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income-tax Officer Vs. Raneegunge Coal Association Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1985)14ITD313(Kol.)
Appellantincome-tax Officer
RespondentRaneegunge Coal Association Ltd.
Excerpt:
.....provides for carry forward of the unabsorbed amount of the development rebate to the following year or years. the relevant clause of the above section reads as under : (a) the amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so however that no portion of the development rebate shall be carried forward for more than.....
Judgment:
1. This appeal by the revenue is directed on the ground that the Commissioner (Appeals) erred in allowing adjustment of the unabsorbed development rebate for the assessment year 1972-73 against the income of the assessment year 1979-80 when the assets were nationalised in 1972-73.

2. During the assessment year 1972-73, when the assessee-company was engaged in coal mining business, it had installed new plant and machinery and as a result, it became entitled to development rebate under Section 33 of the Income-tax Act, 1961 ('the Act'). The development rebate which was admissible in the assessment year 1972-73 was not allowed by the revenue and the same remained unabsorbed and in the assessment year 1979-80 the assessee-company claimed that the unabsorbed development rebate should be carried forward from the assessment year 1972-73 and should be adjusted with the income for the assessment year 1979-80, now under appeal. Meanwhile, the coal mining business of the assessee-company was nationalised by the Coal Mines (Nationalisation) Act, 1973, and the assessee, thus, stood stripped of the colliery business though it did not become defunct of extinct. In other words, the assessee-company continued to be in existence and had income from some other sources of income. The assessee's claim for adjustment of unabsorbed development rebate for the assessment year 1972-73 with the income for the year under appeal was negatived by the ITO on the ground that on nationalisation of coal industry the business of the assessee in coal mining was taken over by the Government and as such its assets and liabilities vested in the Government for which the assessee was given compensation. According to the ITO, as a result of nationalisation of coal industry, the Government undertook all the responsibility to meet the liabilities of the coal industry and that the fact that the company carried on its name as the Raneegunge Coal Association Ltd. was only of academic interest.

3. The assessee appealed to the Commissioner (Appeals) and contended that the ITO's statement that consequent upon the nationalisation of coal industry, all the liabilities of the assessee-company vested in the Government was not correct. Reference was made to Section 7(1) of the Coal Mines (Nationalisation) Act, which states that "every liability of the owner, agent, manager or managing contractor of a coal mine, in respect of any period prior to the appointed day, shall be the liability of such owner, agent, manager, or managing contractor, as the case may be, and shall be enforceable against him and -not against the Central Government of the Government company." It was argued that development rebate was linked with the assets unlike the unabsorbed business loss which was linked with the business. It was next urged that unabsorbed development rebate was required to be carried forward and adjusted as provided for in Section 33(2) and there is no provision in the Act which states that the business in which the claim for development rebate arose in an earlier year should necessarily be in existence in the year in which the unabsorbed development rebate is sought to be adjusted. It was also urged that development rebate once held admissible should necessarily be carried forward to the extent it remained unabsorbed and the only eventuality in which development rebate may be withdrawn has been prescribed in Section 34(3)(6) of the Act. But Section 34(3)(6) had no application to a situation like the present case where the machinery or plant was transferred to the Government vide Clause (i) of proviso to Section 34(3)(b). It was pointed out that it was not the case of withdrawal of development rebate as such, but the question of carry forward and adjustment of unabsorbed development rebate was involved.

4. The Commissioner (Appeals), after going through the provisions of Section 7(1) and considering the facts of the case, held that the assessee was entitled to set off of the unabsorbed development rebate relating to the assessment year 1972-73 against the income computed for the assessment year 1979-80 by observing as under : The assessee-company, as already stated above, was no doubt divested of the colliery business but the fact- remains that it continued to be in existence and was also having income from some other sources.

Under clause 3 of the Coal Mines (Nationalisation) Act, 1973, the right, title and interest of the assessee-company in relation to the coal mine(s) owned by it vested in the Government on the appointed date, i.e., 1-5-1973, but the assessee-company as such was continuing to function. The development rebate was introduced for giving incentive to an assessee to develop his business. It is a concession to the assessee and, therefore, unless the law specifically so provided, it would not be proper to deny the benefit to any assessee on the basis of assumptions only or by importing any terms and conditions not envisaged in the Act itself. It has nowhere been stated in the Act that eligibility for unabsorbed development rebate would depend on the continuance of the same business in which the claim for development rebate arose initially. In this connection, it would be relevant to note that where the Legislature intended otherwise it had in its own wisdom specifically provided for that vide the provisions contained in Section 72(1) relating to carry forward and set off of business losses. Even Section 34, which enumerates the conditions for, inter alia, grant of development rebate only, contemplates withdrawal of the development rebate allowed earlier on infraction of the conditions contained in Section 34(3)(a) but this goes no further and does not say a word about unabsorbed development rebate being withheld in any situation or contingency.

There is yet another way of looking at the matter. Under Section 33(2), the amount of development rebate is to be set off against the total income of the assessee and not merely against the profits or gains of the particular business in respect of which the development rebate is granted and so also the development rebate which remains unabsorbed and is carried forward to the next assessment year(s) is to be set off not merely against the profits or gains of the particular business but against the total income of the assessee for that year. Thus, it is evident that development rebate is not necessarily linked with the business in which it initially arose and the benefit of the unabsorbed development rebate would be available for set off against the total income of the assessee. In the present case, the unabsorbed development rebate pertaining to the assessment year 1972-73 has remained unadjusted and there was income available in the assessment year 1979-80 as per computation made by the ITO himself. Therefore, for reasons stated earlier, I think the assessee is entitled to set off the unabsorbed development rebate relating to the assessment year 1972-73 against income computed for the assessment year 1979-80. In this context, I should also mention that the provisions of the Act appear to be in favour of the assessee and even assuming there is some ambiguity, the interpretation favourable to the assessee should be accepted, according to the well known rule of interpretation of fiscal statute.

5. Against the said order of the Commissioner (Appeals), the revenue has come up in appeal before us and it was contended by the departmental representative that by virtue of nationalisation of coal industry under the provisions of the Coal Mines (Nationalisation) Act the existing colliery business was entirely taken over by the Government for which the assessee was given compensation. He, therefore, urged that the business for which the assessee was entitled to development rebate for the assessment year 1972-73 ceased to exist.

He urged that the mere fact that the assessee-company was carrying on business other than coal industry in the name of the Raneegunge Coal Association Ltd. was not enough to come to the conclusion that the assessee was entitled to set off its unabsorbed development rebate which arose in the colliery business. He relied on the decision of the Punjab and Haryana High Court in the case of CIT v. Indian Motors Transport Co. (P.) Ltd. [1974] 95 ITR 73. He also referred to the provisions of Section 34(3)(a) and urged that deduction referred to in Section 33 shall not be allowed unless an amount equal to 75 per cent of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to the reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking. The learned counsel for the assessee, on the other hand, reiterated the same contentions as were advanced before the Commissioner (Appeals). He invited our attention to the relevant provisions of the Coal Mines (Nationalisation) Act, to show that the Government took over the assets of the company but the liabilities were not taken over. He urged that development rebate is required to be carried forward and adjusted as provided for in Section 33(2). He also urged that there is no provision in the Act which states that the business in which the claim for development rebate arose in an earlier year should necessarily be in existence in the year in which the unabsorbed development rebate is sought to be adjusted. According to him, once development rebate is held to be admissible should necessarily be carried forward to the extent it remained unabsorbed. He also took us through the provisions of Section 155(5)(1) of the Act which refers to transfer of asset to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company. He, therefore, submitted that in view of the clear provisions of this section, although the assets of the assessee were taken over by the Government, the assessee was entitled to the benefit of adjustment of unabsorbed depreciation for the earlier year with the income for the assessment year under appeal. The learned counsel for the assessee also contended that even though the colliery business of the assessee was taken over by the Government, but the assessee was found to have been carrying on business under its existing trade name. He, therefore, wanted us to uphold the order of the Commissioner (Appeals).

6. We have heard the submissions of both the parties and considered the facts on record. There is no dispute about the fact that even after nationalisation of the coal industry, the assessee was carrying on business and earning income therefrom. The ITO negatived the assessee's claim for adjustment of development rebate for the earlier year against the income for the current year on the ground that on nationalisation of coal industry the assets and liabilities of the assessee-company vested with the Government for which the assessee was awarded compensation and that the assets for which development rebate arose had already been taken over by the Government. In our opinion, the reason given by the ITO is not a sound one. Section 33(2)(?7) provides for carry forward of the unabsorbed amount of the development rebate to the following year or years. The relevant clause of the above section reads as under : (a) the amount of the development rebate, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the development rebate to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding shall be carried forward to the following assessment year and so on, so however that no portion of the development rebate shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to the previous year in which the ship was acquired or the machinery or plant installed or the immediately succeeding previous year as the case may be.

It, therefore, follows that if the total income of the assessee for the year of installation is nil or less than the full amount of the development rebate, the amount of development rebate, to the extent to which it is not absorbed, may be carried forward to the following year and set off against the total income of the assessee for that year and even if thereafter a part of the development rebate remains unabsorbed, the balance outstanding may be carried forward to the following year and so on for an aggregate period not exceeding eight years. Reference may be made to the decision of the Supreme Court in the case of Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777, wherein it has been made clear that if any part of the development rebate remains unabsorbed, it is to be set off against the other income of the assessee under any of the chargeable heads and it is only if some part of the development rebate still remains outstanding that it can be carried forward to the following assessment years and set off against the total income of the assessee for that year. The amount of development rebate is to be set off against the total income of the assessee and not merely against the profits or gains of the particular business in respect of which the development rebate is granted and so also the development rebate which remains unabsorbed and is carried forward to the next assessment year is to be set off not merely against the profits or gains of the particular business but against the total income of the assessee for that year. It would, therefore, be seen that it is only where the amount of development rebate has not been fully set off against the total income of the assessee in the past assessment years and a part of it still remains unabsorbed and is carried to the assessment year in question that it can be allowed against the profits or gains of the business for the particular assessment year and if there is still some balance outstanding then against then other income of the assessee for that assessment year. [It is, therefore, clear that the allowance of development rebate is not linked with the business in which it initially arose.] 7. Section 7(1) as mentioned herein before, goes to suggest that even after nationalisation of colliery business the assessee remained responsible for the liability of the business in respect of the period prior to nationalisation. In that view of the matter, it has to be held that the colliery business did not cease to exist. Having regard to the legal and factual aspects of the matter, we have no hesitation to hold that the assessee was entitled to the benefit of set off of the unabsorbed development rebate relating to the assessment year 1972-73 against the income computed for the assessment year under appeal. In view of our aforesaid observations, we consider it unnecessary to discuss the decisions relied upon by the learned departmental representative. We, therefore, uphold the order of the Commissioner (Appeals).


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