Hind Wire Industries Ltd. v. Income Tax Officer, Income Tax Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

I.T.A No. 2011.Cal/84; Asst. Yr. 1977-78

Judges

S.N Rotho
A.M
D.N Sharma, J.M

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Smart Summary

Factual and Procedural Background

This appeal was filed by the assessee against the order dated 1-9-1984 of the Commissioner of Income Tax (Appeals) (CIT(A)) relating to the assessment year 1977-78 (previous year ended 28-6-1976). The assessee, a limited company manufacturing and selling steel wire, claimed relief under section 80J of the Income-tax Act in respect of a new industrial unit at Barrackpore (Unit II). The ITO initially calculated some relief under s.80J but carried it forward because Unit II suffered a loss in the year. The assessee appealed to the CIT(A), contending that the ITO's figure of relief was too low. The CIT(A) withdrew the relief on the ground that the new unit did not have taxable profit and followed his earlier order for a prior year.

For the earlier assessment year 1976-77, the Tribunal had decided the issue for the revenue by its order dated 24-3-1986 (ITA No. 2010 (Cal)/84). The assessee filed a miscellaneous application (M.A. No. 72 (Cal)/86) asking for recall of that Tribunal order; the Tribunal rejected that application by order dated 29-10-1986. The present appeal revisits the s.80J relief question for the assessment year 1977-78 and also raises separate grounds relating to computation of relief and claims for investment allowance and initial depreciation.

Legal Issues Presented

Whether the assessee's new industrial unit (Unit II) is entitled to relief under section 80J of the Income-tax Act for the year in question when the unit had no taxable profit (i.e., suffered a loss).
Whether paragraph 7 of CBDT Circular No.5-P dated 9-10-1967 (which envisages a method for treating deficiency where there are no profits and gains, or where there is a loss) is binding or valid for the purpose of granting relief under s.80J.
Whether the Tribunal's earlier decision on the related issue (Tribunal order dated 24-3-1986 and its M.A. order dated 29-10-1986) should be followed or re-opened in the present appeal.
Whether the assessee is entitled to investment allowance on additions to machinery (where law changed during the previous year) and/or, alternatively, to initial depreciation on those assets.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The assessee's representative (Shri N.K. Poddar) submitted that Unit II suffered a loss in the commercial sense but that paragraph 7 of CBDT Circular No.5-P dated 9-10-1967 clearly envisages that relief under s.80J has to be allowed even in a year in which there is a loss in the new unit. He read the circular sentence: “where there are no profits and gains, or where there is a loss, the deficiency in relation to an assessment year is to be taken to be an amount calculated at six per cent per annum on the capital employed in the undertaking during the relevant previous year.”
He said the circular was not pointed out to the Tribunal in the earlier appeal and relied on that circular to seek a different result in the present appeal.
He relied on several decisions (Sheetalaya; Indian Aluminium Co. Ltd.; Bluemount Ceremics Ltd.; Ennore Foundries Ltd.) for the proposition that an assessee is entitled to relief under s.80J even if there is a loss in the year.
He further relied on Elerman Lines Ltd. v. CIT and Navanit Lal Javeri to support the proposition that a CBDT circular is binding on the ITO.
On the question of investment allowance/initial depreciation, he relied on Madhu Jayanti, Gordhandas Jerambhai and Commissioner of Wealth Tax v. Vimlaben Vadilal Mehta to contend that the assessee's claims should not have been disallowed or excluded by the CIT(A).

Respondent's (Revenue's) Arguments

The department's representative (Shri S.K. Lahiri) supported the CIT(A)'s order and argued that the Tribunal had already considered and decided the issue for the earlier year; the present appeal should be decided in light of the Tribunal's interpretation of s.80J(3) because no new facts had emerged.
He relied on CIT v. B. Devaraj and CIT v. L.G. Ramamurthi for the proposition that one Bench of the Tribunal should not contradict the view of another Bench on the same facts and that the Tribunal should be consistent in its conclusions.
He contended that paragraph 7 of the CBDT circular went beyond the language of s.80J(3) and the jurisdiction of the CBDT; a circular cannot override or alter the statute. For this he relied on A.L.A. Firm and the Supreme Court decision in State Bank of Travancore (quoted: “The earlier circular being executive in character cannot alter the provisions of the Act”).
Regarding the investment allowance claim, he supported the CIT(A)'s approach (that the assessee had not made the claim before the ITO and that an additional ground was not admitted by the CIT(A)).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Addl. CIT v. Sheetalaya (1979) 117 ITR 658 (All)	Cited by assessee for the proposition that relief under s.80J may be available even where the new unit suffers a loss.	The court observed this and three similar authorities were not direct authorities supporting the precise interpretation sought by the assessee and treated them as indirect support only.
Indian Aluminium Co. Ltd. v. CIT (1980) 122 ITR 660 (Cal)	Cited by assessee on the same proposition about s.80J relief despite losses.	The court found it not to be a direct authority for the precise interpretation and did not accept it as determinative.
CIT v. Bluemount Ceremics Ltd. (1980) 123 ITR 385 (Mad) : 18 CTR (Mad) 1	Cited by assessee for the s.80J relief proposition (loss years set off in later profitable years).	The court treated it as not directly deciding the circular-based interpretation urged by the assessee and did not regard it as controlling.
CIT v. Ennore Foundries Ltd. (1985) 151 ITR 464 (Mad) : 45 CTR (Mad) 321	Cited by assessee on the entitlement to s.80J relief where losses occur.	The court viewed it as indirect support but not a direct authority for the circular-based interpretation; therefore not decisive.
Elerman Lines Ltd. v. CIT (1972) 62 ITR 913 : 1972 CTR (SC) 71	Cited by assessee to support the proposition that a CBDT circular is binding on the ITO.	The court noted the citation but observed that the case dealt with different matters and did not accept it as directly controlling the present s.80J issue.
Navanit Lal Javeri (1965) 56 ITR 158 (SC)	Cited by assessee for the binding effect of a CBDT circular.	The court observed it related to a different matter and therefore was not directly applicable to the present controversy.
CIT v. B. Devaraj (1969) 73 ITR 1 (Mad)	Cited by revenue for the proposition that Tribunal should not contradict itself and change views on the same facts.	The court accepted the principle of consistency relied on by the revenue and considered it in support of following the earlier Tribunal view.
CIT v. L.G. Ramamurthi (1977) 110 ITR 453 (Mad) : 1911 CTR (Mad) 416	Cited by revenue for the proposition that one Bench of a fact-finding Tribunal should not reach a conclusion entirely contrary to another Bench on the same facts.	The court treated it as supportive of the revenue's submission that the earlier Tribunal decision ought not to be contradicted.
A.L.A. Firm (1976) 102 ITR 622 (Mad)	Cited by revenue for the proposition that a CBDT circular has no binding force on judicial interpretation.	The court accepted the revenue's contention that judicial interpretation will override a circular and relied on this principle in its reasoning.
State Bank of Travancore (1986) 158 ITR 102 (SC) : 50 CTR (SC) 290	Cited by revenue for the proposition that an executive circular cannot alter statutory provisions (“The earlier circular being executive in character cannot alter the provisions of the Act”).	The court cited and relied on this authority as support for the view that paragraph 7 of the circular could not override s.80J(3) of the Act.
CIT v. Sriram Agarwal (1986) 161 ITR 302 (Pat) : 54 CTR (Pat) 367	Cited by assessee to show that State Bank of Travancore did not preclude a circular's binding effect (case concerned penalty and circular's binding effect on ITO).	The court distinguished this authority as being concerned with penalty (a different context) and therefore not governing the present s.80J issue.
Hindustan Aeronautics Ltd. (1981) 132 ITR 461 (Kar) : 22 CTR (Kar) 91	Cited by assessee as supporting the binding effect of a circular (in the context of revision by the CIT).	The court distinguished it as dealing with revision by the CIT (different context) and not directly applicable to the s.80J statutory interpretation question.
Madhu Jayanti (1985) 154 ITR 277 (Cal) : 48 CTR (Cal) 151	Cited by assessee in support of its claims relating to investment allowance / initial depreciation.	The court relied on the general support from this and related authorities and held that the assessee was entitled to succeed on the investment allowance point, remitting the matter to the ITO for examination.
CIT v. Gordhandas Jerambhai (1985) 154 ITR 288 (Cal) : 49 CTR (Cal) 7	Cited by assessee on the investment allowance / initial depreciation issue.	The court treated this as supporting the assessee's entitlement on the investment allowance point and remanded the matter to the ITO.
Commissioner of Wealth Tax, Gujarat v. Vimlaben Vadilal Mehta (1983) 145 ITR 11 (SC) : 37 CTR (SC) 280	Cited by assessee in support of procedural/substantive points on allowance claims.	The court noted the citation and, in combination with other authorities, found merit in the assessee's investment allowance/initial depreciation contention and remitted that issue to the ITO.

Court's Reasoning and Analysis

The court reviewed the parties' contentions, the Tribunal's earlier order dated 24-3-1986 and the Tribunal's M.A. order dated 29-10-1986. It found no good reason to differ from the conclusions reached by the Tribunal in those orders. The court analysed the competing materials as follows:

The assessee's reliance on paragraph 7 of CBDT Circular No.5-P dated 9-10-1967 was examined. That paragraph envisaged a notional deficiency calculation (six per cent per annum on capital employed) “where there are no profits and gains, or where there is a loss.”
The court agreed with the revenue that paragraph 7 of the circular went beyond the jurisdiction of the CBDT insofar as it envisaged granting relief under a Chapter VI section (s.80J) in circumstances where there was no gross total income of the new unit. The court emphasised that a circular cannot alter the statutory language and the concessions granted by the Legislature which are to be strictly applied to the conditions and circumstances specified by the statute.
The court considered the cases relied upon by the assessee (the four s.80J-related decisions) and concluded they were not direct authorities supporting the precise statutory interpretation sought. In the cited cases the deficiency of loss years was determined and set off in subsequent profitable years rather than establishing a head-on application of the circular in years of loss.
The court accepted the revenue's submissions on the desirability of consistency in Tribunal decisions and the principle that one Bench should not contradict another on the same facts; it noted precedent authority endorsing that approach.
The court distinguished decisions (Sriram Agarwal; Hindustan Aeronautics Ltd.) cited by the assessee that were said to support the binding nature of circulars: Sriram Agarwal concerned penalty (different context) and Hindustan Aeronautics involved revision by the CIT (different context), so neither was treated as controlling for the s.80J question.
Having applied these principles, the court upheld the CIT(A)'s decision (and the Tribunal's prior conclusion) rejecting the claim to relief under s.80J in a year where the new unit had no taxable profit.
On the investment allowance / initial depreciation issue, the court examined the factual material and the change of law during the previous year (investment allowance introduced while initial depreciation was withdrawn). The ITO had disallowed investment allowance primarily because the machinery additions were installed before 1-4-1976; the CIT(A) rejected the claim on the ground the assessee had not made the claim before the ITO and declined to admit an additional ground relating to initial depreciation.
The court found merit in the assessee's contention on the investment allowance/initial depreciation point (relying on Madhu Jayanti and related authorities). It vacated the CIT(A)'s order on that point and remitted the matter to the ITO with directions to examine the assessee's claim and dispose of it in accordance with law after giving the assessee a reasonable opportunity of being heard.

Holding and Implications

Holding: The court reached a mixed conclusion. It upheld the CIT(A)'s rejection of the assessee's claim to relief under section 80J for the year in which the new unit had no taxable profits, agreeing with the Tribunal's earlier orders. On the investment allowance / initial depreciation point, the court vacated the CIT(A)'s decision and remitted that issue to the ITO for fresh consideration with directions to give the assessee a reasonable opportunity of being heard. The appeal was therefore partly allowed (and was so ordered for statistical purposes).

Direct consequences:

The assessee's first seven grounds (relating to entitlement to s.80J relief in a loss year) were rejected; the CIT(A)'s withholding of s.80J relief was upheld.
The ground complaining that the computation of relief under s.80J was low was consequential on the rejection of the entitlement grounds and therefore did not survive.
The assessee prevailed on its claim relating to investment allowance / initial depreciation: that point was remitted to the ITO for examination and fresh decision in accordance with law with an opportunity to be heard.
The appeal is recorded as partly allowed for statistical purposes.

The opinion does not purport to lay down a new, general precedent extending the statutory scope of s.80J beyond the interpretations discussed; it applies existing authorities and distinguishes others in the course of resolving the particular claims before the court.

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Hind Wire Industries Ltd. v. Income Tax Officer

S.N Rotho, A.M:— This appeal has been filed by the assesse against the order dt. 1-9-1984 of the CIT(A) relating to the asst. yr. 1977-78 the previous year of which ended on 28-6-1976.

2. The first seven grounds taken in this appeal state that the CIT(A) erred in holding that the assessee company was not entitled to relief under s. 80J of the Act during the year under consideration merely on the ground that it had no positive income in the new industrial unit No. II at Barrackpore. The assessee is a limited company deriving income from the manufacture and sale of steel wire. It claimed relief under s. 80J of the Act in respect of its Barrackpore unit which it called Unit II. The ITO calculated some relief under s. 80J and observed that the same should be carried forward as the said Unit No. II suffered a loss during the year under consideration. The assessee appealed to the CIT(A) contending that the figure of relief arrived at by the ITO was low. The CIT(A) considered the matter and withdrew the relief given by the ITO on the ground that the assessee was not entitled to any relief as the new unit did not have any taxable profit. In this matter, he followed his order passed for the earlier year.

3. In the asst. yr. 1976-77 the CIT(A) had given a similar decision against which the assessee had come up in appeal before the Tribunal. The Tribunal considered the claims of the assessee as well as the Revenue and decided the issue in favour of the revenue by their order dt. 24-3-1986 in ITA No. 2010 (Cal)/84. Subsequently, the assessee had filed a miscellaneous application for the same assessment year claiming that the aforesaid order dt. 24-3-1986 of the Tribunal was erroneous and deserved to be recalled. The Tribunal heard the aforesaid order dt. 24-3-1986 of the Tribunal was assessee as well as the revenue on the said miscellaneous application numbered M.A No. 72 (Cal)/86 and by their order dt. 29-10-1986 rejected the application holding that there was no mistake in the original order dt. 24-3-1986 of the Tribunal which required rectification.

4. Shri N.K Poddar, the ld. representative for the assessee, urged before us that the earlier order of the Tribunal was erroneous and required reconsideration. He stated that there was indeed a loss even in the commercial sense in Unit No. II during the year under consideration. However, he pointed out that paragraph 7 of the circular No. 5-P dt. 9-10-1967 of the CBDT clearly envisaged that the relief under s. 80J has to be allowed even in a year in which there is a loss in the new unit. In particular, he read out the sentence which says “where there are no profits and gains, or where there is a loss, the deficiency in relation to an assessment year is to be taken to be an amount calculated at six per cent per annum on the capital employed in the undertaking during the relevant previous year”. He stated that this circular was not pointed out to the Tribunal at the time of hearing of the appeal for the asst. yr. 1976-77 and this fact has been mentioned in paragraph 3 of the order dt. 29-10-1986 of the Tribunal on the miscellaneous application referred to earlier. He urged that in the present appeal the aforesaid circular has to be considered so that the matter has to be differently decided Again, he relied on the following decisions for the proposition that an assessee is entitled to relief under s. 80J even if there is a loss during the particular year:

(i) Addl. CIT v. Sheetalaya (1979) 117 ITR 658 (All)

(ii) Indian Aluminium Co. Ltd. v. CIT (1980) 122 ITR 660 (Cal)

iii) CIT v. Bluemount Ceremics Ltd. (1980) 18 CTR (Mad) 1 : (1980) 123 ITR 385 (Mad)

(iv) CIT v. Ennore Foundries Ltd. (1985) 45 CTR (Mad) 321 : (1985) 151 ITR 464 (Mad).

5. Next, he cited the decisions in the cases of Elerman Lines Ltd. v. CIT 1972 CTR (SC) 71 : (1972) 62 ITR 913 (SO and Navanit Lal Javeri (1965) 56 ITR 158 (SC) in support of the proposition that a circular issued by the CBDT is binding on the ITO. He explained that the aforesaid four cases did not directly decide the matter in the way the circular had stated but in these four cases the deficiency of the earlier years in which the new unit suffered losses was determined and set off in a subsequent year in which the assessee had profits. Shri N.K Poddar urged that the aforesaid circular directly supports the stand of the assessee while the aforesaid four cases indirectly, do so.

6. Shri S.K Lahiri, the ld. representative for the department, on the other hand, supported the order of the CIT(A). He stated that the Tribunal has considered this issue in the earlier year and has given a particular interpretation of s. 80J(3) of the Act and so the present appeal has to be decided in the light of the same decision, especially because no new facts have come into existence and the matter is now before the Hon'ble High Court. In this connection, he referred to the decision in the case of CIT v. B. Devaraj (1969) 73 ITR 1 (Mad) wherein it is stated that it is proper and desirable for the Tribunal not to contradict itself and come to a diametrically opposite view later as it would be embarassing in general. Similarly, he pointed to the decision in the case of CIT v. L.G Ramamurthi 1911 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad) for the proposition that no Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the said Tribunal on the same facts, because if it is so done, then it will not only shake the confidence of the public but will also totally destroy such confidence. The result of this will be conclusions based on the whims and fancies of the individuals and would cease to be objective. Regarding the circular relied on by Shri N.K Poddar, he urged that the said circular is not binding because it has travelled beyond the language of the Act as given in s. 80J(3). The Tribunal applied its mind and gave a particular interpretation relating to s. 80J(3). In such matters of judicial interpretation, he stated that the judicial interpretation will override any circular issued by the Board. In this connection, be relied on the decision in the case of A.L.A Firm (1976) 102 ITR 622 (Mad) wherein it has been held that the circular of the CBDT has no binding force on the judicial power of the ITO. He also referred to the decision in the case of State Bank of Travancore (1986) 50 CTR (SC) 290 - (1986) 158 ITR 102 (SC) wherein the Supreme Court observed at page 139:

“The earlier circular being executive in character cannot alter the provisions of the Act”.

7. Shri N.K Poddar replied that the case of State Bank of Travancore was considered by the Patna High Court in the case of CIT v. Sriram Agarwal (1986) 54 CTR (Pat) 367 : (1986) 161 ITR 302 (Pat) and it was held, after considering the decision on the case of State Bank of Travancore that the circular issued by the CBDT was binding on the ITO. In this connection, he also referred to the decision in the case of Hindustan Aeronautics Ltd. (1981) 22 CTR (Kar) 91 : (1981) 132 ITR 461 (Kar) in which a similar view has been taken.

8. We have carefully considered the contentions of both the parties as well as the facts on record. We have gone through the order dt. 24-3-1986 of the Tribunal as well as their order dt. 29-10-1986 on the miscellaneous application. We do not find any good reason to differ from the conclusion arrived at therein. The four cases relied on by the ld. Counsel for the assessee, namely, Sheetalya (supra) were not, direct authorities in support of the interpretation sought to be placed on s. 80J(3) by the ld. Counsel for the assessee. We are inclined to agree with the contention of the revenue that paragraph 7 of the circular dt. 9-10-1967 has gone beynod the jurisdiction of the CBDT when it envisages granting of relief under a section in Chapter VI of the Act even when there is no gross total income of the new unit. The case of Sriram Agarwal (supra) was concerned with the case of penalty and so that decision was given in a different context. Similar was the case with Hindustan Aeronatics Ltd. (supra) which was dealing with a case of revision by the CIT. The cases of Navanit La Uaveri (supra) and Ellerman Lines Ltd. (supra) were dealing with different matters. In the case before us, the Legislature had given a concession to the assessee on the fulfilment of certain conditions under certain specified circumstances. These conditions and circumstances had to be specifically and strictly fulfilled. Otherwise, the benefit cannot be given. This is a settled principle of law. As has been observed by the Tribunal in their order dt. 24-3-1986, there is no reference to a case where a new unit suffers a loss. Consequently, we uphold the decision of the CIT(A) on this point and reject these grounds. We find support for this decision of ours from the cases of S. Devaraj (supra), and State Bank of Travancore (supra).

9. The next ground states that the computation of relief under s. 80J was low. This ground is consequential to the first seven grounds. As we have rejected the first seven grounds, this ground does not survive for consideration and so this is rejected.

10. Ground No. 9 relates to the assessee's claim for initial depreciation. Ground No. 10 relates to the assessee's claim for investment allowance. During the previous year under consideration there was a change of law inasmuch as investment allowances was made applicable while initial depreciation was withdrawn. The assessee claimed investment allowance as per the amended law on all the additions to machineries. The ITO disallowed the entire claim on the ground that the machineries were installed prior to 1-4-1976 and so they were not entitled to investment allowance. The assessee appealed to the CIT(A) and contended that the claim for investment allowance was wrongly disallowed. The CIT(A) rejected this contention on the ground that the assessee did not make any claim before the ITO. The assessee took an additional ground before the CIT(A) claiming initial depreciation on those very assets. The CIT(A) declined to admit the additional ground. We have heard Shri N.K Poddar who urged that the rejection of the assessee's claim on both the points was not justified. He relied on the decisions in the case of Madhu Jayanti (1985) 48 CTR (Cal) 151 : (1985) 154 ITR 277 (Cal), CIT. v. Gordhandas Jerambhai (1985) 49 CTR (Cal) 7 : (1985) 154 ITR 288 (Cal) and Commissioner Of Wealth Tax, Gujarat v. Vimlaben Vadilal Mehta (Smt). (1983) 37 CTR (SC) 280 : (1984) 145 ITR 11 (SC). We have also heard Shri S.K Lahiri who supported the order of the GIT (A). In our opinion, the assessee is entitled to succeed on this ground. There was a change in the law during the previous year under consideration. From the statements filed before us we find that the assessee had given particulars regarding the date of acquisition and the cost of the machineries. We, therefore, vacate the order of the CIT(A) on this point and restore the matter to the file of the ITO with a direction to examine the assessee's claim for investment allowance and dispose of the same in accordance with law after giving a reasonable opportunity of being heard to the assessee.

11. In the result, the appeal may be treated as partly allowed for statistical purposes.

Hind Wire Industries Ltd. v. Income Tax Officer

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Assessee's) Arguments

Respondent's (Revenue's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Hind Wire Industries Ltd. v. Income Tax Officer

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