THE issue before the bench is - Whether the benefit of the deduction u/s 32AB cannot be extended to term loans taken against trucks and tankers. And the verdict goes against the Revenue.
Facts of the case
The assessee firm is engaged in the business of manufacturing detergent. For AYs 1990-91, 1991-92, 1992-93 1993-94 and 1994-95, the assessee filed its return of income for the years in question declaring total income. The assessee claimed deduction u/s 32AB of the Act by depositing amounts in the Investment Deposit Account with IDBI pursuant to Investment Deposit Account Scheme ('the Scheme') as per the provisions of section 32AB(1)(a). Out of the balance in the said account, some amount was withdrawn by the assessee and used for making repayment of loan against trucks and tankers contracted by it with SBI. The remaining amount was used by the assessee for repaying loans taken by it against the security of plant and machinery.
During the course of assessment proceedings, the A.O rejected the said claim and made appropriate additions in the income of the assessee. The CIT (Appeals) deleted the addition made by the AO. On appeal before the Tribunal by the revenue, by impugned orders, Tribunal dismissing the appeals, confirmed the orders passed by CIT(A).
On further appeal by the Revenue, the Tribunal held that,
++ a plain reading of section 32AB of the Act and the Scheme shows that as in the case of assessee, if the withdrawn money is utilized for repayment of principal amount of term loans contracted after 1986 and taken for a period of three years or more from the specified financial corporation, no addition u/s 32AB can be made. As per the scheme the amount withdrawn by the assessee can be utilised for purchase of new ship, new aircraft, new machinery or new plant or new computer. The amount can also be utilized for repayment of principal amount of term loan contracted after 31.03.1986 and the condition for the same is that the term loan must have been taken for a period of three years or more from a Financial Corporation which is engaged in providing long term finance for industrial development in India or from a Scheduled Bank or from any other institution as the Central Government may notify;
++ in the present cases, all the conditions mentioned in the scheme are fulfilled. The scheme nowhere provides that term loan should be only for plant and machinery. The only condition provided by the scheme is that the term loan should be contracted for more than three years and it should be from a scheduled bank or a financial corporation. It is a special benefit given to industries to boost their production and to update their machineries and keep the industry abreast with new technology and to see that the industry does not carry on its business with old machinery and that the industry equips itself with the latest plant and machinery. Therefore, in order to take benefit of the beneficiary legislation, the assessee firm has every right to plan its tax payment accordingly. Essentially, it entitles an assessee carrying on a business or profession to reduce his taxable income by the sum utilised by him for purchase of new plant and machinery and or deposited with the Industrial Development Bank of India for such utilisation;
++ it is not in dispute that the Board's Circular No. 461 dated 9-7-1986 has explained the scope of the provisions relating to deduction u/s 32AB. A perusal of clause 9 of the Scheme mentions that the withdrawal could either be utilised for purchase of new ship, aircraft, plant & machinery or computers to be installed either in office or at the business premises. In the alternative, the amount can also be used for repayment of principal amount of term loans which should have been contracted after 31.03.1986 taken from a specified financial institution including specified banks. It is required to be noted that the clause does not state that the term loan should be used for any specific purpose like purchase of new machinery etc;
++ it is clear that the provisions of Section 32AB was considered as more beneficial to the national economy and to the corporate sector. Therefore, unless it is impossible to do so, the provision of law should be interpreted in such a way that it encourages the growth of industry as envisaged in long term financial policy. In the present cases, the machinery is purchased in the year 1986 on a long term loan for more than three years. The assessee fulfills the conditions envisaged under clause 9 of the scheme;
++ the Apex Court in the case of Mysore Minerals Ltd. vs. Commissioner of Income-Tax reported in [1999] 239 ITR 775 has held that section 32 of the Income-tax Act confers a benefit on the assessee and that the provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the Legislature to the assessee. It is also well- settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred;
++ Thus, the question regarding addition of amount u/s 32AB(6) of the Act is required to be answered in the negative i.e. in favour of the assessee and against the revenue as the Tribunal has not erred in deleting the addition made by the AO u/s 32AB of the Act.
The assessee firm is engaged in the business of manufacturing detergent. For AYs 1990-91, 1991-92, 1992-93 1993-94 and 1994-95, the assessee filed its return of income for the years in question declaring total income. The assessee claimed deduction u/s 32AB of the Act by depositing amounts in the Investment Deposit Account with IDBI pursuant to Investment Deposit Account Scheme ('the Scheme') as per the provisions of section 32AB(1)(a). Out of the balance in the said account, some amount was withdrawn by the assessee and used for making repayment of loan against trucks and tankers contracted by it with SBI. The remaining amount was used by the assessee for repaying loans taken by it against the security of plant and machinery.
During the course of assessment proceedings, the A.O rejected the said claim and made appropriate additions in the income of the assessee. The CIT (Appeals) deleted the addition made by the AO. On appeal before the Tribunal by the revenue, by impugned orders, Tribunal dismissing the appeals, confirmed the orders passed by CIT(A).
On further appeal by the Revenue, the Tribunal held that,
++ a plain reading of section 32AB of the Act and the Scheme shows that as in the case of assessee, if the withdrawn money is utilized for repayment of principal amount of term loans contracted after 1986 and taken for a period of three years or more from the specified financial corporation, no addition u/s 32AB can be made. As per the scheme the amount withdrawn by the assessee can be utilised for purchase of new ship, new aircraft, new machinery or new plant or new computer. The amount can also be utilized for repayment of principal amount of term loan contracted after 31.03.1986 and the condition for the same is that the term loan must have been taken for a period of three years or more from a Financial Corporation which is engaged in providing long term finance for industrial development in India or from a Scheduled Bank or from any other institution as the Central Government may notify;
++ in the present cases, all the conditions mentioned in the scheme are fulfilled. The scheme nowhere provides that term loan should be only for plant and machinery. The only condition provided by the scheme is that the term loan should be contracted for more than three years and it should be from a scheduled bank or a financial corporation. It is a special benefit given to industries to boost their production and to update their machineries and keep the industry abreast with new technology and to see that the industry does not carry on its business with old machinery and that the industry equips itself with the latest plant and machinery. Therefore, in order to take benefit of the beneficiary legislation, the assessee firm has every right to plan its tax payment accordingly. Essentially, it entitles an assessee carrying on a business or profession to reduce his taxable income by the sum utilised by him for purchase of new plant and machinery and or deposited with the Industrial Development Bank of India for such utilisation;
++ it is not in dispute that the Board's Circular No. 461 dated 9-7-1986 has explained the scope of the provisions relating to deduction u/s 32AB. A perusal of clause 9 of the Scheme mentions that the withdrawal could either be utilised for purchase of new ship, aircraft, plant & machinery or computers to be installed either in office or at the business premises. In the alternative, the amount can also be used for repayment of principal amount of term loans which should have been contracted after 31.03.1986 taken from a specified financial institution including specified banks. It is required to be noted that the clause does not state that the term loan should be used for any specific purpose like purchase of new machinery etc;
++ it is clear that the provisions of Section 32AB was considered as more beneficial to the national economy and to the corporate sector. Therefore, unless it is impossible to do so, the provision of law should be interpreted in such a way that it encourages the growth of industry as envisaged in long term financial policy. In the present cases, the machinery is purchased in the year 1986 on a long term loan for more than three years. The assessee fulfills the conditions envisaged under clause 9 of the scheme;
++ the Apex Court in the case of Mysore Minerals Ltd. vs. Commissioner of Income-Tax reported in [1999] 239 ITR 775 has held that section 32 of the Income-tax Act confers a benefit on the assessee and that the provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the Legislature to the assessee. It is also well- settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred;
++ Thus, the question regarding addition of amount u/s 32AB(6) of the Act is required to be answered in the negative i.e. in favour of the assessee and against the revenue as the Tribunal has not erred in deleting the addition made by the AO u/s 32AB of the Act.
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