Commissioner of Income Tax vs Baker Mercer India P. Ltd.

MRS. Sujata V. Manohar J.

At the instance of the Department, the following questions are sought to be raised u/s 256(2) of the Income Tax Act, 1961, for the purpose of directing the Tribunal to refer these question to us :

"1. Whether, on the facts and the circumstances of the case, the Tribunal was justified in law in cancelling the order of the Commissioner of Income Tax u/s 263 of the Income Tax Act, 1961, holding that the provisions of section 263 were not correctly invoked in this case ?

Whether, on the fact and in the circumstances of the case the Tribunal was justified in law in holding that the provisions of rule 115 of the Income Tax Rules, 1962, were not correctly applied to the facts of this case and that no adjustments to the cost of the plant and machinery on account of exchange fluctuations is called for the purposes of allowing depreciation u/s 43A of the Income Tax Act, 1961 ?

Whether on the fact and in the circumstances of the case, and in law the Tribunal was justified in holding that no adjustment of the cost or written down value of depreciable assets on account of exchange fluctuation is called for arriving at the ''capital employed'' in the new industrial undertaking for the purpose of working out the relief u/s 80J of the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee is entitled to investment allowance u/s 32A in respect of technical know-how and that no withdrawal of such allowance granted by the Income Tax Officer in the assessment is called for ?

Questions Nos. 2 and 3 relate to the plant and machinery which the assessee had purchased from abroad through the Industrial Credit and Investment Corporation of India Ltd. (ICICI). Loans were advanced for this purpose by the ICICI, repayable in foreign currency. The repayment was made by the assessee by installments. Rupee payments for equivalent foreign currency were made at the exchange rates intimates by the ICICI. On account of upward revision of the value of the foreign currency vis-a-vis the rupee, the assessee has was required to pay more in terms of rupee while repaying the loans. The assessee, accordingly, had to adjust upwards the cost of its plant and machinery from time to time on account of fluctuations in the exchange rates. The assessee also claimed depreciation on the basis of such additional cost arising as a result of adjustment in the rates of exchange.

In view of the clear provision of section 43A of the Income Tax Act, 1961, which are directly applicable to the present case, it is clear that, when an assessee has acquired an asset from a country outside India for the purposes of his business and, in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there is an increase in the liability of the assessee as expressed in Indian currency for making payment towards the cost of the asset or for repayment of the whole or a part of the moneys borrowed by him in any foreign currency specifically for the purpose of acquiring the asset, the amount by which the liability is so increased shall be added to the actual cost of the asset for the various purpose which are set out in section 43A and the increased cost shall be the cost of acquisition of the asset. The answer to question No.3 is, therefore, obvious.

Rule 115 of the Income Tax Rules, 1962, which is the basis for question No. 2, has no application because the said rule is in respect of income accruing or arising and not in respect of the valuation of plant and machinery. Question No. 2 is, therefore, wholly misconceived and does not arise out of the order of the Tribunal.

Question No. 4 relates to investment allowance u/s 32A of the Income Tax Act, 1961, in respect of technical know-how. Our High Court, in the case of Commissioner of Income Tax, Bombay City-II Vs. Emco Electro Pvt. Ltd., , considered the meaning of the word "plant" for the purpose of depreciation and development rebate. It said that "plant" is a word of wide import and must be broadly construed. It held that "plant" would include technical know-how also. The Supreme Court, in the case of Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh, , has also held that, for purposes of depreciation, the term "plant" is wide enough to include techinical know-how and documentation such as drawings, designs, plans, processing data, etc.

In Income Tax Application No. 106 of 1988 CIT v. Deepa Aromatic Pvt. Ltd., however, by an order dated August 3, 1990, we had granted rule on the question whether investment allowance u/s of 32A of the Income Tax Act, 1961, can be allowed in respect of technical know-how because, u/s 32A, the phrase used is "machinery or plant installed". This would prima facie exclude technical know-how which cannot be installed. Mr. Dastur, learned counsel for the assessee, has, however, drawn our attention, in the present case, to the decision of our court in Commissioner of Income Tax (Central), Bombay Vs. Saraspur Mills Ltd., , where similar provisions relating to development rebate u/s 10(2)(vib) of the Indian Income Tax Act, 1922, were considered. The court the expression "plant installed" in that section and said that it did not necessarily mean something fixed in position but it should be constructed widely in the sense of "inducted or introduced". This decision has been expressly approved by the Supreme Court in COMMISSIONER OF Income Tax, MADRAS Vs. MIR MOHAMMAD ALI. ARUNA MILLS LTD. : INTERVENER., . The Supreme Court also said that "machinery installed" should be interpreted as used in the sense of something which is inducted or introduced.

In view of the above decisions which were not pointed out to us in the earlier Income Tax application, in our view, the question does not now need any further consideration. Simply because the word "installed" is used in section 32A of the Income Tax Act, 1961, technical know how does not get excluded from the term "plant". Section 32A, therefore, applies to technical know-how also. The ratio of the decisions in Commissioner of Income Tax, Bombay City-II Vs. Emco Electro Pvt. Ltd., as well as in Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh, , therefore, applies to the present case. In view of these judgments, the answer to question No. 4 is also obvious. No useful purpose can, therefore, be served now by referring this question u/s 256(2) of the Income Tax Act, 1961, for being framed by the Tribunal.

As far as question No. 1 is concerned, in our view, the Tribunal has rightly come to a conclusion, in the above circumstances, that no occasion has arisen to invoke the provisions of section 263 of the Income Tax Act, 1961. The answer to question No. 1 is also, therefore, obvious and no purpose would be served by asking the Tribunal to frame this question.

The rule is, therefore, discharged, with no order as to costs.