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Commissioner Of Income-Tax, West Bengal-Ii. v. J. Thomas And Co. Pvt. Ltd.

Calcutta High Court

Nov 17, 1976

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Opinion (Deb, J.) — Reference under Section 256(1), Income-tax Act, 1961

Factual and Procedural Background

This reference under section 256(1) of the Income-tax Act, 1961 posed the question whether the assessee was eligible for development rebate under section 33 of the Income-tax Act, 1961, in respect of lifts and a central air-conditioning plant in "Nilhat House".

The facts, as stated by the Tribunal, were:

The assessee, a tea broker, constructed a multi-storied building equipped with lifts and a central air-conditioning system.
The assessee occupied part of the building and let out the remaining portions to various tenants.
Tenants paid monthly rents and separate sums for use of the lifts and for the benefits of the air-conditioning system.
The rental income was assessed under section 22 of the Act and this assessment was confirmed on appeal.
The assessee claimed development rebate under section 33(1) in respect of the air-conditioning plant and the lifts; the Income-tax Officer disallowed the claim, but the Tribunal allowed it following the Kerala High Court decision in Commissioner of Income-tax v. Ouchterlony Valley Estates (1938) Ltd. ([1965] 58 ITR 618 (Ker)).
The Tribunal rejected the department's contention that the Patna High Court decision in Commissioner of Income-tax v. Dalmia Cement Ltd. ([1945] 13 ITR 415 (Pat)) governed the matter.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the assessee is eligible for development rebate under section 33 of the Income-tax Act, 1961, with reference to the lifts and the central air-conditioning plant in Nilhat House.
How the expression "wholly used for the purposes of the business carried on by him" in section 33(1)(a) should be interpreted — whether "wholly" requires exclusive use for the assessee's business or can mean "used in their entirety" even if benefiting third‑party tenants.

Arguments of the Parties

Revenue's Arguments (Mr. Ajit Sengupta)

The assessee is not entitled to development rebate under section 33(1)(a).
Relied on several judicial authorities (cited to the Court) to support the view that "wholly used" requires exclusive use for the assessee's business.
Argued that the words "wholly" and "exclusively" are practically the same (citing Oxford Dictionary Compact) and that grammatical rules urged by the assessee should not be applied to alter the statutory meaning.
Contended the present facts are substantially identical to those in the Madras High Court decision in Commissioner of Income-tax v. Pandyan Bank Ltd. ([1969] 71 ITR 707), which disallowed rebate where portions were let out, and relied on the Supreme Court decision in New Savan Sugar & Gur Refining Co. Ltd. v. Commissioner of Income-tax ([1969] 74 ITR 7 (SC)) that development rebate requires machinery/plant to be new and "used wholly for the purpose of the assessee's business".
Noted rental income had been assessed under the head "other sources", supporting the view that the plant was not used exclusively for the assessee's business.

Assessee's Arguments (Mr. P.P. Ginwalla)

Adopted the reasoning of the Kerala High Court in Commissioner of Income-tax v. Ouchterlony Valley Estates (1938) Ltd. ([1965] 58 ITR 618 (Ker)), which allowed proportionate development rebate where assets were used in their entirety (even if used for more than one activity of the assessee).
Relied on dictionary meanings of "wholly" and "exclusively" (from the Oxford Dictionary Compact) and argued these words have different meanings in the statutory context.
Argued, on grammatical grounds, that "wholly" qualifies the "plant" (i.e., the plant is used in its entirety) rather than qualifying "for the purposes of the business carried on by him" (i.e., the plant was wholly used even though parts of the premises were let out), and therefore development rebate should be allowed.
Cited Bentleys, Stokes and Lowless v. Beeson ([1952] 33 TC 491 (CA)), although the Court noted that case did not concern development rebate and was decided on different facts.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income-tax v. Ouchterlony Valley Estates (1938) Ltd., [1965] 58 ITR 618 (Ker)	Held that "wholly used" can mean "exclusively used in their entirety" and allowed proportionate development rebate where assets were used for two plantation activities (tea and coffee).	The Tribunal followed this Kerala decision in allowing the assessee's claim. The Court noted, however, that the Kerala High Court was not referred to earlier Patna decisions and that the Kerala case was on different facts from the instant case.
Commissioner of Income-tax v. Dalmia Cement Ltd., [1945] 13 ITR 415 (Pat)	Observed that "not wholly used for the purposes" means not used exclusively for the business — i.e., assets used for other purposes as well preclude the concession.	The Court treated this Patna decision as authoritative on the meaning of "wholly" (i.e., meaning "exclusively") and held Parliament must be presumed to have accepted that meaning when enacting the 1961 Act.
Commissioner Of Income-Tax v. S.K. Sahana & Sons, [1946] 14 ITR 106 (Pat)	Followed the principle in Dalmia Cement that "not wholly used" means not exclusively used for the profession or vocation.	The Court noted that the Patna High Court followed the Dalmia Cement approach; the Kerala High Court decision did not cite these Patna cases.
Commissioner of Income-tax v. Pandyan Bank Ltd., [1969] 71 ITR 707 (Mad)	Interpreted corresponding provision and held that letting part of premises means the plant cannot be regarded as "wholly used for the purpose of such business"; "wholly used" must be full scope as condition to allowance and refers to exclusive use for the assessee's business.	The Court found the facts of the Pandyan Bank case substantially the same as the instant case and held the instant case was covered by the Madras decision. The Court agreed with the Madras interpretation that "wholly used" implies exclusive use for the assessee's business.
New Savan Sugar & Gur Refining Co. Ltd. v. Commissioner of Income-tax, [1969] 74 ITR 7 (SC)	Held that development rebate for machinery or plant can only be allowed when such machinery or plant is new and has been "used wholly for the purpose of the assessee's business".	The Court relied on this Supreme Court authority to support the principle that rebate requires exclusive use for the assessee's business and applied it against the assessee's claim.
Indian Overseas Bank Ltd. v. Commissioner of Income-tax, [1970] 77 ITR 512 (SC)	Noted that the provision for development rebate is a concession to the assessee and must be strictly complied with.	The Court invoked this principle to emphasize that the assessee must strictly comply with the statutory requirements to claim the concession of development rebate.
Bentleys, Stokes and Lowless v. Beeson (H.M. Inspector of Taxes), [1952] 33 TC 491 (CA)	Authority cited regarding meanings of words, but not a development rebate case and decided on different facts.	The Court noted the case was cited by the assessee's counsel but observed it was not directly relevant to the development rebate issue before the Court.

Court's Reasoning and Analysis

The Court's reasoning proceeded in the following steps, based only on the material in the opinion:

The Court framed the central statutory provision in question: section 33(1)(a) of the Income-tax Act, 1961, which allows a development rebate in respect of new machinery or plant "which is owned by the assessee and is wholly used for the purposes of the business carried on by him".
The Court examined competing interpretations: the Kerala High Court's view (that "wholly used" can mean "used in their entirety" and permits proportionate rebate when assets are used across activities) versus the Patna High Court view in Dalmia Cement and related Patna decisions (that "wholly" means "exclusively" and excludes assets used for other purposes).
The Court observed that the provision in the 1961 Act is in pari materia with corresponding provisions in the Indian Income-tax Act, 1922 (specifically sections referred to in the opinion), and that Parliament, when enacting the 1961 Act, is to be presumed to have known the earlier interpretation given by Fazl Ali C.J. in Dalmia Cement (1945) — namely that "wholly" means "exclusively".
Relying on the presumption that Parliament adopted the meaning given by the Patna High Court, and invoking principles from Maxwell on the Interpretation of Statutes, the Court concluded that the grammatical arguments urged by the assessee (that "wholly" qualifies only the plant and not the purpose-of-business phrase) must yield to the legislative intention as revealed by precedent and legislative continuity.
The Court considered and accepted the Madras High Court decision in Commissioner of Income-tax v. Pandyan Bank Ltd. ([1969] 71 ITR 707), which had facts substantially similar to the instant case and had held that letting part of premises prevents a finding that the plant was "wholly used for the purpose of such business". The Court noted that the Madras decision had distinguished the Kerala decision and treated the Kerala decision as on different facts.
Invoking the Supreme Court authority in New Savan Sugar & Gur Refining Co. Ltd. ([1969] 74 ITR 7 (SC)) and the principle that the development rebate is a concession requiring strict compliance (Indian Overseas Bank Ltd. v. CIT [1970] 77 ITR 512 (SC)), the Court concluded that the assessee must show exclusive use of the machinery/plant for the assessee's business to qualify for the rebate.
Applying those principles to the facts (the assessee let out portions of the premises and tenants paid separately for use of the lifts and the air-conditioning), the Court found that the machinery/plant was not used exclusively for the assessee's business and therefore the statutory condition for allowance of development rebate was not satisfied.

Holding and Implications

Reference answered in the negative; development rebate denied (decision for the Revenue).

Direct consequences:

The assessee is not entitled to development rebate under section 33(1)(a) of the Income-tax Act, 1961, in respect of the lifts and the central air-conditioning plant in Nilhat House.
The Court returned its answer to the reference in favour of the revenue and against the assessee.
The parties were directed to pay and bear their own costs of the reference.

The opinion does not purport to create any new legal precedent beyond applying and preferring existing authorities (Patna, Madras and Supreme Court decisions) to the facts of this reference.

Judge(s): Deb, J.; concurring: Dipak Kumar Sen, J. (agreed).

Show all summary ...

Deb, J.:— The following question is involved in this reference under section 256(1) of the Income-tax Act, 1961:

“Whether, on the facts and in the circumstances of the case, the asses-see is eligible for development rebate under section 33 of the Income-tax Act, 1961, with reference to the lifts and the central air-conditioning plant in Nilhat House?”

2. The facts stated by the Tribunal may be briefly stated as follows:

The assessee carries on business as a tea broker. It constructed a multi-storied building with lifts and central air-conditioning system. The assessee occupied certain portion of this building and let out its remaining portions to several tenants, who paid monthly rents and also separate sums for using the lifts and for enjoying the benefits of the air-conditioning system. The rental income was assessed in the hands of the assessee under section 22 of the Act which was confirmed by the appellate authorities. The assessee claimed deductions for development rebate under section 33(1) of the Act in respect of the airconditioning plant and the lifts. The Income-tax Officer disallowed the said claim but it was ultimately allowed by the Tribunal by following the judgment of the Kerala High Court in the case of Commissioner of Income-tax v. Ouchterlony Valley Estates (1938) Ltd., [1965] 58 ITR 618 (Ker). The Tribunal also rejected the contention of the department that the case was fully covered in its favour by the decision of the Patna High Court in the case of Commissioner of Income-tax v. Dalmia Cement Ltd., [1945] 13 ITR 415 (Pat).

3. Section 33(1)(a) of the Act, inter alia, reads as follows:

“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).”

4. Mr. Ajit Sengupta, the learned counsel for the revenue, contended before us that the assessee was not entitled to the benefit of this section and cited several decisions to which reference will be made later on. Mr. P.P Ginwalla, the learned counsel for the assessee, adopted the reasons given by the Kerala High Court and also relied on the meaning of the words “wholly” and “exclusively” from Oxford Dictionary Compact. Mr. Ginwalla also drew our attention to certain sections of the Act and contended that the meaning of these two words are different. It is his submission that this section contemplates the user of the machinery or the plant in its entirety and in view of the rules of grammar it should be held that the word “wholly” used in this section refers to the word “plant” and not to the words “for the purpose of business carried on” by the assessee and, therefore, it should also be held that since the assessee had used the plant or machinery in its entirety the development rebate should be allowed under this section as opined by the Tribunal. Mr. Ginwalla also cited the case of Bentleys, Stokes and Lowless v. Beeson (H.M Inspector of Taxes), [1952] 33 TC 491 (CA) but it was not a case of development rebate and was decided on different facts. We are also not impressed by the contentions of Mr. Ginwalla. This section is not a charging section. It was introduced as a concession to the assessee: See Indian Overseas Bank Ltd. v. Commissioner of Income-tax, [1970] 77 ITR 512, 513-14 (SC). Therefore, to get the benefit of the section the assessee must strictly comply with it. This section and section 10(2)(vib) of the Indian Income-tax Act, 1922, are in pari materia. The case of Dalmia Cement Ltd., [1945] 13 ITR 415 (Pat) was decided in 1945 under section 10(2)(vi) of the Indian Income-tax Act, 1922. The assessee was the owner of cement factories one of which worked only for 2 months during the relevant year. The assessee claimed depreciation allowance for 12 months in respect of that factory and it was allowed by the High Court. At page 419 of the report, Fazl Ali C.J (as he then was) observed:

“The words ‘not wholly used for the purposes of the business, profession’, etc., do not mean not used throughout the year or during the whole of the year in question. They mean that the building, machinery, etc., have not been used exclusively for the purposes of the profession or vocation, that is to say, they have been used for other purposes also.”

5. The Patna High Court followed the above observation in the case of Commissioner Of Income-Tax v. S.K Sahana & Sons*, [1946] 14 ITR 106 (Pat). The attention of the learned judges of the Kerala High Court in the case of Ouchterlony Valley Estates (1938) Ltd., [1965] 58 ITR 618 (Ker) was not drawn to the above decisions of the Patna High Court. In the Kerala case the assessee used some assets in the cultivation of both tea and coffee. Income arising out of plantation of coffee was not taxable. The assessee claimed proportionate development rebate in respect of these assets under section 10(2)(vib) of Indian Income-tax Act, 1922. The High Court opined that the expression “wholly used for the purpose of the business carried on” by the assessee in section 10(2)(vib) of the Act does not mean “exclusively used for the purpose of the business carried on by the assessee” but means “exclusively used in their entirety” and accordingly allowed the assessee's claim for proportionate development rebate under that section. It is to be noted here that those assets were used in its two businesses, namely, the coffee and the tea businesses. It is also to be noted that this case was decided in 1965, whereas the present Income-tax Act was passed in 1961.

6. The Kerala case [1965] 58 ITR 618 was considered by the Madras High Court in the case of Commissioner of Income-tax v. Pandyan Bank Ltd., [1969] 71 ITR 707. The facts of that case and the facts of the instant case before us are substantially the same. It was held by the Madras High Court at pages 711-12 of the report as follows:

“……the letting of a portion of its premises by the assessee cannot be regarded as part of the business carried on by the assessee so that the air-conditioning plant could be regarded as having been wholly used for the purpose of such business. It may be that the machinery or plant has been so designed that its working could not be compartmentalised but would extend to the entire premises. We do not think that on that ground we can legitimately reach a different result, for, the requirement always is that the plant, in order that it may be eligible for development rebate, should wholly be used for purposes of the business which the assessee carries on. The test is not whether the plant is one whole and as such is serving the entire premises. The test, if we may repeat, is whether, even as such a whole, the machinery is used wholly for the business which the assessee is carrying on……

Assets ‘wholly used’ do not mean ‘exclusively used’. The meaning that can be attributed to the expression ‘wholly used’ is “used in their entirety” …… we are of opinion that the words ‘wholly used’ must be given their full scope as a condition to an allowance of development rebate. The words do not appear to mean that, when not required for particular business purposes, they can or have to be used for other purposes having regard to continuance or nature of their structural built-in set up, and still development rebate can be claimed. If that were the position, we fail to understand the significance of the word ‘wholly’. It does not mean wholly but qualified by circumstances. Obviously, when the machinery or plant is used for business, what is contemplated is, it would be used wholly for the purpose to the extent such user was made. ‘Wholly’ has no reference to the extent or nature of the business but to the extent of the user; but such user must be with reference to and only for the purposes of the business carried on by the assessee.”

7. It has been held by the Supreme Court in the case of New Savan Sugar & Gur Refining Co. Ltd. v. Commissioner of Income-tax, [1969] 74 ITR 7, 16-17 (SC) that development rebate in respect of machinery or plant can only be allowed when such machinery or plant is new and has been “used wholly for the purpose of the assessee's business”.

8. The submission of Mr. Sengupta is that the question before us is fully covered by the above decisions of the Patna High Court, the Madras High Court and of the Supreme Court. It is also his submission that the meaning of the words “wholly” and “exclusively” are practically the same as stated in Oxford Dictionary Compact. He argued that in interpreting section 33(1)(a) of the Income-tax Act, 1961, rules of grammar relied on by Mr. Ginwala should not be applied. It is his final contention that the facts in the Madras case and also in the instant case before us are the same and in view of the decision of the Supreme Court in the case of New Savan Sugar & Gur Refining Co. Ltd., [1969] 74 ITR 7 (SC), development rebate cannot be allowed inasmuch as the rental income has been assessed under the head “other sources”.

9. In our opinion, there is much force in the contentions of Mr. Sengupta. It shall be presumed that Parliament knew the judgment of the learned Chief Justice in Dalmia Cement Ltd.'s case, [1945] 13 ITR 415 (Pat) at the time of enacting the Incomer-tax Act, 1961. Therefore, it must be held that Parliament has accepted the meaning of the word “wholly” which means “exclusively” as stated by the learned Chief Jusitce and, therefore, the rules of grammar must give way to this real intention of the legislature as stated in Maxwell on the Interpretation of Statutes, 11th edition, at page 78. The Madras High Court has also distinguished the Kerala case, reported in [1965] 58 ITR 618 (Ker), in which the Patna cases reported in [1945] 13 ITR 415 and [1946] 14 ITR 106 were not cited. Moreover, the Kerala case reported in [1965] 58 ITR 618 is on different facts, whereas facts of the Madras case reported in [1969] 71 ITR 707 and the facts of the instant case before us, as already stated, are substantially the same. Therefore, the instant case is covered by the Madras case reported in [1969] 71 ITR 707. And that apart, we do not find any reason to differ from the Madras High Court on the interpretation of the corresponding section of the Indian Income-tax Act, 1922, which is in pari materia with the present section of the Income-tax Act, 1961.

10. We are also of opinion that unless the machinery or plant is used exclusively for the purpose of the assessee's business no development rebate under section 33(1)(a) of the Income-tax Act, 1961, can be allowed. Accordingly, we return our answer to the question in the negative and in favour of the revenue. The parties shall pay and bear their own costs of this reference.

Dipak Kumar Sen, J.:— I agree.