The Commissioner of Income-tax-II, Coimbatore v. Lakshmi Machine Works Ltd
[Citation -2020-LL-0128-35]

Citation 2020-LL-0128-35
Appellant Name The Commissioner of Income-tax-II, Coimbatore
Respondent Name Lakshmi Machine Works Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 28/01/2020
Assessment Year 2005-06
Judgment View Judgment
Keyword Tags erroneous and prejudicial • depreciation on wind mill • interests of the revenue • additional depreciation • unabsorbed depreciation • industrial undertaking • industrial company • public interest • deeming fiction • satisfaction • carry forward of loss
Bot Summary: In Judgment in TCA No.1199/2010 dated 28.01.2020 3/12 Mills and 3.Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee is entitled to additional depreciation on the purchase of Wind Mills under Section 32(1)(iia) of the Income-tax Act, 1961 even though the main business of the assessee is not producing or generating of electricity 2.Both the learned counsels fairly submitted that both the issues viz. In Judgment in TCA No.1199/2010 dated 28.01.2020 4/12 of the BIFR refusing to grant the benefit of the provisions of Section 71 of the Income Tax Act to the appellant upon amalgamation and sanction of a scheme by the BIFR. 14. In Judgment in TCA No.1199/2010 dated 28.01.2020 7/12 Act being the same as those required for a declaration under Section 72A o f the Income Tax Act, the BIFR could not have sanctioned the scheme of amalgamation of Sharp Edge with the appellant but declined to make the declaration under Section 72A o f the Income Tax Act with regard to t hat amalgamation' 18. The jurisdiction exercised by the CIT to correct the alleged error in assessment was in terms of section 263 of the Act. 8.1.It is pertinent to note that the Circular no.281 dated 29.11.1979, pre-dates the insertion of the relevant provision, i.e., second clause to Section 32. As far as application of Section 32(1)(iia) of the Act, is concerned, what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after 31st March 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Is totally not germane to the specific provision contained in Section 32(1)(iia) of the Act.


Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 1/12 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.01.2020 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case Appeal No.1199 of 2010 Commissioner of Income Tax-II Coimbatore. ... Appellant Vs. M/s.Lakshmi Machine Works Ltd., Perianaickenpalayam, Coimbatore - 641 020. PAN AAACL5244N ... Respondent Appeal filed under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal 'C' Bench, Chennai dated 04.06.2010 passed in I.T.A.No.1926/Mds/2008. For Appellant : Mr.T.R.Senthil Kumar Senior Standing Counsel For Respondent : Mr.Venkat Narayanan For Subbaraya Aiyar Padmanabhan http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 2/12 JUDGMENT (Judgment of Court was delivered by DR.VINEET KOTHARI, J.) Revenue has preferred this Appeal under Section 260A of Income Tax Act, 1961 (in short 'Act') aggrieved by order of learned Income Tax Appellate Tribunal dated 04.06.2010 for Assessment year 2005-06. following questions of law were admitted by Coordinate Bench of this Court vide order dated 01.02.2011: "1.Whether on facts and in circumstances of case, Income-tax Appellate Tribunal was right in law in quashing order passed under section 263 of Income Tax Act, 1961, even though Assessing Officer is allowed claim of carried forward of losses under section 72A, based on incorrect assumption of facts is valid? 2.Whether on facts and in circumstances of case, Income-tax Appellate Tribunal was right in law in holding that Commissioner of Income-tax has not given show cause notice in respect of issue of additional depreciation on Wind Mill and consequently direction given by Commissioner of Income-tax on this issue is void on account of lack of jurisdiction, even though assessee furnishing his reply to show cause notice, has included in respect of additional depreciation on Wind http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 3/12 Mills? and 3.Whether on facts and in circumstances of case, Income-tax Appellate Tribunal was right in law in holding that assessee is entitled to additional depreciation on purchase of Wind Mills under Section 32(1)(iia) of Income-tax Act, 1961 even though main business of assessee is not producing or generating of electricity?" 2.Both learned counsels fairly submitted that both issues viz., powers under Section 263 of Act and additional depreciation of Wind Mill are now covered by two separate judgments of this Court against Revenue. In case of Commissioner of Income Tax-II Vs. Lakshmi Machine Works Ltd., Coimbatore [in T.C.A.No.747 of 2009 dated 13.02.2019] wherein Coordinate Bench of this Court (in which one of us, Dr.Vineet Kothari, J. was Member] held as under: "13. provisions of Section 32(2) of SICA as well as 72A of Act and interplay thereof came to be considered by Supreme Court in case of Indian Shaving Products Ltd (supra). Bench was considering appeal against order of Appellate Authority for Industrial and Financial Reconstruction upholding order http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 4/12 of BIFR refusing to grant benefit of provisions of Section 71 (a) of Income Tax Act to appellant upon amalgamation and sanction of scheme by BIFR. 14. After noting that that BIFR had been enacted in public interest, with view to secure timely detection of sick and potentially sick companies owning industrial undertakings and to determine preventive, ameliorative, remedial and other measures required to be taken with respect to such companies, Bench considered various provisions of SICA, in specific Section 32(2). 15. Reference is made to judgement of Supreme Court in case of Commissioner of Income Tax and others vs. Mahindra and Mahindra and Others (144 ITR 225) that considered challenge to Section 72 A. following paragraph from judgement in Mahindra s case has been particularly noted and extracted: Before undertaking scrutiny of these reasons for ultimately deciding whether impugned conclusion of Specified Authority and Central Government is liable to be interfered with or not it will be useful to indicate briefly object with which this new provision of s. 72A was introduced in Act as it will throw light on what was mischief or situation that was intended to be remedied by its introduction as also true concept of financial Don- viability. From budget speech of Finance Minister, Notes on Clauses of Finance Bill (No. 2) of 1977 and Memorandum explaining to provisions of said Bill it will appear clear that sickness among industrial undertaking was regarded as matter of grave national concern inasmuch as closure of any sizable manufacturing unit in any industry entailed social costs in terms of loss of production and unemployment as also waste of valuable capital assets, and experience had shown that taking over of such sick units by Government was not always satisfactory or economical solution; it was felt that more effective method would be to facilitate amalgamation of sick industrial units with sound ones by providing incentives and removing impediments in way of such amalgamation which would not merely http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 5/12 relieve Government of uneconomical burden of taking over and running sick units but save Government from social costs in terms of loss of production and unemployment. With such objective in view, in order to facilitate merger of sick industrial units with sound ones and as and by way of offering incentive in that behalf s. 72A was introduced in Act where under by deeming fiction accumulated loss or unabsorbed depreciation of amalgamating company is treated to be loss or, as case may be, allowance for depreciation of amalgamated company in previous year in which amalgamation was effected; but amalgamated company, although successor in interest, would be entitled to carry forward and set-off accumulated loss and unabsorbed depreciation of amalgamating company only where amalgamating company was not, immediately before such amalgamation, financially viable and amalgamation was in public interest. expression "financial non- viability" had not been defined in Act but Finance Minister's speech, notes on Clauses of Bill and Memorandum explaining provisions thereof make it clear that financial non- viability of undertaking has been equated with 'sickness' of such undertaking and obviously in context of its revival by sound undertaking sickness must be of temporary character and not any basic or permanent sickness. undertaking which is basically or potentially non-viable will ordinarily be incapable of revival and would face closure; in other words, financial non-viability spoken of by section must refer to sickness brought about by temporary adverse financial circumstances that disables unit to stand and work on its own. This is also made clear by provision contained in cl. (a) of sub-s. (1) which states that financial non-viability of amalgamating company has to be judged by reference to "its liabilities, losses and other relevant facts . 16. above judgment was rendered prior to coming into force of SICA in terms of which BIFR was constituted, in era when sanction was specifically required to be given by Central Government upon recommendation of Specific Officer thereunder. Thus, financial viability or otherwise, of amalgamating company had to be determined first, in order to attract provisions of Section 72A. However, after enactment of SICA and Constitution of BIFR, question of sickness or robust health of entity is to be determined http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 6/12 by Board. It is only when Board was satisfied that it would have, in first place, entertained applications for revival, sanctioning appropriate schemes for rehabilitation. Thus, sanction by BIFR implies that requirements of Section 72(2) of Act have been met. 17. This provision, and interplay thereof with provisions of Income tax Act has been considered by Supreme Court in case of Indian Shaving Products (supra) where at paragraph 7 Bench holds as follows: '7.Under Section 72 of Income Tax Act, to give to amalgamated Company benefit of loss or, as case may be, allowance for depreciation of amalgamating company for previous year in which amalgamation was effected for purposes of Income Tax Act, Central Government must, upon recommendation of specified authority, be satisfied that amalgamating company was not, immediately before amalgamation, financially viable by reason of its liabilities, losses and other relevant factors, and that amalgamation was in public interest, By reason of Section 32(2) of said Act, where there has been under any scheme thereunder amalgamation of sick industrial company with another company, provisions of Section 72A of Income Tax Act shall apply in relation to such amalgamation, subject to this modification that power of Central Government is to be exercised by BIFR without necessity of recommendation by specified authority mentioned in Section 72A of Income Tax Act. This is because, for purposes of according sanction to scheme of amalgamation of sick industrial undertaking with any other company under Section 18 of said Act, BIFR has to be satisfied that amalgamating company is not financially viable, which is effect of Section 3(o) of said Act, and that amalgamation is necessary or expedient in public interest, which is effect of Sections 17 and 18 of said Act read together. Sanction of scheme of amalgamation under Section 18 of said Act necessarily implies that requirements of Section 72A o f Income Tax Act have been met and BIFR must exercise power conferred upon it by Section 3 2 ( 2} of said Act and make declaration contemplated by Section 7 2A o f Income Tax Act, conditions for sanctioning scheme under Section 18 o f said http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 7/12 Act being same as those required for declaration under Section 72A o f Income Tax Act, BIFR could not have sanctioned scheme of amalgamation of Sharp Edge with appellant but declined to make declaration under Section 72A o f Income Tax Act with regard to t hat amalgamation' (underlining for emphasis, ours) 18. Nothing further remains to be said in light of categoric conclusion of Supreme Court emphasised above. view taken by Assessing Authority to effect that claim of assessee is liable to be allowed in light of provisions of section 32(2) of SICA and its interpretation by Supreme Court is thus, correct one. 19. jurisdiction exercised by CIT to correct alleged error in assessment was in terms of section 263 of Act. Section 263 empowers Commissioner of Income tax to revise order of assessment if order in question is erroneous and prejudicial to interests of revenue, both conditions to be satisfied concurrently. action of assessing officer, though prejudicial, can hardly be termed as erroneous in so far as officer has followed dictum laid down by Supreme Court in case of Indian Shaving products (supra). Thus, in absence of concurrent satisfaction of two conditions under section 263 of Act, action of CIT was contrary to statute and liable to be set aside." 3.Accordingly, Question No.1 is answered against Revenue http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 8/12 and in favour of Assessee in same terms." 4.As far as other two questions on additional depreciation on Wind Mill is concerned, Coordinate Bench of this Court [in which one of us, R.Suresh Kumar, J. was Member] has held as under: "7.In so far as first submission advanced by Mr.Ravi is concerned, according to us, same is completely untenable. 7.1.The judgment of Division Bench of this Court in M.M.Forgings Limited Vs. Additional Commissioner of Income Tax, did not deal issue, which is at hand. 7.2.The issue, in hand, is as to whether balance additional depreciation could be carried forward to year, following previous year, in which, additional depreciation was claimed. 7.3.The Division Bench in M.M.Forgings case said case was not concerned with issue, with which, we are faced, that is, right to carry forward balance additional depreciation. Therefore, judgment is completely distinguishable. 8.The second submission of Mr.Ravi, that Circular no.8 of 2002 dated 27.08.2002 and Circular no.281 dated 29.11.1979, have not been taken note of, in our judgment rendered in Commissioner of Income Tax, Madurai Vs. http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 9/12 M/s.Shri T.P.Textiles Private Limited, according to us, will not impact, either reasoning or conclusion reached by us, in said matter. 8.1.It is pertinent to note that Circular no.281 dated 29.11.1979, pre-dates insertion of relevant provision, i.e., second clause to Section 32 (1) (iia). said clause (iia), admittedly, was inserted by virtue of Finance (No.2) Act, 2002, with effect from 01.04.2003. 8.2.In so far as second Circular is concerned, i.e, Circular no.8 of 2002 dated 27.08.2002, in our view, in no way, helps case of Revenue. Circular does not dwell on point which we are confronted with. 8.3.In any case, according to us, Circulars are not binding on Court, though, they may be binding on Revenue. [See CIT V. Hero Cycles Pvt. Ltd., (1997) 228 ITR 463 (SC)]. 9.The last submission that Mr.Ravi advanced, was, in fact, predicated on reasoning given by Assessing Officer, which, according to us, is misconceived, as manner of calculation of depreciation, cannot, to our minds, impede claim of Assessee for balance additional depreciation, in year following previous year, in which, said asset is installed and put to use. 10.Therefore, for aforesaid reasons, we find no merit in submissions advanced by Revenue." 5.A similar view was expressed by this Court in another http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 10/12 judgment in case of Commissioner of Income Tax V. VTM Limited [T.C.A.No.881 of 2009 dated 08.09.2009] wherein at paragraphs 5 and 6 are held as under: "5. In case on hand, assessee is stated to have set up wind mill at cost of Rs.5,85,60,000/- It is true that assessee is company engaged in business of manufacture of textile goods. As far as application of Section 32(1)(iia) of Act, is concerned, what is required to be satisfied in order to claim additional depreciation is that setting up of new machinery or plant should have been acquired and installed after 31st March 2002 by assessee, who was already engaged in business of manufacture or production of any article or thing. said provision does not state that setting up of new machinery or plant, which was acquired and installed upto 31.03.2002 should have any operational connectivity to article or thing that was already being manufactured by assessee. Therefore, contention that setting up of wind mill has nothing to do with power industry, namely, manufacture of oil seeds etc. is totally not germane to specific provision contained in Section 32(1)(iia) of Act. 6. In such circumstances, we are not able to appreciate contention of learned standing counsel for appellant on ground that order of Commissioner of Income-tax (Appeals) as confirmed by http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 11/12 Tribunal should be interfered with. It cannot also be said that setting up of wind mill will not fall within expression setting up of new machinery or plant. We do not find any error in conclusion of Tribunal in confirming order of Commissioner of Income-tax (Appeals). We, therefore, do not find any question of law much less substantial question of law to entertain this appeal. appeal fails and same is dismissed. No costs." 6.In view of aforesaid, Questions No.2 and 3 also deserve to be answered against Revenue and in favour of Assessee. We hereby do so. 7.Accordingly, present Appeal filed by Revenue is disposed of in aforesaid terms. There shall be no order as to costs. (V.K.J.) (R.S.K.J.) 28.01.2020 Sgl To Income Tax Appellate Tribunal, 'C' Bench, Chennai. DR.VINEET KOTHARI, J. http://www.judis.nic.in Judgment in TCA No.1199/2010 dated 28.01.2020 (The Commissioner of Income Tax-II Vs. M/s.Lakshmi Machine Works Ltd., Coimbatore) 12/12 And R. SURESH KUMAR, J. Sgl T.C.A.No.1199 of 2010 28.01.2020 http://www.judis.nic.in Commissioner of Income-tax-II, Coimbatore v. Lakshmi Machine Works Ltd
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