Case: Commissioner Of Income Tax,Bombay Vs. M/S. Alcock Ashdown &amp; Co. Ltd. and M/S. Filtrone India Ltd

It will be sufficient if we advert to the minimal facts in the main appeal - Civil Appeal No. 1274 of 1980. The respondent-assessee is a public limited company. It has a chain of machine workshops. In the previous year (calendar year, 1961), relevant to the assessment year 1962-63, the assessee started a new industrial undertaking at Bhavnagar. It was to consist of several workshops, including one for the manufacture of small boats. The undertaking at Bhavnagar started business operations in the year of account. The profit for this year was Rs. 5, 39, 791. A good portion of the plant and machinery was installed for the new business operations, but some of them remained to be installed, though they were paid for. Some of the workshops were still under construction. The value of the plant and machinery not installed came to Rs. 11, 95, 167, while the cost of the workshops under construction came to Rs. 9, 22, 011. The aggregate for the above two items came to Rs. 21, 17, 178. The assessee claimed relief for this amount under section 84 of the Act as capital employed in the new industrial undertaking at Bhavnagar. The Income-tax Officer declined to afford the relief claimed on the ground that the assets had not been put to use during the accounting period. The appeal filed before the Appellate Assistant Commissioner was futile. In second appeal filed by the assessee, the Appellate Tribunal held that the industrial undertaking at Bhavnagar formed an integral whole and the new workshops under construction remaining to be installed were part and parcel of that undertaking. The Appellate Tribunal also held that the business of the industrial undertaking at Bhavnagar had already commenced and was being carried on during the year of account. The Tribunal further held that it was not in dispute that the assets in question could not be segregated from the industrial undertaking at Bhavnagar. These are the basic findings of the Appellate Tribunal. On the basis of the above findings, the Tribunal concluded that the capital employed in the undertaking has to be distinguished from assets used in the undertaking and the relief envisaged by section 84 of the Act is with reference to the capital utilised for the purpose of acquiring the asset for the business and the question as to whether it (the asset) was actually used in the business or not during the relevant year is of no consequence. The Tribunal decided the question in favour of the assessee and held that the aggregate amount of Rs. 21, 17, 178 was includible in the computation of capital for the purpose of granting relief under section 84 of the Act to the assessee. On motion by the Revenue, the Appellate Tribunal referred the following question of law under section 256(1) of the Act to the High Court of Bombay (page 167)Whether, on the facts and in the circumstances of the case, the amount of Rs. 21, 17, 178 representing the cost of plant and machinery not installed and the cost of workshops under construction, could be taken into account in determining the capital employed in the undertaking at Bhavnagar for the purpose of granting relief to the company in terms of section 84 of the Income-tax Act, 1961, for the assessment year 1962-63 ? *The High Court of Bombay, by its judgment dated July 7, 1978, considered the rival pleas of the Revenue and the assessee in detail and concurred with the reasoning and conclusions of the Appellate Tribunal and answered the question in the affirmative and in favour of the assessee. Thereafter, this court granted special leave to the Revenue to appeal to this court against the aforesaid judgment of the Bombay High Court and that is how the appeal is before us

Reasoning: The emphasis placed by counsel for the Revenue on rule 19(6) of the Rules has no relevance since reference to rule 19(6) is called for only in cases where the average cost in relation to an asset arises for considerationOn examining the rival pleas, we are of the view that the reasoning and conclusion of the High Court does not call for any interference. Section 84(1) of the Income-tax Act is very clear. It affords relief to an assessee as provided therein the moment the capital is employed in the under taking. The section does not state or specify that the asset should be actually used or utilised. After adverting to the interpretation placed by the House of Lords on similar or kindred words that occurred in the Finance Act (England) and also the decision of the Madras High Court in Jayaram Mills Ltd. v. CEPT wherein similar words were construed with reference to the Excess Profits Tax Act, a Division Bench of the Calcutta High Court in CIT v. Indian Oxygen Ltd. at pages 119 and 120, laid down the law, with reference to section 84 and rule 19 of the Income-tax Rules, thusIn our opinion, the law laid down in Indian Oxygen Ltd.s case (Cal) and followed in the decision under appeal, Alcock Ashdown and Co.s case (Bom) and other cases referred to above represents the correct law on the subject. We are of the opinion that the moment an asset is acquired or purchased for the purpose of the business, it is capital employed, though the asset as such is not actually utilised or used during the accounting year. In the chain of events, the earliest act or event is the purchase or acquisition of the asset. That by itself entitles the assessee to get the relief. The employment of the capital is done or over. The subsequent or later events, including the actual user of the asset, have nothing to do in the matter. In this view, the judgment under appeal merits on interference.