TMI Blog2011 (4) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not prohibit classification of persons not similarly situated, provided such classification is based on intelligible differentia and is otherwise legal, valid and permissible. - 181, 182 of 2004, - - - Dated:- 25-4-2011 - Mr. Justice Bhaskar Bhattacharya, Justice Sambuddha Chakrabarti, JJ. For the Appellant: Dr. D. Pal. Mr. Somok Bose, Mrs. Monisha Seal. For the Respondent: Mr. S.N. Dutta, Mr. Aniket Mitra. Bhaskar Bhattacharya, J.: 1. These two appeals were heard analogously as points involved in these two appeals are identical and there is one additional point required to be decided in ITA No.182 of 2004 which is not involved in ITA No.181 of 2004. 2. ITA No.181 of 2004 is at the instance of an assessee and is directed against an order dated 25th November, 2003, passed by the Income-tax Appellate Tribunal, E Bench, Kolkata, in ITA No.502 (Kol) of 2002 for the Assessment Year 1989-90 while ITA No.182 of 2004 is at the instance of the selfsame assessee and is directed against order dated 25th November, 2003, passed by the Income-tax Appellate Tribunal, E Bench, Kolkata in ITA No.500 (Kol) of 2002, relating to the Assessment Year 1992-93. 3. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The facts giving rise to filing of these two appeals may be summed up thus: a) The Assessing Officer while perusing the return of the assessee found that the assessee had sold/transferred certain items of plant machinery of fertilizer division and fiber division during the relevant year ended 31st March, 1994. He also found that the assessee had capitalized Rs.12,85,69,303/- worth of plant machinery in the Assessment Year 1989-90 in the fertilizer division which was subsequently sold/transferred in the year ended 31.3.94. b) On the capitalized value, the investment allowance of Rs.2,57,13,859/- was granted to the assessee in the Assessment Year 1989-90. The assessee had similarly capitalized Rs.1,43,85,716/- worth of plant machinery in the Assessment year 1989-90 in the fibers division, which was sold/transferred in the year ended 31st March, 1994. On this capitalized value also, the investment allowance of Rs.28,77,143/- was granted in the Assessment Year 1989-90. Thus, the total investment allowance granted to the assessee in the Assessment Year 1989-90 was Rs.2,85,91,002/-. c) Since the plant machinery of fertilizer division and fiber divisions were sold/transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t attracted. According to Dr. Pal, the entire division of fertilizer and fibres by way of slump transaction were transferred and those were being used by the purchasers for the purpose of their business in the same way before their transfer and as such, the provisions contained in Section 32A(5) of the Act would not be applicable. In other words, according to Dr. Pal if some of the plants and machineries were sold to a third party before the expiry of the period mentioned in Section 32A (5) of the Act the said provision might be attracted but when the entire division was transferred and no separate price was fixed for plant and machinery, the same could not be said to be an act of transfer within the meaning of the said provision. 9. Dr. Pal further submits that in the cases before us, the transfer of the entire division did not come within the purview of sale or otherwise transfer appearing in Section 32A of the Act and thus, the authorities below erred in law in passing the orders impugned. 10. Dr. Pal next contends that when the provision contained in Section 32A (5) of the Act is not attracted where the plant and machinery are sold to the Government, local authorities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onics Pvt. Ltd. vs. Commissioner of Incometax, reported in (1995) 215 ITR 943; 13. In order to appreciate the points involved in these appeals, it will be profitable to refer to the following provisions of the Income-tax Act which are quoted below: Section 32A(1): In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of thisSection, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee . Section 32A(5) : Any allowance made under this section in respect of any ship, aircraft, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act- (a) if the ship, aircraft, machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery or plant shall have the same meanings as in the Explanation below sub-section(2) of section 32A. Section 2(47): transfer , in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishments of any rights therein; or (iii) (iv) (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. (vii) Explanation.-For the purpose of sub-clauses (v) and (vi), immovable property shall have the same meaning as in clause (d) of section 269UA. (Emphasis supplied) 14. A bare perusal of Section 32A(5) of the Act makes it abundantly clear that in order to apply the aforesaid provision to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and machinery are sold to the Government, local authorities, corporations established by Central or Provincial Act or Government Company as defined in Section 617 of the Act, there is no reason why in case of a sale as going concern the said provision should be applicable is equally devoid of any substance. The legislature by law having specifically exempted the operation of the provision only in favour of those authorities, it is preposterous to suggest that the same benefit should also be available to other transferees not specified with the exempted list. In these proceedings, there is no scope of branding the aforesaid exemptions as ultra vires and thus, we are not at all impressed by the aforesaid submission of Dr. Pal. 20. The last point i.e., that we should not make literal construction of the word sale or otherwise transfer appearing in the said provision as such construction would lead to absurdity, unjust result or mischief and in such a case, we should modify the language used by the legislature or even do some violence to it so as to achieve the obvious intention of the legislature and produce a rational construction, is in our opinion, equally misplaced. 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee at the same price at which it was purchased and no capital gains accrued or arose to him as a result of the transfer. On 4th April, 1968, however, the Income-tax Officer issued a notice under Section 148 of the Act seeking to reopen the assessment of the assessee for the assessment year 1966-67 and requiring the assessee to submit a return of income within thirty days of the service of the notice. The notice did not state what was the income alleged to have escaped assessment but by his subsequent letter dated 4th March 1969, the Income-tax Officer intimated to the assessee that he proposed to fix the fair market value of the house sold by the assessee on 25th December 1965 at Rs.65,000/ as against the consideration of Rs.16,500/- for which the house was sold and assess the difference of Rs.48,500/- as capital gains in the hands of the assessee. The assessee raised objections against the reassessment proposed to be made by the Income-tax Officer but the objections were overruled and an order of reassessment was passed by the Income-tax Officer including the sum of Rupees 48,500/- as capital gains and bringing it to tax. Though the sale of the house by the assessee was in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , C. J., agreed substantially with the view taken by Isaacs, J., Gopalan Nambiar, J. and Vishwanath Iyer, J., took a different view and held that in order to bring a case within Section 52 sub-section (2), it was not at all necessary that there should be understatement of consideration in respect of the transfer and once it was found that the fair market value of the property as on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15% of the value so declared, Section 52 sub-section (2) was straightway attracted and the fair market value of the property as on the date of the transfer was liable to be taken as the full value of the consideration for the transfer. The writ petition was, accordingly, dismissed and the order of reassessment was sustained by the majority decision of the Full Bench. Hence the matter went to the Supreme Court at the instance of the assessee with certificate obtained from the High Court. 25. It will be noticed from the above statement of facts that the principal question that arose for determination in the appeal before the Supreme Court turned on the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer. (2) Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent of the value declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer. 27. There was a marginal note to Section 52 which reads: "Consideration for transfer in cases of understatement". It may be pointed out that originally when the Act came to be enacted, Section 52 consisted of only one provision which was quoted above and numbered as sub-sec. (1) and it was by Section 13 of the Finance Act 1964 that sub-section (2) was added in that section with effect from 1st April 1964. 28. Now on these provisions, the question that arose was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances was of the view that if subsection (2) was literally construed as applying even to cases where the full value of the consideration in respect of the transfer was correctly declared or disclosed by the assessee and there was no understatement of the consideration, it would result in an amount being taxed which had neither accrued to the assessee nor been received by him and which from no view point could be rationally considered as capital gains or any other type of income. According to the Apex Court, it was a well-settled rule of interpretation that the Court should as far as possible avoid that construction which attributed irrationality to the legislature. Besides, under Entry 82 in List I of the Seventh Schedule to the Constitution which deals with "Taxes on income" and under which the Income-tax Act, 1961 had been enacted, Parliament could not "choose to tax as income an item which in no rational sense could be regarded as a citizen's income or even receipt. Subsection (2) would, therefore, on the construction of the Revenue, go outside the legislative power of Parliament, and it would not be possible to justify it even as an incidental or ancillary provision or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mysore Minerals Ltd. vs. Commissioner of Income-tax (Supra), and Manish Maheshwari vs. Asst. Commissioner of Income-tax Anr. Indore Construction P. Ltd. vs. Commissioner of Income-tax (supra), the Supreme Court reiterated the well-settled proposition of law that in interpreting a taxing statute, if two views are possible, the one favourable to the assessee should be preferred. In the case before us, the only view possible is that the assessee has sold or otherwise transferred its plant and machinery in favour of the third party and thereby attracted the provision of Section 32A(5) of the Act. Thus, those two decisions are not helpful to the appellant in any way. 33. In the case of Bajaj Tempo Ltd. vs. Commissioner of Income-tax (supra), the question before the Supreme Court was whether the assessee was entitled to claim partial exemption from payment of tax under Section 15C of Income-tax Act of 1922 on profits and gains derived from an industrial undertaking established in a building taken on lease used previously for other business. The facts of the said case was that M/s. Bachhraj Trading Corporation ('Corporation'), incorporated on 29th September 1945, carried on busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking premises on lease could not be held to amount to transfer of the building as the building in which the undertaking was set up was not purchased but taken on lease only. The appellate authority held that since it was admitted that the value of the building could not be included in the capital computation for the purposes of Section 15C the value of which would be negligible as compared to the value of the assets installed, the assessee was entitled to claim the benefit. In further appeal the Income-tax Appellate Tribunal agreed with the order of the appellate authority. It rejected the contention, advanced on behalf of the revenue, that since the premises in question were earlier used for the purpose of business the assessee was disentitled from claiming the benefit as the 'newly established undertaking must also refer to a building previously used by the assessee himself in any other business'. It was further of opinion that lease could not be held to be transfer. The tribunal held that an industrial undertaking to be covered in the mischief of Clause (i) of subsection (2) of Section 15C should have been 'formed' by transfer of building, plant or machinery, which was substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiry and the assessee was precluded from claiming any benefit. Words of a statute are undoubtedly the best guide. But if their meaning gets clouded then the courts are required to clear the haze. Sub-section (2) advances the objective of sub-section (1) by including in it every undertaking except if it is covered by clause (i) for which it is necessary that it should not be formed by transfer of building or machinery. The restriction or denial of benefit arises not by transfer of building or material to the new company but that it should not be formed by such transfer. This is the key to the interpretation. The formation should not be by such transfer. The emphasis is on formation not on use. Therefore it is not every transfer of building or material but the one which can be held to have resulted in formation of the undertaking. In Textile Machinery Corporation Ltd. v. Commr. of Income-tax, West Bengal, (1977) 107 ITR 195: (AIR 1977 SC 11 34), this Court while interpreting Section 15C observed (para 16 of AIR): "The true test, is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as void. According to the said decision, the same approach holds good while ascertaining the intent and purpose of an enactment or its scope and application. In the case before us, within the narrow compass of Section 260A of the Act, there is no scope of declaring a provision of the statute as ultra vires the Constitution. On the other hand, the said decision goes against the contention of Dr. Pal as in the case before us, the intention of the legislature is in no uncertain term clear and it is not even a case of ironing out a part of the statute to uphold the same. Thus, the said decision is irrelevant in the facts of the present case. 38. In the case of CIT vs. Electric Control Gear Manufacturing Co. (supra), the assessee was a partnership concern consisting of 13 partners. On March 31, 1066 it entered into an agreement whereby it transferred the entire assets of business together with liabilities as a going concern to a limited company, styled as M/s Electric Control Gear Pvt. Ltd. for a consideration of Rs. 8 lakh. The erstwhile partners of the assessee firm were allotted the shares of the same value in their profit-sharing proportion. The Income Tax Officer held that dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice and the written down value. By relying upon the said decision, Dr. Pal tried to convince us that as in this case, the entire division was sold as a going concern and no special price was fixed for plant and machinery, we should presume that there has not been any sale or transfer of the those plants and machineries so as to attack the provision of Section 32A(5) of the Act. We are afraid, we are not impressed by such submission. In the case before us, in order to invoke the provision of Section 32A(5) of the Act, all that are to be established are that a) the allowance in respect of the plant and machinery must have been enjoyed by an assessee in his Income-tax assessment, b) the selfsame plant and machinery must have been sold or otherwise transferred by the assessee to any other person and c) such sale or otherwise transfer must have taken place before the expiry of eight years from the end of the previous year in which it was acquired or installed. Thus, the exact amount of price of plants and machinery is insignificant for the purpose of giving effect to Section 32A (5) of the Act unlike the provisions of Section 41(2) of the Act. 39. We, therefore, find that the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regoing reasons, we hold that though Rule 3 of the Rules cannot be held arbitrary, discriminatory or ultra vires Article 14 of the Constitution nor inconsistent with the parent Act [Section 17(2)(ii)], it is in the nature of machinery provision and applies only to the cases of concession in the matter of rent respecting any accommodation provided by an employer to his employees. Whether or not Parliament could have in the exercise of legislative power created a deeming fiction as to concession in the matter of rent in certain circumstances (for which we express no final opinion), no such deeming provision is found in the Act. It is, therefore, open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employees and the case is not covered by Section 17(2)(ii) of the Act. 41. We are unable to appreciate how the above decision can be of any help to the appellant in the facts of the present case. 42. We thus find that the decisions cited by Dr. Pal do not assist his client. 43. On consideration of the entire materials on records, we consequently answer the first two questions formulated in both the appeals in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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