COMMISSIONER OF INCOME-TAX VS I.A. & I.C. (PVT.) LTD.
2001 P T D 385
[239 I T R 1]
[Bombay High Court (India)]
Before Dr. B. P. Saraf and D. G. Deshpande, JJ
COMMISSIONER OF INCOME‑TAX
versus
I. A. & I. C. (PVT.). Ltd.
Income‑tax Reference No.483 of 1987, decided on 06/04/1999.
Income‑tax‑
.... Investment allowance‑‑‑Higher rate‑‑‑Condition that certificate from prescribed authority under S.32A(2B)(ii) to be filed alongwith return‑‑ Certificate can be furnished before completion of assessment with satisfactory explanation for failure to file alongwith return‑‑‑Indian Income Tax Act, 1961, S.32A(2B)(ii).
The assessee claimed investment allowance at the higher rate of 35 per cent under section 32A(2B)(ii) of the Income Tax Act, .1961, in respect of the machinery and plant installed by it in its industrial undertaking, but failed to submit alongwith its return of income the certificate from the prescribed authority as stipulated by that section. However, the assessee had submitted alongwith the return a copy of the application made by it to the prescribed authority for issuance of the necessary certificate. Later, on receipt of the certificate, the assessee furnished the same to the Income‑tax Officer in the course of assessment proceedings. The Income‑tax Officer However, held that since clause (ii) of section 32A(2B) of the Act required the assessee to furnish the certificate alongwith the return, the requirement of that clause was not fulfilled and hence the assessee was not entitled to investment allowance at the higher rate, The Tribunal allowed the higher rate if investment allowance. On a reference:
Held, that furnishing of the certificate from the prescribed authority as contemplated by clause (ii) is mandatory. But the requirement of furnishing the certificate alongwith the return of income is directory. If the assessee furnishes the same to the Assessing Officer before the completion of he assessment and offers a satisfactory explanation for his failure to furnish the same alongwith his return of income, the Income‑tax Officer may consider the same and if he is satisfied with the explanation, he may accept the same and allow the claim of the assessee to investment allowance at the higher rate under section 32A(2B) of the Act. The Tribunal was justified in directing the Income‑tax Officer to consider the claim of the assessee for investment allowance at a higher rate under section 32A(2B)(ii) of the Act on the basis of the certificate filed in the course of the assessment proceedings.
CIT v. Shivanand Electronics (1994) 209 ITR 63 (Bom.) applied.
CIT v. Continental Construction Ltd. (1998) 230 ITR 485 (SC) and CIT v. Hico Products (Pvt.) (No. 1) (1993) 201 ITR 567 (Bon.) ref.
R.V. Desai with B.M. Chatterjee for the Commissioner.
B.V. Jhavri with J.I. Patel for the Assessee.
JUDGMENT
DR. B. P.‑SARAF, J. ‑‑‑By this reference under section 256(1) of the income Tax Act, 1961, the Income‑tax Appellate Tribunal, has referred the following questions of law to this Court for opinion at the instance of the Revenue.
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled for higher investment allowance even though the mandatory condition that the required certificate from the prescribed authority should be furnished alongwith the return of income, as laid down in section 32A(2B)(ii) of the Income Tax Act, 1961, had not been fulfilled?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the disallowance in respect of expenditure incurred in provision of remuneration and perquisite to the employee‑director of the company is to be computed under the provisions of section 40(c) and not section 40A(5) of the Income Tax Act, 1961?"
This reference pertains to the assessment year 1980‑81.
So far as the controversy in question No.2 is concerned, learned counsel for the parties are agreed that the controversy therein stands concluded in favour of the assessee by the decision of the Supreme Court in CIT v. Continental Construction Ltd. (1998) 230 ITR 485 and decision of this Court in CIT v. Hico Products (Pvt.) Ltd. (No. 1) (.1993) 201 ITR 567. In view of the above position, question No.2 is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
The only question that survives for consideration is question No. 1. The controversy therein pertains to an allowance of investment allowance, under section 32A(2B)(ii) of the Act The material facts giving rise to this controversy are as follows: The assessee claimed investment allowance at the higher rate of 35 per cent. under section 32A(2Bl(ii) of the Act in respect of the machinery and plant installed by it in its industrial undertaking, The Income‑tax Officer did not accept the claim of the assessee for higher investment allowance on the ground that the assessee failed to submit along with its return of income the. certificate from the prescribed authority as stipulated by that section. It is pertinent to note that the assessee had submitted alongwith the return a copy of the application made by it to the prescribed authority for issuance of the necessary certificate. Later, on receipt of the certificate, the assessee furnished the same to the Income‑tax Officer in the course of assessment proceedings. The Income‑tax Officer, however, held that since clause (ii) of section 32A(2B) of the Act required the assessee to furnish the certificate alongwith the return. The requirement of that clause was not fulfilled and hence the assessee was not entitled to investment allowance at the higher rate. This order of the Income‑tax Officer was upheld by the Commissioner of Income‑tax (Appeals). However, on further appeal by the assessee, the Income‑tax Appellate Tribunal (the "Tribunal") accepted the claim of the assessee to investment allowance at the higher rate and allowed the appeal of the assessee. The Tribunal observed that the assessee having applied for the certificate in time and submitted the same soon after receipt of the same to the Income‑tax Officer before the completion of the assessment, the requirement of clause (ii) of section 32A(2B) of the Act were satisfied. Aggrieved by the above order of the Tribunal the Revenue is before us with this reference.
We have heard Mr. V.B. Jhavari, learned counsel for the assessee, and Mr. R.V. Desai, learned counsel for the Revenue. There is no dispute in this case about fulfilment of any of the conditions for allowance of deduction by way of investment allowance at a higher rate under section 32A(2B) of the Act except the condition mentioned in clause (ii) thereof which requires the assessee to furnish, alongwith his return of income for the assessment year for which the deduction is claimed, a certificate from the prescribed authority to the effect that the article or thing was manufactured or produced by using technology (including any process) or other know‑how developed in a laboratory referred to in subsection (2B) or it is an article or thing invented in such laboratory. Admittedly, in the instant case, such a certificate from the prescribed authority had not been furnished alongwith the return of income as the same had not been received from the prescribed authority by the assessee by that lime, but the assessee enclosed the application filed before the prescribed authority for such certificate along with the return and on the receipt of the certificate produced the same before the Income‑tax Officer in the course of assessment proceedings. The controversy is whether furnishing of the certificate in such circumstances before the Income‑tax Officer in the course of assessment proceedings can be regarded as fulfilment of the requirements contained in clause (ii) of section 32A(2B) of the Act. In other words, the controversy is whether the requirement of furnishing the certificate "alongwith his return of income" is mandatory or directly. Learned counsel for the assessee submits that it is not mandatory but directory. Reliance is placed in support of this contention on the decision of this Court in CIT v. Shivanand Electronics (1994) 209 ITR 63, which deals with section 80J(6A) of the Act wherein also there‑is a requirement of furnishing alongwith his return of income the report of audit in the prescribed form duly signed and verified by the accountant. This Court held in that case that the requirement of filing of audit report alongwith the return of income is directory and if the assessee submits such a report even after filling of the return of income, but before completion of the assessment, the same may be accepted by the Income‑tax Officer if there is sufficient cause for non‑filing of the same alongwith the return. Learned counsel for the assessee submits that the provision contained in clause (ii) of section 32A(2B) being identical to the provision contained in section 80J(6A) of the Act, the ratio of the said decision is squarely applicable to the interpretation of section 32A(2B)(ii) of the Act.
Subsection (2B) of section 32A of the Act at the material time stood as under:
"(2B) Where any new machinery or plant is installed after the 30th day of June, 1977, but before the Ist day of April, 1982, for the purposes of business of manufacture or production of an article or thing and such article or thing‑‑
(a) is manufactured or produced by using any technology (including any process) or other know‑how developed in, or
(b) is an article or thing invented in,
a laboratory owned or financed by the Government, or a laboratory owned by a public sector company or a University or by an institution recognised in this behalf by the prescribed authority,
the provisions of subsection (1) shall have effect in relation to such machinery or plant as if for the words 'twenty‑five per cent.' the words 'thirty‑five per cent.' had been substituted, if the following conditions are fulfilled, namely:‑‑
(i) the right to use such technology, (including any process) or other know‑how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any ,person deriving title from such owner;
(ii) the assessee furnishes alongwith his return of income for the assessment year for which the deduction is claimed, a certificate from the prescribed authority to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know‑how developed in such laboratory or is an article or thing invented in such laboratory; and
(iii) the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule.
Explanation. ‑‑‑For the purposes of this subsection,‑‑‑
(a) 'laboratory financed by the Government' means a laboratory owned by anybody (including a society registered under the Societies Registration Act, 1860 (21 of 1860)) and financed wholly or mainly by the Government;
(b) 'public sector company' means any corporation established by or under any Central, State or Provincial Act, or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);
(c) 'university' means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act." (Emphasis supplied)
As stated earlier, there is no dispute in this case about the fulfilment of any of the conditions of the above subsection which entitles the assessee to claim investment allowance to the higher rate, except the condition of furnishing alongwith the return of income the certificate from the prescribed authority as required by clause (ii) thereof. There is also no dispute about the fact that the assessee had applied for such certificate to the prescribed authority in time and as the same was not received before the submission of the return, a copy of the application was annexed with the return with a statement that the certificate had not been received by that time. It is also an admitted position that on receipt from the prescribed authority, the certificate was furnished to the Assessing Officer in the course of assessment proceedings. The question that arises for consideration is, whether in such circumstances the claim of the assessee for investment allowance at the higher rate could be rejected by the Income‑tax Officer on the technical plea that the certificate was not furnished alongwith the return of income.
There is no dispute about the Act that the requirement of furnishing certificate is mandatory. The only controversy is whether the requirement of furnishing the same "alongwith the return of Income" is mandatory. The question that arises for our consideration, therefore, is, whether the Income- tax Officer can accept the certificate even in the course of assessment proceedings, if he is satisfied that there was a reasonable cause for the failure of the assessee to furnish the same alongwith the return of income.
We have carefully considered the submissions of learned counsel for the parties and perused the decision of this Court in CIT v. Shivanand Electronics (1994) 20 ITR 63. In that case the controversy was in regard to the interpretation of subsection (6A) of section 80J of the Act, which reads as follows (page 66):
"(6A) Where the assessee is a person other than a company or a co‑operative society, the deduction under subsection (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below subsection (2) of section 288, and the assessee furnishes, alongwith his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant. "
The question for consideration was whether the requirement of filing the audit report alongwith the return of income was mandatory or directory. This Court held (page 68):
"Subsection (6A) lays down two conditions which should be fulfilled in order to get the benefit of deduction under section 80J. The first condition is that the accounts should be audited by an accountant. This condition, as stated earlier, is mandatory. So far as the second condition which requires the assessee to furnish the report alongwith the return to the Income‑tax Officer is concerned, we feel that for the purpose of determining whether it is mandatory or directory, it can be further sub‑divided into two: (i) The assessee should furnish to the Income‑tax Officer a report of the accountant who had audited the accounts in the prescribed form, duly signed and verified by such accountant; (ii) such report should be filed alongwith the return of income. The first requirement of filing of the report again appears to be mandatory. Failure to file the same is fatal. But that is not so in so far as the requirement of filing it along‑with the return is concerned. If, in a given case, an assessee fails to tile such report alongwith the return and files it subsequently but before completion of the assessment, it would not be fatal to the claim of the assessee and the Income‑tax Officer will have the power to accept the same if he is satisfied that the delay in filing the same was for good and sufficient reasons. This, however, does not mean that an assessee, as a matter of right, can submit such report at any time before the completion of assessment and if it is so submitted, the Income‑tax Officer is bound to accept the same. Such an interpretation, in our opinion, will amount to substituting the words 'alongwith the return' in subsection (6A) by the words 'at any time before the completion of the assessment' which is not a permissible mode of interpretation of statutes. We are, therefore, of the opinion that the requirement of filing of the audit report 'alongwith the return' is not mandatory in the strict sense of the term. It is directory in the sense that even if it is not submitted alongwith the return but subsequently before the completion of assessment, the Income‑tax Officer will have the power to accept the same if he is satisfied with the explanation of the assessee for non‑filing of the same alongwith the return. In that view of the matter, we hold that the requirement of filing the report 'alongwith the return' is directory and if the assessee submits such report even after filing of the return but before completion of the assessment, the Income‑tax Officer may accept the same if he is satisfied that there was sufficient cause for non‑filing of the same alongwith the return." (Emphasis supplied).
The ratio of the above decision squarely applies to the interpretation of clause (ii) of section 32A(2B) of the Act. Here also we are of the opinion that furnishing of the certificate from the prescribed authority as contemplated by clause (ii) is mandatory. But the requirement of furnishing the certificate alongwith the return of income is directory. If the assessee furnishes the same to the Assessing Officer before the completion of the assessment and offers a satisfactory explanation for his failure to furnish the same alongwith his return of income, the Income‑tax Officer may consider the same and if he is satisfied with the explanation, he may accept the same and allow the claim of the assessee of investment allowance at higher rate under section 32A(2B) of the Act.
In view of the above legal position, the Tribunal was justified in directing the Income‑tax Officer to consider, the claim of the assessee for investment allowance at a higher rate under section 32A(2B)(ii) of the Act on the basis of the certificate filed in the course of the assessment proceedings. Question No. l is, therefore, answered in the affirmative, that is in favour of the assessee and against the Revenue. Reference stands disposed of accordingly with no order as to costs.
M.B.A./191/FC
Order accordingly.