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Associated Bearing Co. Ltd. v. Commissioner Of Income-Tax
Judgment Summary — A.S. Aguiar, J.
Factual and Procedural Background
This opinion arises from reference by the Income-tax Tribunal under section 256(1) of the Income-tax Act, 1961, in respect of I.T.A. Nos. 888, 889 and 890.Bom/82 in R.A. Nos. 2162, 2259 and 2260(Bom)/1984 for the assessment years 1978-79, 1979-80 and 1980-81. The Tribunal referred four questions of law to the High Court concerning the availability and measurement of investment allowance under section 32A of the Income-tax Act, 1961.
The assessee is engaged in manufacturing ball bearings, taper bearings and textile machinery components. The disputed items included calculators (claimed for assessment year 1979-80), factory cleaning machines (assessment year 1980-81), canteen equipment and water coolers (investment allowance claimed), and increased cost of imported assets attributable to fluctuations in foreign exchange and related loan liabilities (issues for assessment years including 1978-79 and 1980-81).
Procedurally: the Assessing Officer disallowed certain investment allowance claims; the Commissioner of Income-tax (Appeals) allowed some claims; the Tribunal in turn made directions (including directing the Income-tax Officer to allow investment allowance on calculators and factory cleaning machines) and referred specified legal questions to this Court.
Legal Issues Presented
- Whether the Tribunal was right in law in directing the Income-tax Officer to allow investment allowance on calculators for the assessment year 1979-80 and factory cleaning machines for the assessment year 1980-81.
- Whether the Tribunal was right in law in holding that the assessee-company was entitled to claim investment allowance on Rs. 1,39,85,955 (at Rs. 34,96,489) for the assessment year 1978-79 and on Rs. 1,16,46,083 (at Rs. 29,11,521) for the assessment year 1980-81 — specifically whether the Tribunal was correct in treating the actual cost to the assessee as at the date of purchase without taking into account variations in liability due to exchange rate fluctuations and the provisions of section 43A.
- Whether the Tribunal erred in holding that investment allowance was not allowable on the increase in the original cost of imported assets due to increase in the assessee's loan liability consequent to depreciation in the value of Indian currency in the foreign exchange market.
- Whether the Tribunal erred in not accepting the claim of the assessee that canteen equipment and water coolers are part of plant and machinery and therefore eligible for investment allowance.
Arguments of the Parties
Assessee's Arguments (as recorded)
- The calculators and factory cleaning machines are "plant and machinery" and qualify for investment allowance under section 32A because the word "plant" must be given a wide meaning; calculators were tools of the trade in the manufacture of ball bearings.
- Section 32A requires only that plant be installed in an industrial undertaking for the purpose of manufacture or production — it does not require that every item be directly engaged in the manufacturing process.
- Where assets are acquired by incurring a foreign currency liability, the actual cost to the assessee may vary depending on exchange rate at the time of repayment; section 43A was inserted to deal with variations in liability arising from exchange rate changes and should therefore alter "actual cost" for the purposes of allowances such as investment allowance under section 32A.
- Section 43A(1) contains a non obstante clause and applies to alter actual cost as defined in section 43(1) for allowances based on actual cost, including investment allowance; there was no intention evident in the Act to exclude section 32A from application of section 43A.
- The assessee relied on various High Court and other decisions holding that items not directly used in the manufacturing process (e.g., internal telephone systems, storage tanks, trailers, wireless equipment, ground water tanks, tubewells and weighing machines) nevertheless qualify as "plant" for purposes of investment allowance.
Revenue's Arguments (as recorded)
- The Assessing Officer contended calculators could not be termed plant and machinery and therefore depreciation or investment allowance at the claimed rate should not be allowed.
- The Revenue argued that investment allowance under section 32A is a one-time allowance, already allowed earlier, and thus no further investment allowance can be granted by subsequently applying section 43A to increase cost on account of foreign exchange fluctuations.
- The Revenue relied upon a decision of the Bombay High Court in Khatau Makanji Spg. and Wvg. Co. Ltd. v. CIT to support its position on non-application of exchange variation to investment allowance (as argued by the Revenue).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Taj Mahal Hotel, [1971] 82 ITR 44 | "Plant" must be given a very wide meaning. | Used to support the proposition that calculators and similar apparatus can be "plant". |
| CIT v. Elecon Engineering Co. Ltd., [1974] 96 ITR 672 (Guj) and [1987] 166 ITR 66 (SC) | "Plant" includes apparatus used in carrying on business. | Relied upon to reinforce the wide interpretation of "plant". |
| Commissioner Of Income-Tax, Bombay City-I v. I.B.M World Trade Corporation, [1981] 130 ITR 739 (Bom) | Data processing machines and computers held to be plant. | Applied by analogy to treat calculators as plant in the facts of this case. |
| CIT v. Emirates Commercial Bank Ltd., [2003] 262 ITR 55 (Bom) | Weighing scales and similar items can be plant. | Used to show items of similar nature have been recognized as plant. |
| Commissioner Of Income Tax v. Mahindra Ugine Steel Co. Ltd., [1998] 233 ITR 204 (Bom) | Cranes and similar machinery treated as plant. | Referred to support wide scope of "plant". |
| CIT v. Electronics Research Industries P. Ltd., [1991] 192 ITR 20 (Karn) | Internal telephone system held to be plant for investment allowance. | Relied upon by assessee to show non-production-line items can be plant. |
| CIT v. Mahant Oil Industries P. Ltd., [1992] 193 ITR 620 (Kam) | Storage tank held to be plant. | Relied upon to support assessee's broader definition of plant. |
| CIT v. Jokai India Ltd., [2001] 251 ITR 39 (Cal) | Trailers for transport held to be plant. | Used as precedent for non-direct-manufacturing machinery being plant. |
| Mehsana District Co-operative Milk Producers Union Ltd. v. CIT, [2002] 256 ITR 322 (Guj) | Wireless equipment held to be plant. | Applied in discussion that amenities/equipment may qualify as plant. |
| CIT v. Tube Investments of (India) Ltd., [2003] 261 ITR 753 (Mad) | Ground water tank held to be plant. | Relied upon for the proposition that items not directly in production may be plant. |
| Tribeni Tissues Ltd. v. CIT, [1991] 190 ITR 487 (Cal) | Tubewell and weighing machine held to be plant. | Used by assessee to show a range of items held to be plant. |
| Calcutta Electricity Supply Corporation Ltd. v. Addl. CIT, [1982] 136 ITR 777 | Assessment must be made in Indian rupees; actual cost/written down value contemplated in rupees; conversion at relevant rate. | Relied upon by the Tribunal to support fixing cost by reference to exchange rate at time of purchase. |
| Kirloskar Electric Co. Ltd. v. CIT, [1978] 115 ITR 907 (Karn) | Actual cost of imported machinery is fixed by applying exchange rate at time of purchase. | Referred to by the Tribunal in support of determination of cost at purchase-date exchange rate. |
| CIT v. Gujarat State Fertilizers Co. Ltd., [2003] 259 ITR 526 (Guj) [FB] | Interpretation supporting that section 43A applies to alter actual cost for various allowances; cited for the application of section 43A. | Relied upon by the assessee and Court to support that section 43A applies to allowances based on actual cost, including investment allowance. |
| Commissioner Of Income-Tax v. Baker Mercer India P. Ltd., [1992] 196 ITR 667 (Bom) | Illustrative authority where section 43A was applied to vary depreciation. | Used to show that section 43A has been applied to allowances based on actual cost (e.g., depreciation). |
| Padamjee Pulp and Paper Mills Ltd. v. CIT, [1994] 210 ITR 97 (Bom) | Another authority showing application of section 43A to vary allowances. | Referred to in support of consistent application of section 43A to cost-based allowances. |
| CIT v. Motor Industries Co. Ltd., [1988] 173 ITR 374 (Karn) | Authority cited in the context of applying section 43A. | Used alongside other decisions to argue uniform applicability of section 43A. |
| CIT v. Widia (India) Ltd., [1992] 193 ITR 475 (Karn) | Authority cited for the proposition that section 43A can vary allowances based on actual cost. | Relied on as part of a line of decisions supporting section 43A application. |
| Khatau Makanji Spg. and Wvg. Co. Ltd. v. CIT, [1996] 222 ITR 472 (Bom) | Decision relied upon by Revenue (court criticizes that decision as not considering issues and sets out no reason). | The Court distinguished and criticized this Bombay High Court decision as per incuriam and not authoritative for denying application of section 43A to investment allowance. |
| CIT v. Shri Ambika Mills Ltd., [1993] 201 ITR (St.) 63 (Supreme Court) | Supreme Court approved the Gujarat High Court's view on related issues. | Referred to as superseding the Khatau Makanji decision on the point. |
| CIT v. Modu Timblq (Individual), [1994] 206 ITR 647 (Bom) | Authority cited where a judgment per incuriam was identified. | Used to support the characterization of Khatau Makanji's case as per incuriam. |
Court's Reasoning and Analysis
The Court considered each referred question and the Tribunal's findings, applying statutory language, precedent and the amendments in the Act (notably section 43A) as follows:
- On calculators and factory cleaning machines (Question 1): the Assessing Officer had disallowed investment allowance on the ground calculators were not plant; the Commissioner (Appeals) allowed the claim and the Tribunal upheld that finding. The Court noted established authorities that "plant" has a wide meaning (citing Taj Mahal Hotel and Elecon Engineering) and that data processing machines, computers and similar apparatus have been held to be plant. The Tribunal's reliance on those principles to treat calculators as plant and to direct allowance of investment allowance was held correct. For factory cleaning machines, the Tribunal noted prior grants in earlier years and upheld the Commissioner (Appeals). The Court found the Department's reasons erroneous and thus upheld the Tribunal's direction to allow investment allowance on these items.
- On canteen equipment and water coolers (Question 4): the Assessing Officer treated water coolers as furniture and fittings and denied investment allowance. The Commissioner (Appeals) treated water coolers as part of production department requirements for worker sustenance (citing Factories Act duties) and considered supplying drinking water as part of plant/machinery required for the business. The Tribunal however characterized the water cooler as an amenity not directly involved in manufacturing and denied investment allowance. The Court recorded the assessee's submissions (that section 32A does not require each item to be directly involved in production and cited High Court authorities where non-production items were treated as plant) and concluded the Department's reasoning was erroneous. The Court answered Issue No. 4 in the affirmative for the assessee and against the Revenue, thereby finding investment allowance should be allowed on canteen equipment and water coolers.
- On increase in original cost of imported assets due to exchange-rate-linked loan liability (Questions 2 and 3): the Tribunal held that investment allowance should be based on cost as on date of purchase and used Calcutta Electricity Supply Corporation and Kirloskar Electric precedents to support fixing cost by reference to exchange rate at purchase. The assessee argued that section 43A was enacted to address precisely fluctuations in liability due to exchange rate changes and that it alters "actual cost" for all allowances based on actual cost (including section 32A). The Court examined section 43A's wording — noting the non obstante clause and the scheme distinguishing allowances that are and are not based on "actual cost" — and accepted the assessee's submission that section 43A applies to actual cost and therefore to allowances grounded on actual cost. The Court observed that if the Legislature had intended to exclude investment allowance or one-time allowances from section 43A it would have specified such exclusion; instead section 43A(1) expressly mentions certain allowances which are not based on actual cost (necessitating their specific mention). The Court also referred to authorities where section 43A had been used to vary depreciation and other allowances, and distinguished and criticized the Bombay High Court decision in Khatau Makanji as being per incuriam and not persuasive. On this basis the Court held the Revenue erred in denying investment allowance on the increased liability resulting from foreign exchange fluctuations, answering Issue No. 3 in favour of the assessee; Issue No. 2 — akin to Issue No. 3 — was answered similarly in the assessee's favour.
Holding and Implications
Holding:
- Question 1: The Tribunal was right in directing the Income-tax Officer to allow investment allowance on calculators for assessment year 1979-80 and on factory cleaning machines for assessment year 1980-81. This question is answered in the affirmative and in favour of the assessee.
- Question 4: Investment allowance is allowable on canteen equipment and water coolers treated as plant and machinery; the question is answered in the affirmative in favour of the assessee and against the Revenue.
- Question 3: Investment allowance is allowable on the increase in original cost of imported assets due to an increase in loan liability resulting from depreciation of the Indian currency (i.e., section 43A applies to alter actual cost); the Revenue erred in denying this and the issue is answered in the assessee's favour.
- Question 2: Being akin to Question 3, it is answered in the negative (i.e., against the Revenue) and in favour of the assessee.
Consequences and implications: As a direct consequence the assessee's claims for investment allowance on the specific items (calculators, factory cleaning machines, canteen equipment and water coolers) are upheld. Further, the Court held that section 43A operates to vary "actual cost" for allowances based on actual cost (including investment allowance under section 32A) when there is an increase or decrease in liability due to exchange rate changes; the Court rejected reliance on a Bombay High Court decision (Khatau Makanji) to the contrary, characterizing it as per incuriam. The reference is disposed of with no order as to costs.
Disposition: The reference stands disposed of with no order as to costs.
A.S Aguiar, J.:— The following questions of law arising out of I.T.A Nos. 888, 889 and 890.Bom/82 in R.A Nos. 2162, 2259 and 2260(Bom)/1984 for the assessment years 1978-79, 1979-80 and 1980-81, have been referred to this court under section 256(1) of the Income-tax Act, 1961, by the Income-tax Tribunal:
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Income-tax Officer to allow investment allowance on calculators for the assessment year 1979-80 and factory cleaning machines for the assessment year 1980-81?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee-company was entitled to claim investment allowance on Rs. 1,39,85,955 at Rs. 34,96,489 for the assessment year 1978-79 and on Rs. 1,16,46,083 at Rs. 29,11,521 for the assessment year 1980-81 which was the actual cost to the assessee as at the date of purchase without taking into account the variations in the liability of the assessee on account of fluctuations in exchange rate and the provisions of section 43A of the Act?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the investment allowance was not allowable on the increase in the original cost of imported assets due to increase in the assessee's loan liability consequent to the depreciation in the value of Indian currency in foreign exchange market?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal erred in not accepting the claim of the assessee that canteen equipment and water coolers are a part of plant and machinery and that, therefore, the assessee was entitled to investment allowance on the same?”
2. The first issue raised is whether the Tribunal was right in law in allowing investment allowance under section 32A of the Income-tax Act, 1961, on calculators for the year 1979-80 and factory cleaning machines for the assessment year 1980-81. The Assessing Officer had held that the calculators could by no means be termed as plant and machinery and did not allow depreciation at 100% as claimed by the assessee. The Commissioner of Income-tax (Appeals) held that in view of the circumstances in which the calculators were used, the assessee was entitled to investment allowance. The Tribunal upheld the finding of the Commissioner of Income-tax (Appeals) and noted that calculators are plant and machinery since they are tools of the assessee's trade which in this case was the manufacture of ball bearings. It is well-settled that the word “plant” must be given a very wide meaning as held by the Supreme Court in CIT v. Taj Mahal Hotel, [1971] 82 ITR 44 and that “plant” includes whatever apparatus is used by a person for carrying on his business (see CIT v. Elecon Engineering Co. Ltd., [1974] 96 ITR 672 (Guj) and CIT v. Elecon Engineering Co. Ltd., [1987] 166 ITR 66 (SC)). It may be noted that data processing machines, computers, weighing scales and cranes and items of similar nature are held to be plant in Commissioner Of Income-Tax, Bombay City-I v. I.B.M World Trade Corporation, [1981] 130 ITR 739 (Bom), CIT v. Emirates Commercial Bank Ltd., [2003] 262 ITR 55 (Bom) and Commissioner Of Income Tax v. Mahindra Ugine Steel Co. Ltd., [1998] 233 ITR 204 (Bom), respectively. So far as factory cleaning machines are concerned, the Tribunal has upheld the view of the Commissioner of Income-tax (Appeals) and also noted that the investment allowance had been granted on such items in the earlier years. The Assessment Officer's order has not discussed this issue.
3. In this view of the matter, the reasons given by the Department for not granting investment allowance is clearly erroneous and the Tribunal was right in directing the Income-tax Officer to allow investment allowance on calculators for the year 1979-80 and factory cleaning machines for the assessment year 1980-81. The said issue is, therefore, answered in the affirmative and in favour of the assessee.
4. The issue raised by question No. 4 is whether the Tribunal was right in law in failing to allow investment allowance under section 32A of the Act on canteen equipment and water coolers having failed to appreciate that these items are also plant and machinery. The Assessing Officer has held that water coolers are in the nature of furniture and fixture as opposed to plant, therefore, cannot be considered as plant and machinery for the purpose of investment allowance. The Commissioner of Income-tax (Appeals) records that water coolers are a part of the production department for the sustenance of the workers as required under the Factories Act and supplying drinking water to the workers/employees is, therefore, part of the plant and machinery required for its business. It may be further noted that the assessee in the present case is engaged in the activity of manufacturing of ball bearings, taper bearing and textile machinery components. Water cooler supplying drinking water cannot-be called apparatus, appliance or fittings. No doubt the Tribunal noted that the water cooler is an amenity that the assessee employer has to provide for its workers, however, the Tribunal upheld the view of the Commissioner of Income-tax (Appeals) that as the water cooler is not directly involved in the manufacturing process of ball bearings, it is not entitled to investment allowance.
5. The learned advocate Mr. Mistry for the assessee submitted that section 32A(iii) lays down conditions for grant of investment allowance in respect of new machinery or plant and only requires that the plant be installed in an industrial undertaking for the purpose of business of manufacture or production of an article or thing. The Act nowhere provides that each item of the plant should be directly involved in the manufacture or production. It is sufficient that the plant is for the purpose of business and the business must be of manufacture or production of some article. It is further pointed out that various High Courts in the following judgments have held that similar items not actually used in the manufacturing process are plant and entitled to investment allowance. In CIT v. Electronics Research Industries P. Ltd., [1991] 192 ITR 20 (Karn) (internal telephone system), in CIT v. Mahant Oil Industries P. Ltd., [1992] 193 ITR 620 (Kam) (a storage tank), in CIT v. Jokai India Ltd., [2001] 251 ITR 39 (Cal) (trailers for transport of tea leaves), in Mehsana District Co-operative Milk Producers Union Ltd. v. CIT, [2002] 256 ITR 322 (Guj) (wireless equipment), in the case of CIT v. Tube Investments of (India) Ltd., [2003] 261 ITR 753 (Mad) (ground water tank) and in Tribeni Tissues Ltd. v. CIT, [1991] 190 ITR 487 (Cal) (tubewell and weighing machine) were held to be plant entitled to investment allowance.
6. The reasoning of the Department for not granting investment allowance is clearly erroneous and issue No. 4 must, therefore, be answered in the affirmative in favour of the assessee and against the Revenue.
7. Question No. 3 raises the issue whether investment allowance cannot be allowed on increase in the original cost of the imported assets on account of increase in the assessee's loan liability consequent upon the depreciation in the value of the Indian currency in the foreign exchange market. The Tribunal has held that the investment allowance should be based on the cost as on the date of purchase. The Tribunal was of the opinion that the most natural way to determine the cost is with reference to exchange rate at the time of purchase and in support thereof, the Tribunal has relied upon the decision of the Calcutta High Court in the case of Calcutta Electricity Supply Corporation Ltd. v. Addl. CIT, [1982] 136 ITR 777. In the said case, the assessee, a non-resident company maintained accounts in pound sterling and computed the value and depreciation in terms of sterling only. On account of devaluation of the Indian rupee on June 6, 1966, such a computation gave the assessee a larger depreciation than what was allowable had the computation been in Indian currency. The Commissioner of Income-tax by his order under section 263 reduced the depreciation allowable. On a reference, the Calcutta High Court held as follows (headnote):
“Assessment under the Income-tax Act, 1961, must always be made in Indian rupees according to the Indian Income-tax Act. The Act contemplates a determination of every allowance and every item of income in terms of Indian currency. Therefore, the words ‘written down value’ and the actual cost to the assessee in section 43(6) contemplates costs of assets in rupees and not any other currency. Depreciation is a kind of loss suffered by the assessee. The loss is determined in terms of money by applying the prescribed percentage on the written down value of the assets in accordance with rule 5 of the Income-tax Rules, 1962.”
8. Referring to the said decision, the Tribunal observed that the value of the fixed assets required in any particular currency can be converted into a different currency only at the rate of exchange which prevailed at the time of purchase. The Tribunal also referred to the Karnataka High Court ruling in the case of Kirloskar Electric Co. Ltd. v. CIT, [1978] 115 ITR 907. In that case, the assessee-company had deposited sterling in the foreign branch of Indian Bank for purchase of machinery. Revaluation took place consequent to the deposit and before the purchase and the question was for determination of the actual cost of the machinery. The High Court held that the actual cost be fixed by applying the exchange rate at the time of purchase.
9. It is the contention of Mr. Misery, learned advocate for the assessee that the question raised has to be answered taking into account the purport and meaning of “actual cost” as defined in section 43(1) of the Act for the purpose of sections 28 to 41 of the Act. It is submitted that in a case where the assessee has acquired assets by incurring liability which was to be discharged in foreign currency, the cost of the assets to the assessee would change depending upon the rate of foreign exchange on the date the liability was repaid. It is appreciated that the Revenue may contend that all allowances based on cost such as depreciation and investment allowance should be based on the figure of cost arrived at by translating the outstanding foreign currency liability into Indian rupees on the date the asset was acquired. Such a contention would result in an assessee being granted incentives/allowances based on figures which do not reflect the real cost incurred by him. It is precisely to meet such contention by the Revenue that the Legislature had inserted section 43A in the said Act.
10. Section 43A provides that in the circumstances set put the amount by which the liability is increased or reduced by a change in the rate of exchange at any time after the acquisition of the assets shall be added or deducted from the actual cost of the assets as defined in section 43(1). In drafting the provision in this manner, the section automatically applied to all allowances based on actual cost as defined in section 43(1) of the Act. It is pointed out that there was therefore no need to specify all the allowances individually and no such specification of allowances has been made. For example, even depreciation granted under section 33(2) has not individually been mentioned. This view is supported by the fact that where the Legislature intended to exclude the allowance based on actual cost such as development rebate under section 33, a specific exclusion had to be made by section 43a(2). in contradistinction, section 43a(1) mentions other allowances intended to be varied which were not based on actual cost such as sections 35(1)(iv), 35A, 36(1)(ix) or for the purposes of section 48. It is pointed out that it was necessary to individually mention these allowances only because they were not automatically varied since they were not based on actual cost as defined under section 43(1).
11. It is submitted that section 43A(1) commences with a non obstante clause which overrides all the other provisions of the Act and must therefore, be given full and proper effect by, inter alia, altering the actual cost for the purposes of section 32A as well. If the Legislature had intended that section 43A(1) was not to apply to section 32A, when introducing section 32A it would have introduced a non obstante clause or added to the exclusions in section 43A(2). It is submitted that there is nothing to suggest that section 43A is not to apply to section 32A and in fact every canon of interpretation demands that section 43A is applicable to section 32A. CIT v. Gujarat State Fertilizers Co. Ltd., [2003] 259 ITR 526 (Guj) [FB].
12. The only argument of the Revenue is that investment allowance under section 32A is a one time allowance which had been allowed in the earlier year and therefore, no further investment allowance can be granted by applying section 43A. The Revenue's stand is clearly untenable as had the Legislature intended to exclude one time allowances, section 43A(2) would become redundant. Further, the Legislature has expressly referred to the one time allowance in section 43A(1) itself such as sections 35(1)(iv), 35a etc. There is, therefore, nothing to suggest that one time allowances are to be excluded. In fact, there are several reasons to show that one time allowances are to be included. For instance, section 32A itself provides that investment allowance may be availed of during the period of eight years (CIT v. Gujarat State Fertilizers Co. Ltd., [2003] 259 ITR 526 (Gup [FB]).
13. Section 43A(1) in express terms applies whenever there is an increase or decrease in liability due to a change in the rate of exchange at any time after the acquisition of the asset. The section expressly provides that such variation during the previous year shall be added to or reduced from, inter alia, the actual cost. (CIT v. Gujarat State Fertilizers Co. Ltd., [2003] 259 ITR 526 (Guj) [FB]). In fact it is suggested that section 43A could apply as a result of variation in the rate of exchange at any time and not merely during the eight years within which investment allowance must be availed of.
14. Section 43A is a beneficial provision which should be liberally construed so as to further its object and should be given full effect to. The interpretation suggested by the Department would nullify its object and render, the same otiose. The depreciation under section 32 is also based upon actual cost as defined under section 43(1) of the Act and the Department has accepted in this very case that the depreciation can be varied by applying section 43A(1). There is no reason why section 43A(1) should be applied to vary depreciation but not investment allowance (Commissioner Of Income-Tax v. Baker Mercer India P. Ltd., [1992] 196 ITR 667 (Bom), Padamjee Pulp and Paper Mills Ltd. v. CIT, [1994] 210 ITR 97 (Bom), CIT v. Motor Industries Co. Ltd., [1988] 173 ITR 374 (Karn) and CIT v. Widia (India) Ltd., [1992] 193 ITR 475 (Karn)).
15. The decision of the Bombay High Court in Khatau Makanji Spg. and Wvg. Co. Ltd. v. CIT, [1996] 222 ITR 472 referred to by the Revenue can be distinguished since there was no consideration of the issues arising and the said judgment sets out no reason whatsoever for arriving at its conclusion. Further, the latest decision of the Supreme Court in CIT v. Shri Ambika Mills Ltd., [1993] 201 ITR (St.) 63, wherein the Supreme Court approved the Gujarat High Court's view on the merits of that case supersedes the decision of the Bombay High Court in Khatau Makanji's case, [1996] 222 ITR 472. The said decision in Khatau Makanji's case, [1996] 222 ITR 472 (Bom) being a judgment per incuriam, CIT v. Modu Timblq (Individual), [1994] 206 ITR 647 (Bom), and passed sub silentio and being inconsistent with the earlier decisions of this court and of the Supreme Court is erroneous and cannot be used by the Revenue to deprive the assessee of the benefit of investment allowance on the increased loan liability consequent upon the depreciation of the Indian currency in the foreign exchange market.
16. In the light of the above discussion, it must be held that the Revenue erred in holding that the said investment allowance was not available in respect of the enhanced liability due to the fluctuation in the foreign exchange market. The issue must accordingly be answered in the affirmative in favour of the assessee and against the Revenue. In view of the finding on Issue No. 3 above, Issue No. 2 which is akin to Issue No. 3, is also answered in negative, in favour of the assessee and against the Revenue.
17. The reference accordingly stands disposed of with no order as to costs.
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