Commissioner Of Income-Tax v. Dredging Corporation Of India.

Y.V Anjaneyulu, J.:— At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal, Hyderabad Bench, made this reference under section 256(1) of the Income-tax Act, 1961 (the “Act” for short). The reference relates to the income-tax assessment year 1977-78 and the assessee is the Dredging Corporation of India Ltd., Visakhapatnam, which is a wholly owned Government of India undertaking. The questions referred for the consideration of this court are:

“(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the Government of India cannot be considered as ‘person resident in India’ for the purpose of investment allowance under section 32A and relief under section 80J?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in holding that the ships were not owned by a person resident in India within the meaning of the Explanation, clause (1), below sub-section (2) of section 32A, but owned and used in Indian territorial waters by a ‘person resident in India’ within the meaning of section 80J(5) since they were used only by the Government of India prior to their requisition by the assessee, for claiming respective allowances under sections 32A and 80J?”

2. The answer to both the questions would depend upon the same consideration to which we shall presently refer. In the previous year relevant to the assessment year 1977-78, the assessee acquired eleven crafts for the value of Rs. 22,14,11,000. The assessee also acquired six more crafts at a cost of Rs. 13,23,87,579. In its return for the assessment year 1977-78, the assessee claimed investment allowance under section 32A of the Act on the value of the crafts acquired. It also claimed deduction under section 80J on the value of the crafts. The Income-tax Officer rejected the claim on a variety of grounds. Firstly, it was said that the crafts acquired by the assessee cannot be regarded as ships for the purpose of section 32A and section 80J of the Act. It was next said that the crafts were acquired from the Government of India and these crafts were used by the Government through the Shipping Corporation of India. There are also other grounds taken by the Income-tax Officer to which we need not make a reference as the dispute does not now centre round those grounds. The assessee appealed against the Income-tax Officer's refusal to grant investment allowance under section 32A and the appropriate deduction under section 80J. The Commissioner of Income-tax (Appeals) accepted the assessee's contention that the crafts must be regarded as ships for the purpose of both the sections referred to above. Going into the relevant details, the Commissioner found that the six crafts acquired at the cost of Rs. 13,23,87,579 were new crafts and were not used before. Consequently, the Commissioner found that there could be no objection to granting investment allowance and the appropriate deduction under section 80J. However, in regard to eleven crafts acquired at a cost of Rs. 22,14,11,000, the Commissioner found that they were used by the Government of India. It was admitted that the Shipping Corporation of India operated the crafts. In that view, the Commissioner upheld the Income-tax Officer's view that the assessee is not entitled to claim investment allowance as well as deduction under section 80J by virtue of the Explanation to section 32(1)(vi) of the Act. The Revenue accepted the Commissioner's order to the extent he reversed the Income-tax Officer's view concerning the six crafts. The assessee, however, appealed to the Income-tax Appellate Tribunal challenging the correctness of the Commissioner's view that the assessee is not entitled to investment allowance and the appropriate deduction under section 80J in relation to the eleven crafts purchased from the Government of India. The Tribunal, after consideration of the relevant issues, came to the conclusion that the assessee is entitled to claim both the investment allowance as well as the appropriate deduction under section 80J of the Act. Accordingly, the assessee's appeal was allowed. The Commissioner of Income-tax felt aggrieved by the order of the Tribunal directing investment allowance and the relief under section 80J. He accordingly required the Tribunal to state a case to this court and refer the two questions which we had already indicated.

3. We have heard Sri M. Suryanarayana Murthy, learned standing counsel for the Revenue, and Sri S. Parvatha Rao, learned counsel for the assessee-corporation.

4. Section 32A of the Act deals with investment allowance. There is no dispute that it is allowable in respect of every new ship acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships. (See section 32A(2)(a) of the Act). The expression “new ship” occurring in sub-section (2) of section 32A is defined in the Explanation as having the same meaning as in the Explanation to clause (vi) of subsection (1) of section 32. It is, therefore, necessary to see the meaning of that expression according to the Explanation to section 32(1)(vi) of the Act. Now, the Explanation to section 32(1)(vi) is in the following terms:

“Explanation.— For the purposes of this clause,—

(1) ‘new ship’ or ‘new aircraft’ includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India.”

5. The purport of the above Explanation is quite simple as we see. The Legislature intended that investment allowance should be granted not only in respect of new ships purchased but also in respect of ships which are not new, that is to say, ships which were already used. The prohibition, according to the Explanation, however, is that those ships which were used should not have been owned by any person resident in India at any time prior to the date of acquisition. In other words, if a person acquires a ship owned by a person resident in India, then in terms of the Explanation he would not be entitled to claim it to be a new ship and, consequently, the investment allowance does not enure for his benefit. We may; at this stage, mention that the provision in section 80J granting certain relief to new ships purchased was in identical terms. For the purpose of section 80J also, appropriate deduction can be allowed in respect of used ships provided they were not owned by any person resident in India at any time prior to the date of acquisition.

6. Now, the Revenue and the assessee are in issue as to the real effect of the above Explanation. The Revenue contends that the eleven crafts which were purchased by the assessee-corporation were owned by the Government of India earlier and were operated by the Shipping Corporation and the Government of India is a “person resident in India” for the purpose of the Explanation. The Revenue, therefore, contends that the assessee is not entitled to claim investment allowance and the relief under section 80J. On the other hand, the assessee claims that the expression “person resident in India” occurring in the Explanation does not cover the Government of India and it relates to only persons other than the Government. In that view, the assessee claims that the Explanation has no adverse effect and its claim for investment allowance as well as the relief under section 80J ought to be allowed. It is this dispute between the Revenue and the assessee that we have to resolve in the present reference.

7. The expression “person” is defined in the Income-tax Act in section 2(31). It is an inclusive definition and it specifies various categories of persons. As observed by Lord MacMillan in Income-tax Commissioners for City of London v. Gibbs, [1942] 10 ITR 121 (HL) (Suppl.), the expression “person” constantly occurs throughout the Income-tax Act. The learned Law Lord observed that it is most generally used to denote what may be termed as an entity of assessment; i.e, the possessor or recipient of an income which the Acts require to be separately assessed for tax purposes. Now, the definition of the expression “person” occurring in section 2(31) is crucial because the liability to pay tax under the Income-tax Act by virtue of the charging provision contained in section 4 is upon every person in respect of his total income of the previous year. Thus, the definition of the expression “person” occurring in section 2(31) is significant for more reasons than one. If any particular entity cannot strictly fall within the meaning of the expression “person” occurring in section 2(31), then no liability attaches to that entity to pay tax under the Income-tax Act. Now, learned standing counsel for the Revenue invites our attention to sub-clause (vii) of section 2(31) which makes every artificial juridical person, not falling within any of the preceding sub-clauses, a “person”. Learned standing counsel proceeds on that basis to contend that the Government or the State should be considered to be an artificial juridical person for the purpose of its status and should be regarded consequently as a person under section 2(31) of the Act. It is stated that this contextual meaning of the expression “artificial juridical person” should be extended to the Explanation which we have referred to above. At the same time, learned standing counsel admits that for the purpose of charging section 4, the expression “person” does not include the State, as according to him, contextually, the State, being sovereign, is not liable to tax. The argument of learned standing counsel accordingly cuts into two divisions. Firstly, it is said that for certain purposes of the Income-tax Act, the State should be considered to be a person being an artificial juridical person; but, for purposes of levy of tax pursuant to the charging provision contained in section 4 of the Act, the State cannot be said to be a person at all. Learned standing counsel invites our attention to the decision of the House of Lords, reported in Madras Electric Supply Corporation Ltd. v. Boarland (Inspector of Taxes), [1955] 27 ITR 612. Referring to the opinion delivered by Lord Tucker, it is claimed that the expression “person” may mean differently for the purpose of the charging section and quite differently for other provisions relating to the computation of total income. Learned standing counsel also refers to the opinion expressed by Lord MacDermott.

8. We are unable to accept the artificial manner in which learned standing counsel wants to divide the meaning of the expression “person” It is a cardinal principle in construction of enactments that, unless the context otherwise requires, the definition of an expression contained in the Act should prevail throughout the Act. Therefore, whenever a different meaning is sought to be given to that expression occurring at different places in the Act, it is necessary to point out why the context requires different meanings to be given to the same expression occurring at different places in the Act. Now, the definition of the expression “person” occurring in section 2(31) is a very crucial definition because it is with reference to the categories of entities specified in section 2(31) that the liability to tax under the Income-tax Act is determined. If a person is not capable of being considered as a person within the meaning of section 2(31), then no liability attaches. If the State or, the Government cannot be regarded as a person for the purpose of section 2(31) and, consequently, is immune from taxation whether on the grounds of sovereignty or otherwise, it is natural to extend the same logic to understand the expression “person” wherever it occurs in the Act. We find nothing in the context that compels us to give a different meaning to that expression when it comes to the charging section 4 and give an entirely different meaning to that expression occurring elsewhere at different places in the Act. In our opinion, reliance of the learned standing counsel on the House of Lords judgment in Madras Electric Supply Corporation Ltd. v. Boarland, [1955] 27 ITR 612 is misplaced. That was a case where the controversy centred round rule 11(2) of the Rules applicable to Cases I and II of Schedule D of the English Income-tax Act, 1918, which provided that whenever any person succeeds to any trade which, until that time, was carried on by another person, the liability attaches to the person succeeding to the trade. It is not denied that rule 11 does not define the expression “person”; nor has it been pointed out that Cases I and II of Schedule D contain any such definite expression. Therefore, for the purpose of interpreting rule 11(2), the ordinary meaning attached to that expression should be given. Dealing in that context, the House of Lords observed that a person could include the Government. We do not think this analogy bears well in the context of the present case. In the first place, the Income-tax Act contains a definition of the expression “person” and there is an obligation to apply the meaning of that expression wherever it occurs in the Act. It is true that if the context requires it to be otherwise understood, it is always open to the courts to come to a different conclusion. As already observed, it has not been shown to us why and in what context a different meaning should be given to the expression “person” which occurs in the Explanation to section 32(1)(vi) of the Act. It is natural and quite logical to give the same meaning to the expression “person” throughout the Act. Learned standing counsel himself admits that for the purpose of taxation, the State or the Government is not a person. It follows that wherever the expression “person” occurs, unless it is shown that the context otherwise requires, the State or the Government is excluded by the meaning of the expression “person”. That apart, in the present case, the controversy is not necessarily with reference to the meaning of the expression “person” alone; section 32(1)(vi) does not use the expression “person” in isolation. It uses that expression in the company of the other qualification, namely, “person resident in India”. Therefore, what we have to understand for the purpose of the Explanation is the consolidated expression “person resident in India”. A peremptory look at the expression “person resident in India” itself would indicate that the person referred to in the Explanation must be one who is capable of residing in India or in the alternative is a person resident in India as provided in section 6 of the Act. In either view of the matter, we do not consider that the Government can be considered to be a person capable of being a resident in India or for that matter that the residence qualifications prescribed by section 6 of the Act would cover the State or the Government for the purpose of section 6.

9. The very intention of extending the relief in respect of used ships acquired by a person is to encourage assessees purchasing used ships from abroad. If a ship was already owned by a person resident in this country, then it is not the intention of the legislature to extend the benefit to such cases. Benefit is sought to be extended to cases where used ships owned by persons residing outside India are purchased. The context in which the expression “person resident in India” occurs in the Explanation to section 32(1)(vi) leaves no doubt, in our mind, that it does not take in its sweep “the Government”. The Government is not a person capable of having residence either on its own or in terms of section 6 of the Act. It would be frustrating the very legislative intention to deny relief on the ground that the assessee-Corporation purchased the crafts from the Government of India. Having regard to the facts and circumstances, we have no doubt that the Tribunal had come to the conclusion correctly that the scope and amplitude of the Explanation to section 32(1)(vi) does not disentitle the assessee to claim investment allowance under section 32A as well as appropriate deduction under section 80J of the Act. In our opinion, the Tribunal's conclusion is correct. In that view, we answer the questions referred to us in the affirmative, that is to say, in favour of the assessee and against the Revenue. No costs.