TMI Blog2002 (10) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred credit which is payable in instalments, forming part of the instalment is concerned, it is not necessary for us to deal with the said aspect as such interest component will be governed by the provisions of section 36(1)(iii) or Explanation 8 under section 43(1) of the Act. - - - - - Dated:- 19-10-2002 - Judge(s) : A. R. DAVE. JUDGMENT M.S. SHAH J.-This reference has been placed before the Full Bench pursuant to the order dated March 13, 2001, passed by a Division Bench of this court taking the view that the decision of another Division Bench of this court in CIT v. Windsor Foods Ltd. [1999] 235 ITR 249, dealing with the question of interplay between the provisions of section 32A (investment allowance) and those of section 43A (relating to fluctuation in foreign exchange rate) of the Income-tax Act, 1961 ("the Act"), requires reconsideration. The assessee is a public limited company manufacturing fertilizers and other products. The assessee entered into a contract for purchasing plant and machineries (the assets) from a Japanese company on deferred credit basis. Though the year of purchase is not clear from the paper book, the assessee was required to make payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery or plant is first put to use later than the previous year immediately succeeding the previous year of its installation, the right to claim the investment allowance would be completely lost. Therefore, the actual cost of machinery or plant in the previous year in which it is installed and first put to use, would be the basis of working out the investment allowance at an amount equal to 25 per cent. of that actual cost. The amount of investment allowance so worked out would get crystallised in that year and thereafter the only question that remains is whether the investment allowance which is, so worked out, should be actually allowed by way of deduction. The deduction is to be allowed in accordance with and subject to the provisions of section 32A. Since the investment allowance was already worked out on the basis of the actual cost, that quantified allowance cannot be varied by giving back effect to subsequent alteration in the exchange rate in the subsequent years and hence there can arise no question of working out any additional investment allowance in any subsequent year in which the fluctuation takes place. The aforesaid decision was, therefore, clearly in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the scheme unworkable beyond eight years from the date of installation. If the fluctuation takes place in the 12th year and even then if the assessee were to be given the benefit of additional investment allowance on the addition to the cost arising from the fluctuation, the assessee would still be required to comply with the conditions imposed by section 32A to purchase new assets by completion of the 10th year from the date of installation of the original asset. Hence, the scheme would be unworkable. The Legislature did not intend to make discrimination between the assets purchased from the local market and those purchased from abroad on credit. If the assessee's interpretation were to be accepted, the purchasers from abroad on credit would get the benefit of investment allowance even after completion of eight years whereas the purchasers from the local market would get it only for eight years from the year of installation and first use, because in their case section 43A would not be applicable. (iv) In Arvind Mills Ltd. v. CIT [1978] 112 ITR 64, this court had held that the benefit of fluctuation in foreign currency in the year in which the plant and machinery is purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the words "notwithstanding anything contained in section 43A of the Act". Hence, section 43A overrides the limitations, if any, imposed by section 32A, which are inconsistent with the benefit granted by section 43A. (iii) Since any additional liability of the assessee on account of increase in the foreign exchange rate adds to the actual cost of the asset as defined by section 43(1), the Legislature intended to confer the benefit under section 43A(1) till the payment of the last instalment, even if such fluctuation in the foreign exchange rate and the payment of the last instalment is beyond eight or even beyond ten years from the date of installation of the asset and its first user. Full effect must be given to the non obstante clause in sub-section (1) of section 43A which confers this benefit, either by projecting the additional cost in the cost of acquisition in the year of installation and first user or by calculating the eight year period prescribed in section 32A(3) to commence from the expiry of each year in which the fluctuation takes place fill the date of last instalment. (iv) The observations of the Supreme Court in CIT v. Arvind Mills Ltd. [1992] 193 ITR 255 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of machinery entitled to investment allowance in the year in which the additional liability was incurred because of the fluctuation in the exchange rate, irrespective of the fact that the assets were installed in an earlier year. Before proceeding further, it is necessary to refer to the following important fact which was noted by the court in Windsor Foods Ltd.'s case [1999] 235 ITR 249, 255 (Guj): "There is no dispute about the fact that the machinery and plant in question were installed and put to use by the assessee many years ago and that the investment allowance which is now sought to be claimed in view of the additional liability due to fluctuation in the foreign exchange rate is not on the basis of any carried forward investment allowance. In other words, whatever investment allowance was due to be made to the assessee in that past relevant previous year when the machinery or plant were installed and put to use, were all claimed and deductions were allowed at the relevant time. The claim is, therefore, confined to the additional liability of Rs. 80,414 which had arisen in the previous year of 1979-80 due to the change in the rate of exchange in repayment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the condition that "No portion of the investment allowance shall be carried forward for more than eight assessment years immediately succeeding the assessment year relevant to" the year of installation. (sub-section (3)) In other words, the investment allowance can be carried forward to maximum eight assessment years immediately after the expiry of the assessment year relevant to the year of installation. III. Conditions: The investment allowance shall be allowed only if the following conditions are fulfilled, namely: (i) the prescribed particulars are furnished by the assessee in respect of the asset in question, (sub-section 4(i)) (ia) the asset is not sold or otherwise transferred by the assessee for a period of eight years from the end of the year of installation, (sub-section 5(a)) (ii) the assessee must create a reserve (investment allowance reserve account) to the extent of 75 per cent. of investment allowance availed. From out of such reserves, the assessee must acquire another asset within ten years from the date of installation of the original asset on which the investment allowance was claimed. (sub-section 4(ii)) (The debiting of this reserve to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It is provided under section 43A(1) that where there is fluctuation in the exchange rate which increases (or reduces) the liability to pay the cost of the asset after it is acquired from a foreign country on credit, liability so increased (or reduced) during the previous year is to be added to (or deducted from) the actual cost of the asset as defined in section 43(1) of the Act. Do variations in foreign exchange rate in subsequent year project back into actual cost in the year of installation? After considering the provisions of sections 43 and 43A(1), the Division Bench in Windsor Foods Ltd.'s case [1999] 235 ITR 249 (Guj) observed that the extent of addition to (or reduction in) the actual cost of the asset is directly connected with the liability outstanding immediately prior to the date of fluctuation in the exchange rate. Thus, if on such date only a part of the cost of the acquired asset is outstanding for payment, the exchange rate fluctuation will be worked out in the context of only that part of the outstanding payment and the addition to the actual cost will be made accordingly in that previous year in which the change has taken place. There is, therefore, no scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the change occurs and the actual cost is therefore adjusted, which will have impact only in respect of the allowances and deductions which are permissible in that previous year. Since the investment allowance was already worked out on the basis of the actual cost and it got capitalised in the year of installation and first user and that quantified allowance cannot be varied by giving a back effect to such subsequent alteration in the exchange rate, there can arise no question of working out any additional investment allowance in such subsequent year in which the fluctuation takes place." On the basis of the above conclusion, the Division Bench held that the Tribunal was in error in holding that the assessee was entitled to the deduction of investment allowance on the amount of Rs. 80,414 being the additional liability that arose due to fluctuation in foreign exchange rate in respect of the payments of outstanding instalments of machinery in a subsequent year. Our perspective: What we fail to appreciate is as to why the fluctuation in the foreign exchange rate cannot have any impact by way of addition to (or reduction in) the liability of the assessee to the cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of such cases the cost of such acquisition is not paid by the assessee himself in full in the same previous year in which the asset is acquired/installed and first put to use. Ordinarily, the payment of the cost of the asset is made either by taking credit from the supplier abroad or by taking a loan from banks/financial institutions which is repayable in foreign currency in instalments over a number of years. Hence, in such cases, the fluctuations in the rate of foreign exchange would (more often than not) increase the liability of the assessee periodically. If such fluctuations in foreign exchange are not taken into account, the assessee would not get the benefits of depreciation and such other allowances on the basis of the actual cost of acquisition of the plant and machinery, but he would get such benefits only on the basis of the cost of the asset in terms of the Indian currency as per the foreign exchange rate at the time of acquiring the asset or at the most as per the foreign exchange rate at the end of the previous year in which the asset is purchased and first put to use. In view of the almost constantly increasing liability of the assessees to pay higher amounts in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to an assessee who is not only prompt in putting the asset to productive use but also to efficient use. In other words, the Legislature expected the assessee to be on its feet and start generating adequate profits within the period of eight years from expiry of the year of installation and first user. May be assessees who acquire assets by purchasing them on a long term loan of 12 or 20 years may find the eight year limit a little too short, but the Legislature in its wisdom introduced that limit in 1976 and made no change thereafter. (iv) Creation of reserves for acquiring another asset: The most important condition imposed by the Legislature on the assessee for availing of investment allowance is that the assessee must create a reserve (investment allowance reserve account) to the extent of 75 per cent. of the investment allowance availed of, out of which the assessee must acquire another asset within ten years from the expiry of the year of installation and first user of the original asset. Here also the legislative intent is clear-the incentive is for one who continues the industrial/professional activity by purchasing another asset within the ten year period. Entrepreneu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see would get the benefit of additional investment allowance only in respect of the increase in the cost in terms of Indian currency for the instalments paid from January 1, 1995, to March 31, 1995, when the exchange rate applicable would be Rs. 34 per dollar, but any subsequent fluctuation in the rate of foreign exchange after March 31, 1995, cannot be taken into account for the purpose of investment allowance, because the cost of acquisition of the asset had to be crystallised by March 31, 1995, which was the last date of the previous year in which the assessee had acquired and installed the asset and first put it to use. Learned counsel for the Revenue, therefore, submitted that the Division Bench has correctly interpreted the provisions of section 32A read with section 43A and that the view taken therein is not required to be changed. Mr. Kureshi for the Revenue further submitted that if the interpretation canvassed by the assessee were to be accepted, the whole scheme of investment allowance under section 32A would be unworkable. Section 32A provides for grant of investment allowance at the rate of 25 per cent. of the cost of the asset subject to various conditions. One of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was installed and first put to use. It could be even in the 20th year in which the last instalment is paid. It is also submitted that if the eight year period specified in sub-section (3) of section 32A is so sacrosanct, it could be computed from the expiry of each year in which the fluctuation in the foreign exchange rate takes place, for the purpose of computing additional cost on which investment allowance would be available. Having heard learned counsel for the parties and also learned counsel for the assessee who also appears in his capacity as counsel for the intervenors, we are of the view that the correct position in law is somewhere in between the extreme stands adopted by learned counsel for the rival parties. For the reasons already indicated in paragraph 13 above we are in respectful agreement with the Division Bench in Windsor Foods Ltd.'s case [1999] 235 ITR 249 (Guj), that the fluctuation in foreign exchange rates subsequent to the date of acquisition cannot relate back to the date of acquisition. However, once the fluctuation takes place, in respect of the liability outstanding on that date, section 43A(1) does come into play. If the contention of the Revenue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r asset (d)-(e) US $ 1 dollar) in Rs. ----------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) ----------------------------------------------------------------------------- 1-4-1996 US $ 1000 36 36,000 34,000 2,000 1-5-1996 US $ 1000 36 36,000 34,000 2,000 1-6-1996 US $ 1000 37 37,000 34,000 3,000 1-7-1996 US $ 1000 37 37,000 34,000 3,000 1-8-1996 US $ 1000 37 37,000 34,000 3,000 1-9-1996 US $ 1000 38 38,000 34,000 4,000 1-10-1961 US $ 1000 38 38,000 34,000 4,000 1-11-1996 US $ 1000 38 38,000 34,000 4,000 1-12-1996 US $ 1000 39 39,000 34,000 5,000 1-1-1997 US $ 1000 40 40,000 34,000 6,000 1-2-1997 US $ 1000 40 40,000 34,000 6,000 1-3-1997 US $ 1000 40 40,000 34,000 6,000 ----------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979-80 19,69,963 The Income-tax Officer had treated it as capital expenditure. This was agitated in appeal against the orders of assessments for 1972-73 and 1975-76. But the Commissioner of Income-tax (Appeals), following the decision of the Tribunal allowed the claim for all the relevant assessment years as business expenditure. Vide order in I.T.R. Nos. 968, 1235 and 2168/Ahd of 1979, dated April 7, 1982, the Tribunal had taken the view that payment of interest on deferred credit facility was allowable as business expenditure. Apex court decision in Arvind Mills: Learned counsel for the Revenue has heavily relied upon the decision of the Supreme Court in CIT v. Arvind Mills Ltd. [1992] 193 ITR 255 in support of his contention that whenever there is any one time allowance like development rebate or investment allowance, the benefit of section 43A is not available for such one time allowance. It is submitted that in the aforesaid decision, the Supreme Court has specifically observed that so far as the development rebate is concerned, it is a one time allowance which has to be allowed in the year in which the machinery/plant has been acquired, insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex court specifically observed that the adjusted actual cost is to be taken as the actual cost for all purposes other than for grant of development rebate. In our view therefore, the decision of the apex court in CIT v. Arvind Mills Ltd. [1992] 193 ITR 255, far from helping the case of the Revenue, supports the case of the assessee on the limited issue that additional investment allowance is allowable if the cost of the asset increases on account of fluctuation in foreign exchange rate in subsequent years. We also find considerable force in the submission of learned counsel for the assessee that sub-section (1) of section 43A also grants the benefit of adjusted cost on account of fluctuation in the foreign exchange rate even in case of some other one time allowances like those for scientific research under section 35(1)(iv) or for acquisition of patent rights under section 35A. For the aforesaid reasons, we are of the view that, with respect, the Division Bench in the Windsor Foods Ltd.'s case [1999] 235 ITR 249 (Guj), did not lay down the correct law in observing that any increase in liability of the assessee on account of foreign exchange fluctuation in any year subsequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the actual cost shall be calculated in terms of foreign currency and not in terms of Indian currency, but this relief is to operate within the parameters of section 32A and other sections granting the deductions and allowances and not beyond them. To this limit extent, we agree with the premise adopted by the Division Bench in Windsor Foods Ltd.'s case [1999] 235 ITR 249 (Guj), that the basic requirements laid down in the relevant provisions of the Act for the eligibility for such allowances and for working out the allowances as also in respect of the previous year/s for which they can be allowed, do not stand altered by sub-section (1) of section 43A. In the case of CIT v. Arvind Mills Ltd. [1992] 193 ITR 255, the Supreme Court was not at all concerned with this controversy, as the fluctuation in the foreign exchange rate had taken place in the year of acquisition/installation itself. For the aforesaid reasons, we also find the considerable substance in the submission of Mr. Kureshi for the Revenue that in the case of an assessee, who has acquired a specified asset from a foreign supplier on deferred payment basis or by taking loan repayable in foreign currency, was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be limited to the purpose for which it was created and should not be extended beyond that legitimate field. In other words, a fiction is not to be extended beyond the purpose for which it is created. The view that we are taking also accords with the cardinal principle of construction of a statute that effort should be made in constructing the different provisions so that each provision will have its play and in the event of any conflict a harmonious construction should be given. As indicated in paragraph 17 hereinabove, we have considered that the object underlying section 43A was to relieve the hardship of the assessee consequent upon the increase in liability of the assessee upon fluctuation in the foreign exchange rates and in paragraph 18 we have also considered the underlying object for granting the incentive of investment allowance to the assessee under section 32A of the Act and the rationale of each of the various terms and conditions for grant of this allowance. We have also considered in paragraph 32 above that section 43A did not and could not have intended to affect, much less dilute, any of the conditions for applicability and operation of section 32A as section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Explanation is not applicable here and the underlined words merely reiterate the words used in sub-section (1) and do not enlarge the maximum eight year period stipulated by sub-section (3) of section 32A. We have also perused the decisions cited by Mr. J.P. Shah in support of his contention that three other High Courts have already taken the view that investment allowance is allowable on the higher actual cost resulting from fluctuation in foreign exchange rates. In CIT v. Century Enka Ltd. [1992] 196 ITR 447, the Calcutta High Court has held as under: "The day-to-day fluctuation in the rate of foreign exchange will not have any bearing on the liability as such. The crucial day is the date of repayment of the loan obtained for the purpose of acquisition of any capital asset. If a capital asset has been acquired by obtaining a loan or by deferred payment of the purchase price, and if, on the date of repayment of the loan or payment of any instalment of purchase price, any additional liability is imposed because of fluctuation in the rate of exchange, the assessee will be entitled to capitalise such liability. It is common knowledge that the rate of exchange fluctuates every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the matter in reference before the Patna High Court. The High Court held in favour of the assessee on the ground that the Legislature was aware of the provisions regarding development rebate while enacting section 32A as section 32A(1)(c) makes specific mention of development rebate, but still the Legislature did not think if fit to mention "investment allowance" in the body of sub-section (2) of section 43A. It is clear from the narration of the facts that this was a case where the claim for additional investment allowance was made within the eight year period, in fact the fluctuation took place in the year of installation or in the very next year. Coming to the decision of the Madras High Court in CIT v. Chengalvarayan Co-operative Sugar Mills Ltd. [2000] 242 ITR 440, there also the assessee had installed the machinery during the previous year relevant to the assessment year 1982-83 and the liability for payment of additional amounts arose on account of fluctuation in foreign exchange rates during the previous year relevant to the assessment year 1983-84. Thus, the claim for additional investment allowance was made in the very next year after the year of installation, i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 249 (Guj), we are of the opinion that such a question was not posed before the Division Bench in Windsor Foods Ltd.'s case [1999] 235 ITR 249 (Guj) in such clear terms as will be clear from the facts in Windsor Foods Ltd.'s case [1999] 235 ITR 249 (Guj) as extracted from page 255 of the reported judgment of this. The machinery and the plant in question were installed and put to use by the assessee many years ago before the respective previous year of 1979-80 in which the fluctuation in foreign exchange rate took place. The Division Bench observed that whatever investment allowance was due to be made to the assessee in that past relevant previous year when the machinery or plant were installed and put to use, were all claimed and deductions were allowed at the relevant time. It is not clear whether the claim in that case was made within a period of eight years or beyond a period of eight years. We have examined this aspect of the matter independently. The definition of "actual cost" contained in section 43(1) of the Act is applicable to all the sections from 28 to 41 which also include section 32A. As per section 43(1), the actual cost means the actual cost of the asset to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired, we overrule the decision of the Division Bench in Windsor Foods Ltd.'s case [1999] 235 ITR 249 (Guj), in so far as the Division Bench held that the amount of investment allowance under section 32A of the Act gets crystallised once and for all in the year of installation and first user and that any fluctuation in the rate of exchange in a subsequent year will not have any impact on the amount of investment allowance allowable to the assessee under section 32A of the Act. II. The correct principles for grant of investment allowance in the context of variations in the rate of foreign exchange are as stated below: (i) In view of the non-obstante clause with which sub-section (1) of section 43A commences, the investment allowance which the assessee acquiring a specified asset from a country outside India on deferred payment basis or by taking a loan repayable in foreign currency is entitled to claim under section 32A of the Act would vary depending on the increase/decrease in the existing liability of the assessee for the cost of acquisition of the asset in question arising from fluctuation in the foreign exchange rate, provided such fluctuation takes place within a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by obtaining a loan or by deferred payment of the purchase price, and if, on the date of repayment of the loan or payment of any instalment of purchase price, any additional liability is imposed because of fluctuation in the rate of exchange, the assessee will be entitled to capitalise such liability (vide CIT v. Century Enka Ltd. [1992] 196 ITR 447 (Cal)). The reference shall now go before the Division Bench for being answered in the light of the opinion given by us. D.A. MEHTA J. (on behalf of himself and A. R. DAVE J.)--Having gone through the judgment of my learned Brother justice M. S. Shah, in view of the reasons which follow hereinafter we record our opinion. The assessee is a public limited company. The company manufactures fertilizers and caprolactum. The assessment years are 1977-78, 1978-79 and 1979-80, the respective accounting periods being the calendar years 1976, 1977 and 1978. The assessee entered into a contract for supply of plant and machinery equipments with Hitachi Zosen of Japan on deferred credit basis. Accordingly, the assessee was required to make payment in instalments over a period of time. The liability for the years under consideration has incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the larger Bench for deciding the reference. The Division Bench of this court in the case of CIT v. Windsor Foods Ltd. [1999] 235 ITR 249 was called upon to decide the following question: " 1. Whether, on the facts and in the circumstances of the case and in law the Tribunal was right in coming to the conclusion that the assessee was entitled to investment allowance on the amount of Rs. 80,414 being the additional liability arising due to fluctuation in foreign exchange rate in respect of the payment of outstanding instalments of machinery?" Thus, as the question itself indicates the additional liability arose due to exchange fluctuation in respect of payment of outstanding instalments. This is what was held in the said case: "The extent of addition (or reduction as the case may be), to the actual cost of the asset is directly connected with the liability outstanding immediately prior to the date of fluctuation in the exchange rate. Thus, if on such date only a part of the cost of the acquired asset is outstanding for payment, the exchange rate fluctuation will be worked out in the context of only that part of the outstanding payment and the addition to the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year in which it arises and the actual cost so revised will be operative in respect of the benefits which are required to be calculated in that previous year. Since the investment allowance was already worked out on the basis of the actual cost and that quantified allowance cannot be varied by giving a back effect to such subsequent alteration in the exchange rate, there can arise no question of working out any additional investment allowance in such subsequent year in which the fluctuation takes place...." Mr. Akil Qureshi, learned standing counsel appearing on behalf of the applicant-Revenue, after referring to various provisions of the Act, submitted that investment allowance under section 32A of the Act is to be allowed either in the year of acquisition/installation of the plant and machinery or when the plant and machinery is first put to use in the immediately succeeding year. That the said deduction is not to be allowed beyond one year and sub-section (3) of section 32A of the Act merely permits carry forward of unabsorbed investment allowance which stands quantified. That investment allowance is permitted to be deducted on fulfilment of various conditions prescribed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the phrase notwithstanding anything contained in section 43A of the Act, hence the latter, i.e., section 32A of the Act, had to yield to section 43A of the Act. It was further contended that section 43A(1) of the Act referred to various other provisions which deal with one time allowances in the capital field like section 35(1)(iv) of the Act or section 35(2)(ia) or section 32(1)(iia) or section 32(1)(vi) of the Act. Therefore, according to him section 43A(1) of the Act was not meant to be operative only in relation to the provisions which deal with recurring deductions. Mr. Shah referred to various decisions of the apex court in support of the proposition that where an incentive is granted the provision should be construed liberally so as to advance that object and an interpretation which would nullify the object of the provision should be avoided. The controversy-whether the provisions of section 32A of the Act prevail over those of section 43A of the Act as canvassed by the Revenue or, section 43A of the Act overrides other provisions including section 32A of the Act as contended by the assessee-shall have to be resolved in the light of well established principles of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward is eight assessment years immediately succeeding the assessment year relevant to the previous year in which the asset was acquired/installed or the immediately succeeding previous year in which the asset was first put to use. Sub-section (4) of section 32A stipulates certain conditions on fulfilment of which the deduction under sub-section (1) shall be allowed and one of the important conditions pertains to creation of investment allowance reserve to the extent of 75 per cent. of the investment allowance to be actually allowed being debited to the profit and loss account of any previous year in respect of which deduction is to be allowed under sub-section (3) or any other previous year (but not being earlier than the year of acquisition/installation or when the asset was first put to use). Explanation under sub-section (4) provides that in the eventuality of the Assessing Officer computing a figure higher than the one on the basis of which the assessee had claimed deduction, an opportunity shall be granted to the assessee to make good the shortfall in the investment allowance reserve account and specifies that such additional reserve can be created in the previous year in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke place only in the year of fluctuation and it does not relate back to the year of acquisition/installation/ first user. One will therefore have to proceed on the footing that the actual cost figure which was quantified earlier than the previous year in which the fluctuation took place, shall have to be modified in the year of fluctuation. It is well-settled that when the asset was purchased at a price, liability to pay the said price arose simultaneously. Merely because, the said liability was to be discharged in instalments, it cannot be stated that the liability did not exist or accrue till the instalments became due and payable. It is this liability which changes on account of fluctuation in the rate of exchange. There is one more aspect. The price of the asset had already been arrived at on the day when the contract of purchase had been entered into; now due to fluctuation in the rate of exchange, in terms of Indian currency the cost in the hands of an assessee shall stand modified. The contention of the Revenue therefore that the figure of actual cost stood quantified once and for all for the purpose of investment allowance in the year of acquisition/installation/first user ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Act, the scope of a non obstante clause has been explained by the Supreme Court in the case of Vishin N. Khanchandani v. Vidya Lachmandas Khanchandani [2000] 246 ITR 306, 314 thus: "There is no doubt that by non obstante clauses the Legislature devises means which are usually applied to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other statute. In other words, such a clause is used to avoid the operation and effect of all contrary provisions. The phrase is equivalent to showing that the Act shall be no impediment to the measure intended. To attract the applicability of the phrase, the whole of the section, the scheme of the Act and the objects and reasons for which such an enactment is made have to be kept in mind." As stated by the apex court in the case of CIT v. Arvind Mills Ltd. [1992] 193 ITR 255 once the non obstante clause operates, even if the position had been different otherwise, it cannot prevail after the introduction of this section, i.e., section 43A(1) of the Act. In the light of this position of law, once section 43A of the Act provides that the figure of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to credit further amounts to the investment allowance reserve account out of the profits and gains of the previous year in which the Assessing Officer serves the assessee with the notice to do so. Thus, on an overall consideration of the scheme of section 32A of the Act, it is abundantly clear that the Legislature did not envisage any relating back to the year of acquisition/installation/first user but has provided for creation of reserve and allowance in a subsequent year being aware of the settled legal position that reopening of accounts is unknown to income-tax. This position is clear from the decision in the case of Arvind Mills Ltd. [1992] 193 ITR 255 (SC) wherein at page 262 of the reports the apex court has referred to two of its earlier decisions in the cases of CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 and CIT v. Swadeshi Cotton and Flour Mills P. Ltd. [1964] 53 ITR 134. In fact, the court has also taken note of the fact that the said principle has subsequently been recognised by the amendment to the Companies Act, 1956. In relation to section 43A of the Act, the apex court has stated thus: "It lays down, firstly, that the increase or decrease in liability should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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