COMMISSIONER OF INCOME TAX vs. MADHUSUDAN VEGETABLE PRODUCTS CO.LTD.

Facts

The assessee, Madhusudan Vegetable Products Co. Ltd., claimed investment allowance for Assessment Year (AY) 1982-83 on assets worth Rs. 84,69,945/-. These assets were purchased in the immediately preceding year, AY 1981-82, but the assessee claimed the allowance in AY 1982-83, asserting they were put to use in that year. The assets related to a new sanitaryware manufacturing unit at Kadi, Ahmedabad. Construction began in September 1979, and the plant was commissioned on July 21, 1980, with trial production commencing then. The Income-tax Officer (Assessing Officer) allowed investment allowance of Rs. 1,15,337/-. The assessee appealed to the Commissioner of Income-tax (Appeals), who confirmed the Assessing Officer's order. The assessee then appealed to the Income Tax Appellate Tribunal, which allowed the claim for investment allowance on various plant and machinery items, including the kiln. The Revenue has filed a reference to the High Court.

Held

The High Court held that the Appellate Tribunal was right in law and on facts in directing the Income-tax Officer (Assessing Officer) to allow the assessee's claim for investment allowance. The Court agreed with the Tribunal's reasoning that the assessee was entitled to investment allowance on the expenditure incurred for importing drawings and designs. While the construction of the kiln was completed in AY 1981-82 with the aid of these drawings and designs, the kiln was only put to use in AY 1982-83. The Court considered the claim for drawings and designs, along with the expenditure on the kiln construction, as a consolidated one. Section 32A of the Income Tax Act, 1961, provides an option to the assessee to claim investment allowance either in the year of purchase and installation or in the year the machinery is first put to use, which can be the immediately succeeding assessment year. The Court noted that the commercial production started on March 1, 1981, making AY 1982-83 the correct year for the claim. The Court found no reason to interfere with the Tribunal's findings and considered the decisions cited by the revenue inapplicable to the peculiar facts of this case, especially since the Assessing Officer had permitted the change of assessment year. The question referred to the Court was answered in the affirmative, in favour of the assessee and against the revenue.

Key Issues

1. Whether the Appellate Tribunal is right in law and on facts in directing the Income-tax Officer (Assessing Officer) to allow the assessee’s claim for investment allowance on drawings and designs (mixed law and fact, concerning Section 32A). The Revenue's contentions: - The Tribunal erred in allowing investment allowance on drawings and designs. - The assessee changed the assessment year from March to September and claimed depreciation for AY 1982-83, whereas production had already started in AY 1980-81. - Trial production should have been considered the date for depreciation. - Drawings and designs, on which expenditure was incurred, were utilized in AY 1981-82, the year the plant and machinery were installed and ready for use. - The decision of the CIT(A) should be restored, and depreciation ought to have been claimed in AY 1981-82. - Relied on CIT vs. Nakoda Metals, ACIT vs. Ashima Syntex Ltd., CIT vs. Union Carbide (I) Ltd., and CIT vs. Refrigeration and Allied Industries Ltd. The Assessee's contentions: - The Tribunal's order accepting the assessee's claim for investment allowance on various items of plant and machinery, including the kiln, was correct. - The kiln was put to use in AY 1982-83, making the claim for investment allowance on drawings and designs consequential. - Relied on the decision of the Karnataka High Court in Mysore Iron & Steel Ltd.