Steel Ingots (P.) Ltd. vs Commissioner of Income Tax

A.R. Tiwari, J.—In compliance with the directions issued by this Court in Misc. Civil Case No. 443 of 1986, filed by the applicant-assessee u/s 256(2) of the income tax Act, 1961 (''the Act''), on 9-3-1989, the Tribunal has stated the case and referred the undernoted question of law for our opinion:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not entertaining the ground of appeal regarding the deductibility of capital subsidy in arriving at the actual cost of the assets for the purpose of calculating depreciation

Facts lie in a narrow compass. The applicant-assessee is a resident private limited company. It was assessed for the assessment year 1977-78, accounting period ending on 30-6-1976. The ITO while computing the allowable depreciation on building and plant and machinery deducted Rs. 65,084 from the written down value of building and also deducted Rs. 3,07,766 from the written down value of plant and machinery. These amounts, totalling Rs. 3,72,850, related to capital subsidy received by the assessee. The ITO passed the order of assessment. The assessee filed the appeal before the Commissioner (Appeals) against the aforesaid order of assessment. In the said appeal, the assessee did not raise any ground of objection relating to deduction of Rs. 3,72,850 from the written down value of the building and plant and machinery for the purpose of computation of allowable depreciation. It also did not raise any objection as to the assessment of sales tax subsidy of Rs. 1,80,945. The appeal was dismissed. The assessee then filed second appeal before the Tribunal and raised the grounds of objections against capital subsidy and sales tax subsidy amounting to Rs. 3,72,850 and Rs. 1,80,945, respectively. The Tribunal declined to consider these grounds on the linchpin that the same were not raised before the Commissioner (Appeals) and dismissed the appeal. Aggrieved, the assessee filed the application, registered as RA No. 145 (Ind.) of 1985 for assessment year 1977''-78 arising out of IT Appeal No. 23 (Ind.) of 1984, decided on 29-10-1985, which was rejected. It then filed Misc. Civil Case No. 443 of 1986 in this Court. On 9-3-1989, this Court directed the Tribunal to state the case and to refer the question. This is how the Tribunal has stated the case and referred the aforesaid question of law for our opinion.

None appeared for the assessee. Shri D.D. Vyas, the learned counsel appeared for the non-applicant/revenue. He was heard.

Normally, we would have declined to answer the question as the assessee did not choose to appear and press the reference but as this Court took the view that the amount of capital subsidy received by the assessee is not deductible in COMMISSIONER OF Income Tax Vs. BHANDARI CAPACITORS PRIVATE LTD., and this view is affirmed by the Supreme Court in CIT v. P.J. Chemicals Ltd [1994] 76 Taxman 611, we deem it proper to consider the reference and answer the question.

In view of the aforesaid position, it becomes luculent that the question sought to be raised by the assessee before the Tribunal went to the root of the matter and was a pure question of law, requiring no appreciation of facts, we are of the view that the Tribunal should have permitted to the assessee to raise the aforesaid question despite the fact that it failed to raise the same before the first appellate authority.

The eventual destination of every litigation is justice, and as such, technicality should not be permitted to prevail as speed-breaker in the course of dispensation of justice. True it is that the question was not raised before the first appellate authority but it is equally true that the aforesaid question was one of law and had material bearing on the order of assessment.

In view of the aforesaid position, we are satisfied that the Tribunal was not justified in not entertaining the ground of appeal regarding the deductibility of the capital subsidy in computing the actual cost of the assets for the purpose of calculating depreciation. The disposal of the case is in direct conflict with the view taken by this Court and by the Apex Court.

In the aforesaid premises, we answer the question in the negative, i.e., in favour of the assessee and against the revenue.

This reference is answered accordingly but without any order as to costs. The counsel fee for the non-applicant is, however, fixed at Rs. 750, if certified.