(a) Income-tax---

----Business expenditure ---Company---Debentures---Premia in respect of debentures---No difference between discount and premium---Deduction for liability to pay debenture premium---Is to be spread over the years between date of issue and date of redemption---Amount relevant to accounting year is deductible---Indian Income Tax Act, 1961, S.37.

The Supreme Court has made observations to the effect that when a debenture carries a payment clause, say in the nature of a discount, that payment clause is to be spread over as a liability of the issuing assessee-company over the years ranging from issue to redemption. (Madras Industrial Investment's case (1997) 225 ITR 802). There is no distinction between a discount and a premium. The result in both is that something over and above 'the face value and the specified interest is paid, the accounting procedure in one case being by way of a preliminary deduction from the mentioned amount, and the accounting procedure in the other case being an addition at the end over the prescribed and mentioned face value amount. The extra premium is to be spread over all the years which are occupied between the date of issue and the date of ultimate redemption.

Madras Industrial Investment Corporation. Ltd. v. CIT (1997) 225 ITR 802 (SC) fol.

(b) Income-tax----

----Investment allowance---Data processing machinery---No finding that data processing machines were used only for accounting purposes ---Assessee entitled to investment allowance in respect of data processing machines-- Indian Income Tax Act, 1961, S.32A.

Coates of India Ltd. v. CIT (1994) 205 ITR 373 (Cal.); CIT v. Fort Gloster Industries Ltd. (1996) 219 ITR 223 (Cal.); CIT v. Indian Jute Mills Association (1982) 134 ITR 68 (Cal.); CIT v. Technico Enterprise (Pvt.) Ltd. (1994) 206 ITR 36 (Cal.); CIT v. Tungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal.) and M. P. Financial Corporation v. CIT (1987) 165 ITR 765 (MP) ref.

(c) Income-tax---

----Business expenditure---Company---Disallowance of expenditure---Motor cars---Expenditure on repair and insurance of motor cars, provident fund and bonus payable to drivers---Deductible--Ceilings and restriction under S.37(3A) not applicable---Indian Income Tax Act, 1961,.S.37.

The ceilings and restrictions under section 37(3A) of the Income Tax Act, 1961, are not applicable in regard to repairs and insurance of motor cars and provident fund and bonus payable to drivers by a company:

Held, that, in the instant case, there was no finding, still less an admission of the assessee, that the data processing machines were for accounting purposes only and were not for production of data, which must be in the nature of goods (as data are valuable articles of modern commerce and are neither land nor goodwill). Hence, the assessee was entitled to investment allowance in respect of the data processing machines.

M. P. Agarwal and J. C. Saha for the Commissioner.

R. N. Bajoria, J. P. Khaitan and Prabhay Khaitan for the Assessee.

JUDGMENT

Several questions have come up in these references, some at the instance of the assessee and some at the instance of the Department, in respect of three assessment years being 1983-84, 1984-85 and 1985-86.

So far as the questions referred at the instance of the assessee are concerned, the assessee has explained that the assessee has already got the benefit in regard to gratuity in other concerned years and as such it would be difficult for the assessee to press for obtaining the tax benefit once again by pressing for a favourable answer to its question in that regard. The assessee has also conceded that in so far as the proper method of deduction of a debenture premium payable at the end period of the debenture is concerned, it is a pro rata method, whereby the extra premium is to be spread over all the years which are occupied between the date of issue and the date of ultimate redemption.

On the basis of this concession the assessee does not and cannot ask for a favourable answer to the questions referred at its instance in regard to deduction for the liability to pay debenture premium.

Naturally, when the assessee itself could not press for favourable answers in regard to its questions, the Department had not much to say in that regard.

But as regards the questions framed at the instance of the Department, some submissions were made. These submissions were made even in regard to the spread over of debenture premium which were also referred at the instance of the Department.

On the basis of the Supreme Court decision given in the case of Madras Industrial Investment's case (1997) 225 ITR 802, in our opinion, it is no longer possible to take a second view in this matter. The Supreme Court has made observations which are quite clear to this effect that when a debenture carries a payment clause, say in the nature of a discount, that payment clause is to be spread over as a liability of the issuing. assessee company over the years ranging from issue to redemption.

It was specifically observed by the Supreme Court that any other view of deduction, like taking the entire liability as amassed in the year of issue or in the year of redemption would give a distorted picture of the profits of that particular year of assessment. In saying this the Supreme Court referred with approval to the case of Indian Jute Mills' case (1982) 134 ITR 68, a decision of Justice Sabyasachi Mukharji when his Lordship was taking up the Reference Bench at the Calcutta High Court. The Supreme Court also approved of the decision of the Madhya Pradesh High Court in M. P. Financial Corporation's case (1987) 165 IT R 765. The references are given in the Supreme Court judgment.

Mr. Bajoria, appearing for the assessee, relied heavily on this Supreme Court case and supported the proposition that deductions are to be spread over in all the years mentioned above.

In our case we are concerned not with debentures issued at a discount from the face value but with debentures which carry a premium to be paid at .the end of the entire period, if the debentures are held throughout. We do not see any distinction between a discount and a premium. The result in both is that something over and above the face value and the specified interest is paid, the accounting procedure in one case being by way of a preliminary deduction from the 'mentioned amount, and the accounting procedure in the other case being an addition at the end over the prescribed and mentioned face value amount.

Mr. Agarwal's submission in this regard that the spread over method is wrong and that the opposite view taken by the Division Bench of the Calcutta High Court still prevails is, with respect, not acceptable. The view of the Calcutta Division Bench taken in the case of Tungabhadra Industries Ltd.'s case (1994) 207 ITR 553 is at least for mercantile system, no longer good law. It was said in that case, at page 561, disapproving the M. P. Financials case (1987) 165 ITR 765 (MP), that if the assessee follows the case system of accounting then the entire deduction is to be claimed in the year of actual pay out and that if the assessee follows the mercantile system, deduction is to be claimed in the year of incurment of liability, the latter, at best, is no longer a good or a possible view to take in law. This is the direct result of the Supreme Court decision mentioned above. Apart from disputing these questions of spread of debenture discount Mr. Agarwal raised certain points about data processing machines not being amenable to allowance under section 32A of the Income-tax Act, 1961.

Mr. Agarwal submitted that if those data processing machines are in the nature of office installation, the claims of the assessee could not stand. We have found from the records in the paper book, however, that there was no enquiry regarding these machines being office installations and as such these submissions of Mr. Agarwal are not submissions on points of law which arise before us.

In regard to these machines, Mr. Bajoria gave us the case of CIT v. National Engineering Industries Ltd. (Income-tax Reference No.282) of 1987), where, following an earlier decision, in the case of Peerless consultancy, deductions were found as allowable in regard to data processing machinery. Mr. Agarwal submitted that notwithstanding this decision we should take the step of referring the matter to a larger Bench in view of, what according to him was, a contrary decision in CIT v. Technico Enterprise P. Ltd. (1994) 206 ITR 36 (Cal).

With due respect, Mr. Agarwal's submission is not acceptable in this regard also. The above case was considered in a later Division Bench judgment of our Court reported in CIT v. Fort Gloster Industries Ltd. (1996). 219 ITR 223. The case of CIT v. Technico Enterprise P. Ltd. (1994) 206 ITR 36, being considered in the later judgment, it was observed by the Division Bench that in the CIT v. Technico Enterprise P. Ltd. (1994) 206 ITR 36, there was a specific finding of fact that the computer was purchased and utilised-for accounting purposes only.

In our case there is no finding, still less an admission of the assessee, that the data processing machines are for accounting purposes only and are not production. of data, which must be in the nature of goods (as data are valuable articles of modern commerce and are neither land nor goodwill). In regard to the data processing machines also the assessee's case succeeds and it is not possible to answer the questions referred at the instance of the Department in their favour.

The last item of dispute raised by Mr. Agarwal was with regard to the ceilings and restrictions of section 37(3A) of the Income Tax Act, 1961, in the context whether those disallowances would be applicable in regard to repairs and insurance of motor cars and provident fund and bonus payable to drivers.

On a consideration of section 37 and the earlier seven sections, we have found ourselves to be unable to accept the submission or proposition that the disallowance relatable to section 37 is to- be extended to the earlier section also which cover the above items of expenditure and claimed deduction.

The case relied upon by Mr. Agarwal in this regard being the case reported in Coates of India Ltd. v. CIT (1994) 205 ITR 373 (Cal), is distinguishable distinctly on facts as that case related to perquisites and expenditure in relation to cars owned by the employees whereas here we are concerned with the company's own cars and the company's own drivers.

Mr. Agarwal's submission that it is contrary to reasonable legislative intent that there should be ceiling and restriction regarding disallowance so for as drivers' salaries are concerned, and yet that there should be no such disallowance or restriction in regard to the provident fund and bonus of the very same drivers is also an unacceptable argument. We are not concerned in the taxing statutes with pure logic but with economic logic. It is up to the Legislature by using specific words to make different provisions with regard to salary than with regard to provident fund and bonus. Those different provisions have been made in the concerned sections here. Applying those clearly worded different provisions we have to reach answers unfavourable to the Department in regard to these drivers and motor car questions referred to us at the instance of the Department.

On the basis of the above reasonings and discussions, and noting that the other points were not subject-matters of dispute before us, and therefore, we do not refer to the cases cited by Mr. Bajoria in this regard, we dispose of these references by answering all the questions in all the six references in the affirmative.

This order covers all the six references.

All parties and all others concerned to act on a signed xerox copy of this dictated order on the usual undertakings.

10-9-19.98.---It is clarified that when we mentioned in our order dated September 3, 1998, near the end that "the other points were not subject-matters of dispute" before us, we meant to have recorded that Mr. Agarwal appearing for the Department did not raise any dispute in regard to those other points.

It is further clarified that we disposed of by the common order not six references but in fact eight references. The number of those references, if not already included in our order should be included and wherever in the order we have mentioned six references the expression should be read as eight references. All' questions in the eight references are answered in the affirmative.

The order be drawn up separately.

All parties and all others concerned to act on a signed xerox copy of this dictated order of today also on the usual undertakings.

M.B.A.-/4149/FC Order accordingly.