CIT v. Vippy Solvex Products (P) Ltd.

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The Tax Publishers2005 TaxPub(DT) 0740 (MP-HC) : (2005) 273 ITR 0375 : (2005) 194 CTR 0216 : (2005) 144 TAXMAN 0187 CIT v. Vippy Solvex Products (P) Ltd. () INCOME TAX --Development rebate----LAW APPLICABLEEffect of section 16(c) of Finance Act, 1974--The assessee-company was incorporated on 7-9-1973. The assessment year involved in this reference is 1975-76, the accounting year of which ended on 31-12-1974. The assessee commenced its business operation from 13-11-1974 and could do it for 40 days. The assessee claimed the benefit of development rebate in assessment year 1975-76. The AO disallowed the assessee s claim inter alia on the ground that that the assessee did not satisfy the requirement of section 16(c) of the Finance Act, 1974 in which it was stated that for allowability of development rebate which was discontinued with effect from 31-5-1974, it was obligatory upon all assessees to furnish evidence to the satisfaction of the AO that machinery or plant had been purchased or contract entered into before 1-12-1973. The Tribunal allowed the appeal. Held: The date of agreement to purchase machinery by the promotor or the company, was dated 28-12-1973, therefore, assessee was not entitled to development rebate on plant and machinery on the strength of the agreement dated 28-12-1973 as the same was after the cut off date. Income Tax Act, 1961 s.33; Finance Act, 1974, s.16 INCOME TAX --Reference----HIGH COURT S POWERDate mentioned in statement of case whether correct-- Held: High Court could not take any other date to be the basis for answering the reference except that date which was specifically mentioned in the question referred, i.e., 28-12-1973. This being a reference made at the instance of the revenue, the assessee could not ask the High Court to take into account any other date for answering the reference except the one which is specifically mentioned by the Tribunal in the question referred. Income Tax Act, 1961 s.256(1); Income Tax Act, 1961, s.33 CIT v. Vippy Solvex Products (P) Ltd. In the Madhya Pradesh High Court- Indore Bench A.M. Sapre & Ashok Kumar Tiwari JJ. I.T.R. No. 22 of 1997 5 October 2004. Counsel : R. L. Jain, for the Commissioner S. C. Goyal, for the Assessee. JUDGMENT A.M. Sapre J. This is a reference made under section 256(1) of the Income Tax Act, 1961, at the instance of the revenue (CIT), by the Tribunal to this court for answering the following question of law by this court which is said to arise out of the order of the Tribunal passed on 17-9-1993, in I. T. A. No. 662 and 663/Ind of 1998: 'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the development rebate on plant and machinery for which agreement to supply was entered into on 28-12-1973?' The facts in so far as they are relevant and stated in the statement of case drawn by the Tribunal may be taken note of in brief. The assessee is a private limited company. It was incorporated on 7-9-1973. It is engaged in the business of manufacture of oil and oil cakes, extraction of hydrogenated oil and deoiled cakes. The assessment year involved in this reference is 1975-76, the relevant accounting year of which ended on 31-12-1974. The assessee commenced its business operation from 13-11-1974 and could do it for 40 days. It is in this assessment year, the assessee claimed the benefit of development rebate of Rs. 5,27,463 in terms of section 33 of the Act. The assessing officer by order dated 21-11-1980, (annexure A), disallowed the claim of development rebate of the assessee, inter alia, on the ground that the same does not satisfy the requirement of section 16 (c) of the Finance Act, 1974. The assessee felt aggrieved of this order filed an appeal to the CIT (A). By order dated 24-5-1988 (annexure B), the CIT (A) upheld the order of the assessing officer and dismissed the appeal. The assessee feeling aggrieved filed further appeal to the Tribunal. By order dated 17-9-1993 (annexure C), the Tribunal allowed the appeal and while setting aside the order passed by the assessing officer and the CIT (A) granted the benefit of development rebate as claimed by the assessee in the relevant assessment year in question. It is against this order, the revenue sought reference to be made to this court by the Tribunal. As observed supra, by order dated 27-12-1996, the Tribunal acceded to the prayer made by the revenue in R. A. No. 294/Ind of 1993 and accordingly referred the aforementioned question of law to this court under section 256 (1) of the Act for answer. This is how this reference has come to this court at the instance of the revenue. Heard Shri R.L. Jain, learned counsel for the applicant and Shri S.C. Goyal, learned counsel for the non-applicant. Having heard learned counsel for the parties and having perused the record of the case, we are of the view that this reference has to be answered in favour of the revenue and against the assessee. In other words, the question referred to this court has to be answered in favour of the revenue and against the assessee. As observed supra, the question that arises for consideration in this reference is, whether on the facts found and referred to this court, can it be held that the assessee is entitled to claim development rebate on plant and machinery for which agreement to supply was entered into on 28-12-1973? Section 33 of the Act deals with the claim relating to development rebate. However, the benefit of development rebate was discontinued/ withdrawn by Notification No. S.O. 2167 dated 28-5-1971 (see (1971) 81 ITR (St.) 45). It provided that in exercise of the powers conferred by section 33 (5) of the Income-tax Act, the Central Government hereby directs that the deduction in respect of development rebate under section 33 of the said Act shall not be allowed in respect of a ship acquired or machinery or plant installed after 31-5-1974. However, section 16 of the Finance Act, 1974, made an exception and provided that on fulfilment of the conditions stipulated in section 16(a), (b) and (c), the benefit will continue for those assessees. So far as this case is concerned, section 16(c) is material which reads as under (see (1974) 94 ITR (St.) 33, 46) : '16. (c) any machinery or plant (not being machinery or plant referred to in clause (b)) installed by any assessee after the 31-5-1974, but before the last day of June, 1975, if the assessee furnishes evidence to the satisfaction of the Income Tax Officer that before the 1-12-1973, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant.' A mere perusal of section 16(c) quoted supra would make it manifest that in order to claim development rebate on plant/machinery installed after 31-5-1974, but before 1-6-1975, after the issuance of the notification dated 28-5-1971, it is obligatory upon an assessee to furnish evidence to the satisfaction of the Income Tax Officer that before 1-12-1973, he had either purchased such plant/machinery or had entered into a contract for purchase of such machinery/plant with its manufacturer/ owner/dealer. So what is material and decisive is the date 1-12-1973. The question referred to this court specifically mentions the date of agreement entered into by the assessee with the manufacturer of plant/ machinery to be 28-12-1973. Obviously, this date, i.e., 28-12-1973, is subsequent to 1-12-1973. Whereas the requirement of section 16 (c) is that the date of agreement must be before 1-12-1973 and not subsequent to 1-12-1973. In this view of the matter and under these circumstances, one of the essential conditions necessary for claiming development rebate provided in section 16 (c) of the Finance Act is not satisfied and hence the assessee was not eligible/qualified to claim the benefit of development rebate by virtue of the notification dated 28-5-1971. Learned counsel for the assessee made an attempt to support the view taken by the Tribunal by referring to certain dates of supply of machinery/ agreement, etc., prior to 1-12-1973. We are afraid we cannot take any other date to be the basis for answering the reference except that date which is specifically mentioned in the question referred, i.e., 28-12-1973. This being a reference made at the instance of the revenue, the assessee cannot ask this court to take into account any other date for answering the reference except the one which is specifically mentioned by the Tribunal in the question referred supra. It being a settled principle of law that this court in exercise of the powers conferred under section 256 (1) of the Act cannot travel beyond the terms of the reference nor amend the question referred, but has to answer the reference on the basis of what is mentioned in the question itself. In this view of the matter, we have to proceed on the basis for answering the question that there was only one agreement entered into by the assessee with the manufacturer for supply of plant and machinery on 28-12-1973. We cannot take into consideration any other date of agreement even if it existed as contended by learned counsel for the assessee for answering the reference. Learned counsel for the assessee then contended that the view taken by the Tribunal by placing reliance on section 46 of the Companies Act deserves to be upheld being in accordance with the Companies Act. According to learned counsel when the promoter of a company had already entered into an agreement prior to its incorporation and the same was later ratified by the company on its incorporation, the assessee, i.e., the company, had become entitled to claim the benefit of development rebate in accordance with the requirement of section 33 ibid. We find no merit in this submission. In the first place, even this submission has to be tested in the context of requirement of section 16 (c) of the Finance Act. Secondly, whether the promoter had entered into an agreement or whether the company had entered into such agreement, it is of no significance unless the said agreement satisfied the requirement of section 16(c), i.e., it must be proved as a fact that such agreement is executed prior to 1-12-1973. Admittedly, in the present case, the date of agreement be that by the promoter or the company, it is dated 28-12-1973, and hence, the submission does not commended any merit. In view of the aforesaid discussion, we answer the question in the affirmative and in favour of the revenue, and against the assessee. In other words, we answer the question by holding that the Tribunal was not justified in holding that the assessee is entitled to claim the benefit of development rebate on plant and machinery on the strength of the agreement dated 28-12-1973. No costs. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0740 (MP-HC) : (2005) 273 ITR 0375 : (2005) 194 CTR 0216 : (2005) 144 TAXMAN 0187

CIT v. Vippy Solvex Products (P) Ltd. ()

INCOME TAX

--Development rebate----LAW APPLICABLEEffect of section 16(c) of Finance Act, 1974--The assessee-company was incorporated on 7-9-1973. The assessment year involved in this reference is 1975-76, the accounting year of which ended on 31-12-1974. The assessee commenced its business operation from 13-11-1974 and could do it for 40 days. The assessee claimed the benefit of development rebate in assessment year 1975-76. The AO disallowed the assessee s claim inter alia on the ground that that the assessee did not satisfy the requirement of section 16(c) of the Finance Act, 1974 in which it was stated that for allowability of development rebate which was discontinued with effect from 31-5-1974, it was obligatory upon all assessees to furnish evidence to the satisfaction of the AO that machinery or plant had been purchased or contract entered into before 1-12-1973. The Tribunal allowed the appeal. Held: The date of agreement to purchase machinery by the promotor or the company, was dated 28-12-1973, therefore, assessee was not entitled to development rebate on plant and machinery on the strength of the agreement dated 28-12-1973 as the same was after the cut off date.

Income Tax Act, 1961 s.33;

Finance Act, 1974, s.16

INCOME TAX

--Reference----HIGH COURT S POWERDate mentioned in statement of case whether correct-- Held: High Court could not take any other date to be the basis for answering the reference except that date which was specifically mentioned in the question referred, i.e., 28-12-1973. This being a reference made at the instance of the revenue, the assessee could not ask the High Court to take into account any other date for answering the reference except the one which is specifically mentioned by the Tribunal in the question referred.

Income Tax Act, 1961 s.256(1);

Income Tax Act, 1961, s.33

CIT v. Vippy Solvex Products (P) Ltd.

In the Madhya Pradesh High Court- Indore Bench A.M. Sapre & Ashok Kumar Tiwari JJ.

I.T.R. No. 22 of 1997 5 October 2004.

Counsel : R. L. Jain, for the Commissioner S. C. Goyal, for the Assessee.

JUDGMENT

A.M. Sapre J.

This is a reference made under section 256(1) of the Income Tax Act, 1961, at the instance of the revenue (CIT), by the Tribunal to this court for answering the following question of law by this court which is said to arise out of the order of the Tribunal passed on 17-9-1993, in I. T. A. No. 662 and 663/Ind of 1998:

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the development rebate on plant and machinery for which agreement to supply was entered into on 28-12-1973?'

The facts in so far as they are relevant and stated in the statement of case drawn by the Tribunal may be taken note of in brief.

The assessee is a private limited company. It was incorporated on 7-9-1973. It is engaged in the business of manufacture of oil and oil cakes, extraction of hydrogenated oil and deoiled cakes.

The assessment year involved in this reference is 1975-76, the relevant accounting year of which ended on 31-12-1974. The assessee commenced its business operation from 13-11-1974 and could do it for 40 days. It is in this assessment year, the assessee claimed the benefit of development rebate of Rs. 5,27,463 in terms of section 33 of the Act.

The assessing officer by order dated 21-11-1980, (annexure A), disallowed the claim of development rebate of the assessee, inter alia, on the ground that the same does not satisfy the requirement of section 16 (c) of the Finance Act, 1974. The assessee felt aggrieved of this order filed an appeal to the CIT (A). By order dated 24-5-1988 (annexure B), the CIT (A) upheld the order of the assessing officer and dismissed the appeal. The assessee feeling aggrieved filed further appeal to the Tribunal. By order dated 17-9-1993 (annexure C), the Tribunal allowed the appeal and while setting aside the order passed by the assessing officer and the CIT (A) granted the benefit of development rebate as claimed by the assessee in the relevant assessment year in question. It is against this order, the revenue sought reference to be made to this court by the Tribunal. As observed supra, by order dated 27-12-1996, the Tribunal acceded to the prayer made by the revenue in R. A. No. 294/Ind of 1993 and accordingly referred the aforementioned question of law to this court under section 256 (1) of the Act for answer. This is how this reference has come to this court at the instance of the revenue.

Heard Shri R.L. Jain, learned counsel for the applicant and Shri S.C. Goyal, learned counsel for the non-applicant.

Having heard learned counsel for the parties and having perused the record of the case, we are of the view that this reference has to be answered in favour of the revenue and against the assessee. In other words, the question referred to this court has to be answered in favour of the revenue and against the assessee.

As observed supra, the question that arises for consideration in this reference is, whether on the facts found and referred to this court, can it be held that the assessee is entitled to claim development rebate on plant and machinery for which agreement to supply was entered into on 28-12-1973?

Section 33 of the Act deals with the claim relating to development rebate. However, the benefit of development rebate was discontinued/ withdrawn by Notification No. S.O. 2167 dated 28-5-1971 (see (1971) 81 ITR (St.) 45). It provided that in exercise of the powers conferred by section 33 (5) of the Income-tax Act, the Central Government hereby directs that the deduction in respect of development rebate under section 33 of the said Act shall not be allowed in respect of a ship acquired or machinery or plant installed after 31-5-1974. However, section 16 of the Finance Act, 1974, made an exception and provided that on fulfilment of the conditions stipulated in section 16(a), (b) and (c), the benefit will continue for those assessees. So far as this case is concerned, section 16(c) is material which reads as under (see (1974) 94 ITR (St.) 33, 46) :

'16. (c) any machinery or plant (not being machinery or plant referred to in clause (b)) installed by any assessee after the 31-5-1974, but before the last day of June, 1975, if the assessee furnishes evidence to the satisfaction of the Income Tax Officer that before the 1-12-1973, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant.'

A mere perusal of section 16(c) quoted supra would make it manifest that in order to claim development rebate on plant/machinery installed after 31-5-1974, but before 1-6-1975, after the issuance of the notification dated 28-5-1971, it is obligatory upon an assessee to furnish evidence to the satisfaction of the Income Tax Officer that before 1-12-1973, he had either purchased such plant/machinery or had entered into a contract for purchase of such machinery/plant with its manufacturer/ owner/dealer. So what is material and decisive is the date 1-12-1973.

The question referred to this court specifically mentions the date of agreement entered into by the assessee with the manufacturer of plant/ machinery to be 28-12-1973. Obviously, this date, i.e., 28-12-1973, is subsequent to 1-12-1973. Whereas the requirement of section 16 (c) is that the date of agreement must be before 1-12-1973 and not subsequent to 1-12-1973. In this view of the matter and under these circumstances, one of the essential conditions necessary for claiming development rebate provided in section 16 (c) of the Finance Act is not satisfied and hence the assessee was not eligible/qualified to claim the benefit of development rebate by virtue of the notification dated 28-5-1971.

Learned counsel for the assessee made an attempt to support the view taken by the Tribunal by referring to certain dates of supply of machinery/ agreement, etc., prior to 1-12-1973. We are afraid we cannot take any other date to be the basis for answering the reference except that date which is specifically mentioned in the question referred, i.e., 28-12-1973. This being a reference made at the instance of the revenue, the assessee cannot ask this court to take into account any other date for answering the reference except the one which is specifically mentioned by the Tribunal in the question referred supra.

It being a settled principle of law that this court in exercise of the powers conferred under section 256 (1) of the Act cannot travel beyond the terms of the reference nor amend the question referred, but has to answer the reference on the basis of what is mentioned in the question itself. In this view of the matter, we have to proceed on the basis for answering the question that there was only one agreement entered into by the assessee with the manufacturer for supply of plant and machinery on 28-12-1973. We cannot take into consideration any other date of agreement even if it existed as contended by learned counsel for the assessee for answering the reference.

Learned counsel for the assessee then contended that the view taken by the Tribunal by placing reliance on section 46 of the Companies Act deserves to be upheld being in accordance with the Companies Act. According to learned counsel when the promoter of a company had already entered into an agreement prior to its incorporation and the same was later ratified by the company on its incorporation, the assessee, i.e., the company, had become entitled to claim the benefit of development rebate in accordance with the requirement of section 33 ibid. We find no merit in this submission.

In the first place, even this submission has to be tested in the context of requirement of section 16 (c) of the Finance Act. Secondly, whether the promoter had entered into an agreement or whether the company had entered into such agreement, it is of no significance unless the said agreement satisfied the requirement of section 16(c), i.e., it must be proved as a fact that such agreement is executed prior to 1-12-1973. Admittedly, in the present case, the date of agreement be that by the promoter or the company, it is dated 28-12-1973, and hence, the submission does not commended any merit.

In view of the aforesaid discussion, we answer the question in the affirmative and in favour of the revenue, and against the assessee. In other words, we answer the question by holding that the Tribunal was not justified in holding that the assessee is entitled to claim the benefit of development rebate on plant and machinery on the strength of the agreement dated 28-12-1973.

No costs.

OPEN