9-1976 for 1973-74 and on 25-6-1977 for 1974-75, without allowing the assessee's claim, on the ground that the Computer Systems were mere office appliances and so did not qualify for development rebate. The assessee appealed to the Commissioner (Appeals), who held that the ground given by the ITO to reject the claim of the assessee for development rebate was not tenable. He, therefore, directed the ITO to grant development rebate according to law. The order of the Commissioner (Appeals) is dated 17-10-1978 for both the years under consideration. The department appealed to the Tribunal against the decision of the Commissioner (Appeals), but the Tribunal, by their order dated 5-1-1980, confirmed the finding of the Commissioner (Appeals). The ITO gave effect to the order dated 17-10-1978 of the Commissioner (Appeals) by his order dated 28-11-1978.

In these orders, the ITO gave development rebate at 25 per cent on the footing that the equipments leased out by the assessee came under the Fifth Schedule to the Act and as such, were entitled to the higher development rebate at 25 per cent as laid down in Section 33(1)(b)(B)(i)(b).

5. The Commissioner scrutinised the orders dated 28-11-1978 of the lTO and came to hold the view that development rebate at 25 per cent was wrongly allowed to the assessee. According to the Commissioner, the case of the assessee did not come under the Fifth Schedule and so it was entitled to development rebate at 15 per cent only, as laid down in Item (iv) of Section 33(1)(b)(B). He, therefore, issued a notice under Section 263 to the assessee proposing to revise the assessment. The assessee replied that the ITO has rightly given development rebate at 25 per cent as the assets leased out by the assessee were, in fact, used for producing the articles mentioned in the Fifth Schedule. The Commissioner did not agree with the contention of the assessee. He held that the assessee itself was not producing the articles mentioned in the Fifth Schedule and so it was not entitled to the higher rate of development rebate. In view of the above, he directed the ITO to modify the assessments by reducing the development rebate from 25 per cent given by the ITO to 15 per cent.

6. Shri S.E. Dastur, the learned representative for the assessee, urged before us that the learned Commissioner erred in his decision. He urged that the order of the Commissioner was not tenable in law, because it is in excess of his jurisdiction. He explained that the order of the ITO was already the subject-matter of appeal before the Commissioner (Appeals) and the Tribunal and so, the Commissioner no longer had any jurisdiction to review that order. In other words, his contention was that the order of the ITO had already merged with the appellate orders and so no longer existed for being reviewed by the Commissioner under Section 263. Secondly, on merits, he urged that there was no error in the order of the ITO. He took us through the language of Section 33 and stated that the higher rate of 25 per cent is applicable to the assets used in the production of articles specified in the Fifth Schedule. He pointed out that there was no dispute about the fact that the assets under consideration were in fact used for production of the goods enumerated in the Fifth Schedule. Hence, he contended that the condition for the higher development rebate is fulfilled. According to him, while it was necessary for the assessee to own the asset under consideration and use the same in the business carried on by him, it is not further necessary that the articles enumerated in the Fifth Schedule produced by the asset should also belong to the assessee. He pointed [out] to the absence of the words 'used by it' appearing in Item (ii) and the words 'the business carried on by the assessee' appearing in Item (iii), in Item (i) of Section 33(1)(b)(B). He explained that where the legislature intended that the assessee should own even the business in which the asset is ultimately used to it has expressly stated so. The fact that those words are missing in Item (i) shows that it was not necessary for the assessee to own the business producing the articles specified in the Fifth Schedule. Hence, he urged that there was no mistake in the order of the ITO and so the order under Section 263, passed by the Commissioner, was not called for in the facts and circumstances of the case.

7. Shri M.N. Nambiar, the learned representative for the department, on the other hand, supported the order of the Commissioner. He pointed out that the order dated 28-11-1978 of the ITO giving effect to an earlier appellate order is an independent order and it did not merge in any appellate order, inasmuch as it was not yet the subject-matter of any appeal. Hence, he urged that the Commissioner was not debarred to exercise his jurisdiction under Section 263 in respect of the said orders dated 28-11-1978, which were evidently different from the original assessment orders dated 14-9-1976 and 25-6-1977. He relied on the decision in the case of Jeewanlal (1929) Ltd. v. CIT [1977] 106 ITR 33 (Cal.) in support of his contention that the doctrine of merger did not apply to the facts of the case. Coming to the merits of the case, he urged that it was necessary for the assessee to own the asset and use the same in the business carried on by him, as stated in Section 33(1)(a). He contended that the language appearing in Section 33(1)(b)(B)(i) should be understood in that context and so the assessee should also own the business in which the asset was used to produce the articles specified in the Fifth Schedule, in order to be entitled to the higher development rebate. Hence, he urged that the order of the Commissioner under Section 263 was quite justified in the facts and circumstances of the case.

8. We have considered the contentions of both the parties as well as the facts on record. We do not find any force in the first contention raised by the assessee because evidently the order giving effect to the appellate order is different from the original assessment order. It is the original assessment order that gets merged in the appellate order but the order giving effect to the appellate order remains an independent order, unaffected by any merger. We find support for our conclusion from the decision of the Calcutta High Court in Jeewanlal's case (supra). Hence, we reject the first contention of the assessee.

9. However, we find force in the second contention raised by the assessee on merits. Section 33 reads as below: 33. (1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this Section and of Section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in Clause (b).

(A) in the case of a ship, forty per cent of the actual cost thereof to the assessee; (i) where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule,- (a) thirty-five per cent of the actual cost of the machinery or plant to the assessee, where it is installed before the 1st day of April, 1970, and (b) twenty-five per cent of such cost, where it is installed after the 31st day of March, 1970; (ii) where the machinery or plant is installed after the 31st day of March, 1967, by an assessee being an Indian company in premises used by it as a hotel and such hotel is for the time being approved in this behalf by the Central Government,- (a) thirty-five per cent of the actual cost of the machinery or plant to the assessee, where it is installed before the 1st day of April, 1970 and (b) twenty-five per cent of such cost, where it is installed after the 31st day of March, 1970; (iii) where the machinery or plant is installed after the 31st day of March, 1967, being an asset representing expenditure of a capital nature on scientific research related to the business carried on by the assessee,- (a) thirty-five per cent of the actual cost of the machinery or plant to the assessee, where it is installed before the I st day of April, 1970, and (b) twenty-five per cent of such cost, where it is installed after the 31st day of March, 1970; (a) twenty per cent of the actual cost of machinery or plant to the assessee, where it is installed before the 1st day of April, 1970, and (b) fifteen per cent of such cost, where it is installed after the 31st day of March, 1970.

From the opening part of the Section, we find that the machinery or plant should be owned by the assessee and should be wholly used for the purpose of the business carried on by him. Unless these two conditions are satisfied, no development rebate, whatsoever, is admissible. In other words, neither the higher rate nor the lower rate of development rebate is applicable unless these two basic conditions are satisfied.

In the instant case, the assessee owned the Computer System and the same was used in the business carried on by him, namely, the leasing out on hire of Computer Systems. Thus, the asset is entitled to development rebate. What remains to be determined is whether the rebate is to be allowed at the higher rate or at the lower rate. The case of the assessee comes under Sub-clause (B)(i)(b). Sub-clause (B)(i) says that the machinery should be installed for the purpose of business of production of the articles specified in the Fifth Schedule. There is no dispute that the asset under consideration is in fact used for the production of the articles specified in the Fifth Schedule. But, the assessee itself did not produce those articles because that business did not belong to the assessee. On the other hand, the persons who produced the specified articles were the lessees of the Computer System, who owned that business. It is, therefore, necessary to enquire as to whether it is a condition for getting the higher development rebate that the assessee itself should own the business of producing the specified articles. We do not find any such condition spelled out in the language of Sub-clause (B)(i). This Sub-clause merely states that the asset should be used in the production of the specified articles. It does not further say that the business of producing the specified articles should also be owned or carried on by the assessee himself. It is well settled that nothing can be read into a taxing statute. If the argument for the department is accepted, then it would mean that one should read into the Sub-clause 'carried on by the assessee'. These words are conspicuously absent specially when such words are present in Item (iii). Even Item (ii) contains the words 'used by it'. In view of this glaring contrast, it is not possible to read certain words into Item (i) which are not present there.

Consequently, we come to the conclusion that in order to be entitled to the development rebate under Sub-clause (B)(i), it is not necessary that the assessee should own the business or carry on the business producing the articles specified in the Fifth Schedule. Hence, the order dated 28-11-1978 rightly gave the development rebate at the higher rate of 25 per cent so that there was no mistake therein prejudicial to the interests of the revenue. Hence, the order of the Commissioner under Section 263 was not justified and is hereby cancelled.


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