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Cesc Ltd. v. Commissioner Of Income Tax .
Factual and Procedural Background
This appeal arises from a judgment of the High Court in an income-tax matter involving an assessee company described as a “sterling company” maintaining its accounts in pound sterling. The High Court had referred four questions, of which three survived for consideration in the assessee’s appeal. One additional question referred by the High Court was not examined in this appeal because it had already been answered by the High Court in favour of the assessee.
The surviving questions concerned: (i) the proper currency basis (pound sterling versus rupees) for determining written-down value and computing depreciation and related allowances/adjustments for Assessment Years 1968-69 and 1969-70; (ii) whether written-down value of certain assets (service lines acquired prior to 1-4-1961) required revision for those assessment years due to the definition of “actual cost” under the Income Tax Act, 1961 effective from Assessment Year 1962-63; and (iii) whether the Income Tax Officer was justified in withholding interest amounts previously granted in the original assessments for the two assessment years.
Legal Issues Presented
- Whether, for Assessment Years 1968-69 and 1969-70, the written-down value of fixed assets for computing depreciation, loss under Section 32(1)(iii), development rebate, and profit under Section 41(2) should be determined in rupees (as opposed to pound sterling) where the assessee maintains accounts in pound sterling.
- Whether, for Assessment Years 1968-69 and 1969-70, the written-down value of service lines acquired prior to 1-4-1961 (previously correctly arrived at under the Indian Income Tax Act, 1922) required revision by virtue of the definition of “actual cost” introduced by the Income Tax Act, 1961 with effect from Assessment Year 1962-63.
- Whether the Income Tax Officer was justified in withholding interest amounts (Rs 14,64,130 for AY 1968-69 and Rs 12,09,093 for AY 1969-70) that had been granted in the original assessments.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Modi Industries Ltd. v. CIT (1995) 6 SCC 396, (1995) 216 ITR 759 | The “regular assessment” for purposes discussed (including interest under Section 214) is the first order of assessment under Section 143 or Section 144; any subsequent order passed in consequence of a finding/direction of a higher authority (whether modifying the order or following a set-aside with a direction to pass a fresh order) is not a “regular assessment.” | The Court rejected the contention that the case fell outside Modi Industries because a fresh assessment order was directed; it held that even a fresh order made pursuant to a higher authority’s direction is not a regular assessment. Interest under Section 214 is payable only up to the date of the first assessment order under Section 143, though the quantum may vary due to later consequential modifications. |
Court's Reasoning and Analysis
On Question (i) (currency for written-down value and depreciation computations): The Court agreed with the High Court that assessment of total income in India must be in Indian rupees. While the company may maintain its accounts in a foreign currency (pound sterling), depreciation must be calculated in Indian currency by reference to the rupee value at the time of acquisition of the asset. The Court held that for computing “actual cost” at acquisition, the rupee value of the capital asset must be taken into account, and subsequent fluctuations in the value of pound sterling are immaterial for this purpose. On that basis, the High Court’s answer to the first question was affirmed.
On Question (ii) (revision of written-down value of pre-1-4-1961 service lines): The Court stated that the High Court had rightly decided the second question against the assessee. The opinion does not set out further reasoning on this question beyond affirming the High Court’s conclusion.
On Question (iv) (withholding of interest; “regular assessment”): The Court addressed the interest payable on regular assessment and considered the contention that Modi Industries did not apply because a fresh assessment order had been directed. Relying on Modi Industries, the Court reiterated that the first assessment order under Section 143 or 144 is the “regular assessment.” Any subsequent order—whether a modification or a fresh assessment made after the original order is set aside—passed pursuant to a higher authority’s finding or direction is not a regular assessment. The Court further noted that interest under Section 214 is payable up to the date of the regular assessment (the first Section 143 assessment order), though the quantum of interest may be varied due to subsequent orders that modify the assessment pursuant to higher authority directions. Accordingly, the High Court’s answer to the fourth question against the assessee was affirmed.
Holding and Implications
DISMISSED: The appeal was dismissed, with no order as to costs.
The direct effect is that the High Court’s answers against the assessee on the surviving questions were upheld: (i) depreciation and related computations were to be based on rupee values at acquisition, unaffected by later foreign exchange fluctuations; (ii) the High Court’s adverse determination on revising written-down value of the specified assets remained undisturbed; and (iii) the High Court’s conclusion on the interest issue (applying the concept of “regular assessment” as explained in Modi Industries) stood affirmed. The opinion applies an existing precedent (Modi Industries) and does not indicate that any new legal principle or precedent was created beyond that application.
Order
1. The following three questions at the instance of the assessee really survive for consideration in this appeal, out of the four questions referred to in the judgment of the High Court:
(i) Whether on the facts and in the circumstances of the case and having regard to the fact that the assessee is a sterling company maintaining accounts in pound sterling, the Tribunal was right in holding that for the purposes of computation of the admissible amounts of depreciation, loss under Section 32(1)(iii) and/or development rebate and profit under Section 41(2) of the Act for Assessment Years 1968-69 and 1969-70, the written-down value of the fixed assets should be determined not in pound sterling but in equivalent amount of rupees?
(ii) Whether on the facts and in the circumstances of the case a revision of the written-down value of the assets comprising service lines acquired prior to 1-4-1961, which written-down value had been correctly arrived at under the Indian Income Tax Act, 1922 was required for Assessment Years 1968-69 and 1969-70, by virtue of the definition of “actual cost” introduced by the Income Tax Act, 1961 with effect from Assessment Year 1962-63?
(iv) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the Income Tax Officer was justified in withholding the interest of Rs 14,64,130 granted by him in the original assessment for Assessment Year 1968-69 and Rs 12,09,093 for Assessment Year 1969-70?
2. We are not concerned with the third question, referred to in the judgment of the High Court in this appeal by the assessee, as it has been answered by the High Court in favour of the assessee.
3. So far as the first question is concerned, we agree with the view expressed by the High Court. Assessment of total income in India will have to be in Indian rupees. The Company may keep its account in foreign currency. But depreciation will have to be calculated in Indian currency at the point of time of acquisition of the asset. The assessee Company maintains its accounts in pound sterling but while making assessment in India, the rupee value of the capital asset has to be taken into account for calculating its actual cost at the time of acquisition of the asset. Subsequent fluctuations in the value of pound sterling is immaterial for this purpose. Hence the first question was rightly answered by the High Court.
4. The second question has also been rightly decided by the High Court against the assessee.
5. The fourth question is about the interest payable on regular assessment. It has been contended that since a fresh assessment order was directed to be made, the matter is not covered by the decision of this Court in Modi Industries Ltd. v. CIT (1995) 6 SCC 396, (1995) 216 ITR 759. In that case the Court held specifically that the first order of assessment under Section 143 or Section 144 will be the regular assessment. Any order passed in consequence of a finding or a direction given by a higher authority will not be a regular assessment. The higher authority may direct the Income Tax Officer to modify his order. The higher authority may also set aside the order and direct the Income Tax Officer to pass a fresh order of assessment. In neither of these two cases the consequential order will be a regular assessment order. It will be an assessment made pursuant to a direction given by a higher authority. This position has been made clear at p. 787 of the Report in Modi Industries case (1995) 6 SCC 396, (1995) 216 ITR 759. The date up to which interest under Section 214 will be paid is the date of the regular assessment, i.e, the date of the first order of assessment under Section 143. The quantum of interest, however, may be varied as a result of subsequent orders modifying the assessment pursuant to the direction of any higher authority.
6. In the premises, we are of the view that the fourth question was also rightly answered by the High Court against the assessee.
7. The appeal is dismissed. No order as to costs.
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