TMI Blog1992 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... , 5333, 5334, 5335, 5336, 1982and 12135 of 1985, 3532 3533, 3534, 3535, 3536 of 1982. 3648 3942, 3943, 3949, 3950, 3951, 3952 of 1988. 5328 5329 of 1981 V. RAMASWAMY., B. P. JEEVAN REDDY. and S. RANGANATHAN. JUDGMENT The judgment of RANGANATHAN and RAMA JJ., was delivered by RANGANATHAN J. JEEVAN REDDY J. delivered a separate concurring judgment. RANGANATHAN J. -The seeds of the present controversy were sown as early as in 1946. It is unfortunate that this matter should be coming up before this court for its consideration nearly five decades later, though it must be pointed out that the issue in its present form is the outcome of an amendment made by the Finance (No. 2) Act, 1980 (hereinafter referred to as the 1980 Act to the Income-tax Act, 1961 (hereinafter referred to as the 1961 Act It is also a curious coincidence that the 1980 Act effected two amendments in the 1961 Act with retrospective effect and the validity of both these provisions has been challenged before the courts. The first was the controversy with regard to the retrospective amendment of section 80J which was settled by this court by its decision in Lohia Machines Ltd. v. Union of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he five consecutive previous years beginning with the year in which the expenditure was incurred, or where the expenditure was incurred prior to the commencement of the business, for each of the five consecutive previous years beginning with the year in which the business was commenced, equal to one-fifth of such expenditure : Provided that no allowance shall be made for any expenditure incurred more than three years before the commencement of the business : Provided further that-. (d) where a deduction is allowed for any previous year under this clause in respect of expenditure represented wholly or partly by any asset, no deduction shall be allowed under clause (vi) or clause (vii) for the same previous year in respect of that asset ; (e) where an asset is used in the business after it ceases to be used for scientific research related to that business, and a claim for an allowance under clause (vi) or clause (vii) is made in respect of that asset, the actual cost to the assessee of the asset shall be treated as reduced by the amount of any deductions allowed under this clause; A cursory and conjoint reading of section 10(2)(vi) and section 10(2)(xiv) suggests tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the expenditure shall be deducted in equal instalments in each of the four immediately succeeding previous years. There is an Explanation which is not relevant for our present purposes. Reading section 35(2) further, it provides in clauses (iv) and (v) as follows : (iv) where a deduction is allowed for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii) and (iii) of subsection (1) of section 32 for the same previous year in respect of that asset ; (v) where the asset mentioned in clause (ii) is used in the business after it ceases to be used for scientific research related to that business, depreciation shall be admissible under clauses (i), (ii) and (iii) of subsection (1) of section 32. Reference must also be made to Explanation 1 to section 43(1) in this context. It read as follows at the relevant time : Explanation 1. -Where an asset is used in the business after it ceases to be used for scientific research related to that business, and a deduction has to be made under clause (i), clause (ii) or clause (iii) of sub-section (1) or sub-section (lA) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch on the other are two totally different and independent heads of allowances. One is a notional allowance to provide for the wear and tear of a capital asset employed in the business as the years roll by ; the other is an allowance for actual expenditure of a capital nature granted, on the eve of our country's independence, in order to give a fillip to new industrial innovations and the development of indigenous know-how and techniques by proper planning on research and development by various business houses. It is, therefore, suggested that there is nothing absurd in construing the statutes as providing cumulatively for both types of deductions in respect of the same capital asset. The only limitations on this right are the two placed by the statute itself. The first limitation, contained in clause (d) of the proviso to section 10(2)(xiv) and section 35(2)(iv) is that both the deductions cannot be claimed for the same previous year in respect of the same capital asset. The second limitation is found in clause (e) of the proviso to section 10(2)(xiv) and section 35(2)(v) which says that, if a capital asset used for scientific research ceases to be so used but is thereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an asset, no deduction shall be allowed under clauses (i), (ii), (iia), (iii) and (vi) of sub-section (1) or under sub-section (lA) of section 32 for the same or any other previous year in respect of that asset. (emphasis added ). The Finance (No. 2) Act made this amendment retrospective with effect from April 1, 1962, that is, the date of the commencement of the 1961 Act. This amendment is, undoubtedly, far-reaching in its effect. It will result in completion of the pending assessments of several years on the footing of the new provision. It will also involve reopening or rectification of completed assessments of earlier years, to the extent permissible under the provisions of sections 148 and 154, in cases where assessees had been granted double allowance accepting their contention at the time of the original assessments. The effect will be not for one assessment year but for a number of assessment years in succession. Painting a very grim picture of the consequences of giving full retrospective effect to the amendment, the assessees say that it will impose unexpected and impossible burden on them over the years, jeopardise their solvency and lay them open to action by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as so far-fetched that it never received the approval of the higher appellate authorities. It was suggested that the appeals by assessees against the disallowance invariably succeeded and it was the Department that had to move the High Court on reference and the first of which references came up before the Karnataka High Court in CIT v. Indian Telephone Industries Ltd. [1980] 126 ITR 548, and was answered against the Department. On the basis of such allegations, the petitioners attempted to make out that the Department's interpretation was patently untenable and that the 1980 amendment is not in the nature of a statutory clarification of an ambiguity but a totally new and fresh imposition sought to be unjustifiably given retrospective effect. But, as Sri B. B. Ahuja has pointed out, on the basis of the averments of the petitioner in one of the cases, viz., Writ Petition No. 1153 of 1981, the impression sought to be created by the petitioners does not accord with the correct facts. The position in the case is available only as it stood at the time when the writ petition and the counter-affidavit were filed and subsequent developments are not known. Nevertheless, the picture t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd was untenable. Some of the reported decisions also show that there was a live controversy and that references have been made to High Courts both at the instance of the assessees (see Alkali and Chemical Corporation of India Ltd. v. CIT [1986] 161 ITR 820 (Cal) and CIT v. Indian Explosives Ltd. [1991] 192 ITR 144 (Cal)), as well as at the instance of the Revenue (see CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 936 (Kar) ; CIT v. Mahindra Sintered Products Ltd. [1986] 161 ITR 692 (Bom) and Warner Hindustan Ltd. v. CIT [1988] 171 ITR 224 (AP)). The petitioner's contention that, under the pre-amended provisions, depreciation on such assets was recognised all round as clearly allowable, is therefore, rejected. We have dealt with this aspect only to meet an aspect that was urged. What is really important is the true and correct interpretation of those provisions, not what someone thought of it then and to this aspect we shall now turn. The second aspect of the first of the three questions posed earlier for our consideration is the legal or interpretational aspect of the provisions as they stood prior to the 1980 amendment. Under the provisions of the statute as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent from the language used in various other provisions of the Act which, in like context of possible double allowances, emphatically rule out deductions in respect of the same expense or exemptions in respect of the same income under two different provisions for the same or even any other assessment year : See, for example, sections 20(2), 35B(2), 35C(2), 35CC(4), 35CCA(3), 35CCB(3), 35D(2)(b), 35E(8), 80GGA(4), 80HH(9A), 80HHA(7) and 80HHB(5) and (iv) When the relevant provisions say that depreciation shall not be allowed in certain previous years, it permits a disallowance only in those previous years and means, by necessary implication, that it shall be allowed in other years, if otherwise eligible, on the language of the provision for depreciation. There is an apparent plausibility about these arguments, particularly in the context of the alleged departure in the language used in section 10(2)(xiv) from that employed in section 20 of the U. K. Finance Act, 1944. We may, however, point out that the last few underlined words of the English statute show that there is really no difference between the English and Indian Acts ; the former also in terms prohibits depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure, one will easily see the necessity for the limitation imposed by the quoted words. For, in this view, where the capital asset is one of the nature specified, the assessee can get only one of the two allowances in question but not both. Then a question would arise and might create a difficulty : in that event, which of the two allowances should the assessee be granted -that which the assessee chooses or that which the Assessing Officer might prefer ? It is necessary for the statute to define this and this is what has been done by the rider in clause (d) of the proviso to section 10(2)(xiv)/section 35(2)(iv). It mandates that the assessee should, in such a case, be granted the special allowance for scientific research and not the routine and annual one for depreciation. Clause (d) of the proviso to section 10(2)(xiv) and section 35(2)(iv) thus fall into place as an appropriate and necessary provision. The provision contained in clause (e) of the proviso to section 10(2)(xiv) of the 1922 Act, re-enacted in the Explanation to section 43(1) of the 1961 Act, also reinforces this line of approach. It provides that the extent of capital expenditure written off under the second of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 32. If and to the extent that there is any anomaly or contrary view possible on a construction of section 35, we recommend that the law should be clarified to provide that no depreciation under section 32 shall be allowable in respect of capital expenditure for scientific research qualifying for deduction under section 35. For the reasons discussed above, we are of the view that, even before the 1980 amendment, the Act did not permit a deduction for depreciation in respect of the cost of a capital asset acquired for purposes of scientific research to the extent such cost has been written off under section 10(2)(xiv)/section 35(1) and (2). Prior to 1968, such assets qualified for an allowance of one-fifth of the cost of the asset in five previous years starting with that of its acquisition and during these years the assessee could not get any depreciation in relation thereto. In respect of assets acquired in the previous year relevant to the assessment year 1968-69 and thereafter, their cost was written off in the previous year of acquisition and no depreciation could be allowed in that year. This is clear from the statute. Equally, it is not envisaged, and indeed, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by us that was successfully urged before the High Court by the assessees. But we are unable to accept this argument or conclusion. In our view, the first question has to be answered by saying that the pre-1980 provisions were capable of only one interpretation but that was as urged on behalf of the Revenue. The 1980 amendment has effected no change at all in the provision except to set out more clearly and categorically what the provision said even earlier. In this view, the second and third questions earlier posed do not arise. For the reasons discussed above, these writ petitions are dismissed. We, however, make no order as to costs. B. P. JEEVAN REEDY J. -I agree with my learned brother Ranganathan J., that these writ petitions should fall. Having regard to the nature and significance of the question raised herein, however, I felt impelled to say a few words. The challenge in this batch of writ petitions is to the retrospective operation given to the amended clause (iv) of sub-section (2) of section 35 of the Income-tax Act, 1961, by the Finance (No. 2) Act, 1980. The said Finance Act added the words or any other in the said clause and gave it retrospective effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation under clauses (vi) and/or (vii) of the same sub-section was excluded. In the Income-tax Act, 1961, a similar provision was made in section 35. Clause (iv) of sub-section (1) of section 35 provided for deduction of expenditure of a capital nature incurred on scientific research related to the business carried on by the assessee. Sub-section (2) of section 35 set out the manner in which and the terms subject to which the deduction was to be allowed. As enacted in 1961, sub-section (2) provided, as was done by clause (xiv) of section 10(2) of the 1922 Act -that the said deduction shall be allowed in equal measure in five consecutive previous years, commencing from the previous year in which the expenditure was incurred. In the year 1967, however, sub-section (2) was amended, providing for full deduction of the expenditure in the very previous year in which such expenditure was incurred. Clause (iv) of sub-section (2), however, remained unchanged. Clause (iv) declares that where a deduction is allowed for any previous year under the said section in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii) and (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to provide an additional inducement over and above the deduction on account of depreciation. Considerations of equity have no place in the interpretation of taxing enactments, they say further. I find it difficult to agree with the reasoning of the assessees. Acceding to it would amount to placing an unreasonable interpretation upon the relevant provisions and to negating the I intention of Parliament. I find it difficult to agree that the Indian Legislature -as also Parliament -made a conscious departure from the English Amendment with the idea of providing an additional benefit to induce the Indian assessees to invest more in scientific research. I find the argument rather convoluted. If the intention of the Legislature/Parliament was to provide more than 100 per cent. deduction, they would have said so, as they have done in cases where they provided for what is called weighted deduction . (For example, see section 35B of the 1961 Act). A double deduction cannot be a matter of inference, it must be provided for in clear and express language, regard being had to its unusual nature and its serious impact on the revenues of the State. Now, what does clause (iv) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of sub- section (1) of section 32 in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under clause (iv) of sub-section (1) of section 35 or under any corresponding provision of the Indian Income tax Act, 1922 (11 of 1922). Now what does this mean ? Take a case where the asset of a like nature acquired prior to April 1, 1967, is diverted to other purposes after the expiry of two previous years ; the actual cost of the asset to the assessee in such a case would be 60% of the original cost. And if it is diverted after five years, it would be nil which means that the assessee cannot claim any depreciation on it at all. Counsel for the assessee explains this provision saying that it was meant to prevent diversion of such an asset from scientific research to the assessee's business purposes. The Explanation does not stand scrutiny. The fallacy in the Explanation can be demonstrated by taking the very same illustration where the asset is acquired prior to April 1, 1967. Suppose such an asset is diverted after the first two previous years, its actual cost to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the provisions. The question of its constitutionality, therefore, does not arise. Though purporting to be retrospective, it does not take away any rights which had legally vested in the assessees. The Bombay High Court has struck down the said amendment of clause (iv) in CIT v. Hico Products Pvt. Ltd. [1991] 187 ITR 517. The approach of the Bombay High Court is at variance with ours. It has practically accepted the line of reasoning put forward by the assessees which has not commended itself to us. Among other reasons, the High Court was impressed by the difference in the language employed in section 10(2)(xiv)(d) and the one employed in section 20(4) of the U. K. Finance Act, which reads as follows : (4) Where a deduction is allowed for any year under this or the last preceding section in respect of expenditure represented wholly or partly by any assets, no deduction shall be allowed under any provisions of the Income-tax Act other than this part of this Act in respect of wear and tear, obsolescence, depreciation or exceptional depreciation of these assets for any year of assessment during any part of which they are used by the person carrying on the trade for scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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