Pakistan Case LawCOMMISSIONER OF INCOME-TAX Versus UNITED CARBON INDIA LTD.
This tax reference matter arises from two questions concerning depreciation, development rebate, and the computation of deficiency under the Income-tax Act. The core legal questions involve whether the assessee was entitled to depreciation and development rebate on capitalised interest, and how to compute the deficiency under section 80-J(3) read with the relevant rules. The court held, based on established precedent, that the assessee was entitled to the depreciation and development rebate in respect of the capitalised interest, and similarly agreed with the Karnataka High Court view regarding the computation of deficiency under rule 19-A instead of rule 19. The court answered both questions in the affirmative and in favour of the assessee. The key principle laid down is that capitalised interest forms part of the actual cost of assets for the purpose of depreciation and development rebate, and deficiency under section 80-J(3) of the Income-tax Act is to be computed as per rule 19-A of the Income-tax Rules, 1962.
- Whether the assessee was entitled to depreciation and development rebate in respect of the interest capitalised for the assessment years under consideration?
- Whether the assessee was entitled to compute the deficiency under section 80-J(3) as per rule 19-A of the Income-tax Rules, 1962, instead of rule 19?
- Section 84, Income-tax Act
- Section 80-J, Income-tax Act
- Section 80-J(3), Income-tax Act
- Rule 19, Income-tax Rules 1962
- Rule 19-A, Income-tax Rules 1962
S. P. BHARUCHA, J .‑‑Two questions arise in this reference at the instance of the Revenue. They read thus:
Assessment years 1967‑68 and 1968‑69:
"(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to depreciation and development rebate in respect of the interest capitalised of Rs. 7,82,379 for each of the assessment years under consideration?"
Assessment year 1967‑68:
"(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to compute the `deficiency' under section 80‑J(3) as per rule 19‑A of the Income‑tax Rules, 1962, instead of rule 19?"
Counsel are agreed that the first question must be answered in the affirmative and in favour of the assessee in the light of the Supreme Court judgment in Challapalli Sugars Ltd. v. CIT (1975) 98 I.T.R. 167, and this Court's judgment in C.I.T. v. Borosil Glass Works Ltd. (1980) 161 I.T.R. 286. The question is so answered.
In regard to the second question, Mr. Bhatia, learned counsel for the Revenue, stated, to begin with, that it was covered by the judgment of this Court in CIT v. Hindustan Polymers Ltd. (1985) 156 ITR 860, and that the question should be answered in the affirmative and in favour of the assessee. Mr. Dastur, learned counsel for the assessee, fairly pointed out that the Hindustan Polymers Ltd.'s Judgment (1985) 156 ITR 860, did not seem to be applicable. What he said applicable was the judgment in Kirloskar Asea Ltd. v. CIT (1979) 118 ITR 703 (Kar). Mr. Bhatia then stated that Kirloskar Asea Ltd.'s was the covering judgment. Since we found this was a judgment of the Karnataka High Court. we invited Mr. Bhatia to develop the argument. We told him that it could be said to us that a judgment covered a question if it was a judgment of the Supreme Court or of this Court. Mr. Bhatia then stated that since this Court had taken the view that, in tax matters, the judgment of any High Court would be treated as. binding, Kirloskar Asea Ltd. s judgment (1979) 118. ITR 703 (Kar) was binding.
No opportunity having been given to us by the Revenue to determine how the question should be answered, we had to turn to the assessee for assistance.
Mr. Dastur, learned counsel for the assessee, took us through the provisions of section 84, which was deleted with effect from April 1, 1968, and the provisions of section 80‑J then came into operation. He also took us through the provisions of rule 19, applicable for calculation under section 84 and rule 19‑A applicable for calculation under section 80‑J. We then went through Kirloskar Asea Ltd.'s judgment (1979) 118 ITR 703 (Kar) and respectfully agree therewith.
Accordingly, we answer the second question in the affirmative and in favour of the assessee. No order as to costs.
Z.S./750/T Reference answered.
Judges on this bench
- S. P. Bharucha179 judgments
- T. D. Sugla32 judgments