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TMI Blog2010 (10) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee ?" Question referred at the instance of the assessee 3. It would be convenient to first deal with the question referred for our opinion at the instance of the assessee. 4. The assessee, a private limited company, filed its return of income for the assessment year 1984-85 on July 30, 1984, claiming to have suffered a loss of Rs. 6,03,870. On scrutiny of the accounts, the Income-tax Officer noted that an expenditure of Rs. 32,32,109 in the Kakinada unit, and Rs.7,03,131 in the Vizianagaram unit, was incurred towards machinery which was independent by itself and, for which, erection charges had also been incurred. The assessee contended that, while in the Vizianagaram unit the speed frames and ring frames were new and were therefore shown as additions to machinery, in the Kakinada unit these were replacements for the old existing machinery, and were therefore treated as current repairs. The Income-tax Officer observed that there were different processes in the assessee's mill, and for each process there was a different unit of machinery ; the speed frames formed one such unit, and could not be termed a subordinate part of a bigger machine ; the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted that each machine in a textile mill is part of the integrated process of manufacture of yarn and is integrally connected to the other machines in the mill for production of the final product. However, this interconnection does not take away the independent identity and distinct function of each machine. Thus, each machine in a textile mill should be treated independently as such and not as a mere part of an entire composite machinery of the spinning mill. As stated above, it can at best be considered part of an integrated manufacture process employed in a textile mill." 6. The factual position, as recorded in the orders aforementioned, is that there are different processes in a textile mill, and for each of the process there is a different unit of machinery ; speed frames form one such unit ; this is not a subordinate part of a bigger machine ; the assessee had purchased new speed frames and ring frames and tandem breaker cards ; the entire unit was replaced/substantially replaced in the course of modernization ; the speed frames and tandem breaker cards were separate machines ; the expenditure incurred for its procurement did not amount to repairs of existing machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a new asset into existence with a view to obtain a new advantage, and not an expenditure incurred to preserve and maintain an already existing asset. 9. Sri C. Kodanda Ram, learned senior counsel appearing on behalf of the petitioner, would submit that, in the absence of adequate information, the matter should be remanded to the Commissioner of Income-tax (Appeals). He would rely on CIT v. Ramaraju Surgical Cotton Mills [2007] 294 ITR 328 wherein the Supreme Court held that, in the absence of requisite details regarding the production capacity remaining constant even after replacement of the machinery, the matter needed to be remitted to the Commissioner of Income-tax (Appeals) who was directed to dispose of the matter in accordance with law. Unlike in Ramaraju Surgical Cotton Mills [2007] 294 ITR 328 (SC), there is adequate material on record in the present case to show that the expenditure incurred in purchasing speed frames, ring frames and tandem breaker cards is to bring a new asset into existence with a view to obtain a new advantage, and not an expenditure incurred to preserve and maintain an already existing asset. We see no reason, therefore, to remand the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n thereunder, where the amount debited to the profit and loss account, and credited to the investment allowance reserve account, is not less than the amount required to be so credited on the basis of the amount of deduction in respect of investment allowance claimed in the return made by the assessee under section 139, but a higher deduction in respect of the investment allowance is admissible on the basis of the total income as proposed to be computed by the Assessing Officer under section 143, the Assessing Officer shall, by notice in writing in this behalf, allow the assessee an opportunity to credit within the time specified in the notice, or within such further time as the Assessing Officer may allow, a further amount to the investment allowance reserve account out of the profits and gains of the previous year in which such notice is served on the assessee, or of the immediately preceding previous year if the accounts for that year have not been made up ; and, if the assessee credits any further amount to such account within the time specified, the amount so credited shall be deemed to have been credited to the investment allowance reserve account of the previous year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment) Act, 1986, with effect from April 1, 1988), provided that the deduction, referred to in section 33, shall be allowed only if the particulars prescribed for the purposes of clauses (i) and (ii) of section 32(1) have been furnished by the assessee in respect of the machinery or plant. Section 34(3)(a) stipulated that the deduction, referred to in section 33, shall not be allowed unless an amount equal to seventy five per cent. of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilized by the assessee during a period of eight years next following for the purposes of the business of the undertaking. By the Finance Act, 1990 the words "relevant previous year" in section 34(3)(a) were substituted by the words "any previous year in respect of which the deduction is to be allowed under sub-section (2) of that section or any earlier previous year (being a previous year not earlier than the year in which the machinery or plant was installed or was first put to use)", with retrospective effect from April 1, 1962. 16. The Explanation to section 34(3)(a), prior to its om ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where no amount has either been debited to the profit and loss account or credited to the investment allowance reserve account. Inasmuch as, in the case on hand, the necessary book entries for debiting the investment allowance to the profit and loss account, and crediting 75 per cent. thereof to the investment allowance reserve account have not been made, neither is the assessee entitled to claim the benefit of investment allowance nor was the Tribunal justified in directing that the assessee should be given an opportunity, within the meaning of the Explanation to section 32A(4), to create such an investment allowance reserve account. 20. Sri C. Kodanda Ram, learned senior counsel, would submit that, pursuant to the amendment made by the Finance Act, 1990 and as clarified by the Central Board of Direct Taxes in its Circular No. 572 dated August 3, 1990 [1990] 186 ITR (St.) 81, the basis of the judgment in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 (SC) has been removed, and the said judgment can no longer be relied upon, more so as the matter has been referred to a larger Bench for reconsideration of the law laid down therein. 21. In Shri Shubhlaxmi Mills Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of rectification contending that (i) it would be futile to proceed by way of appeal and reference since the authorities and the High Court would feel bound by Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 (SC) ; (ii) the words "75 per cent. of the investment allowance actually allowed" in section 32A(4)(ii) meant that the reserve had to be created in the year when the investment allowance was to be allowed, and not in any other year where, due to loss, the investment allowance was not allowed ; (iii) to this extent the decision, in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 (SC); [1989] 2 SCC 465, needed reconsideration ; and the Supreme Court, by its order dated March 19, 1990, had granted special leave, and had directed the resultant appeal to be listed before a larger bench of three judges ([1990] 182 ITR (St.) 411). Thereafter the Calcutta High Court held (page 453 of 196 ITR) : "As a result of the amendment made in section 32A(4)(ii) by the Act, 1990, with retrospective effect from April 1, 1976, and the omission of section 32A(9) by that Act, also with effect from that date, the effect of the Supreme Court decision in Shri Shubhlaxmi Mills Ltd. [1989] 177 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 (SC), and the assessee could create a reserve in any of the years subsequent to the year of installation of plant and machinery ; the assessee need not create a reserve in the year of installation ; and, if there was insufficient profit, it could create it in a subsequent year of actual deduction. 26. The order of the Supreme Court in Bharatiya Vehicles and Engineering Co. Ltd. v. Union of India [1990] 181 ITR (St.) 7 (SC), doubting the correctness of the law laid down in Shri Shubhlaxmi Mills Ltd. [1989] 177 ITR 193 (SC) and referring the matter to a larger bench, is an order of reference. An order of reference is neither a judgment of the Supreme Court within the meaning of article 141 of the Constitution of India nor an opinion of that court under article 143 of the Constitution of India. In spite of the language in which the opinion is couched it has no binding authority or force on any court of law. (S. Kannan v. State Bank of India [1990] 2 LLJ 487 (Mad)). The order of reference, in Bharatiya Vehicles and Engineering Co. Ltd. [1990] 181 ITR (St.) 7 (SC), does not overrule the earlier judgment of the Supreme Court in Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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