# ESCORTS LIMITED AND ANR. ETC. ETC v. UNION OF INDIA AND ORS

- **Citation:** [1992] Supp. 2 S.C.R. 153
- **Court:** Supreme Court of India
- **Decided:** 1992
- **Case number:** Writ Petition No. 90 of 1981
- **Bench:** S. Ranganathan, V. Ramaswami, B.P Jeevan Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/escorts-limited-and-anr-etc-etc-v-union-of-india-and-ors-11595
- **Pages:** 29

## Headnote

Income Tax Act, 1922/Income Tax Act, 1961 :
A
B
Sections JO (2) (vi) and (xiv) /32 (1) (ii), 35 (1) (iv), 35 (2) (iv), 43 · C
(1).. Explanation-Depreciation-Scientific Research-Deductions in computing business income-Depreciation allowance in re~pect of the asset as also
allowance in respect of expenditure incurred on the Scientific Research--
Whether pennissible- Retrospective amendment of Section 35(2 )-Whether
violative of Articles 14,19 (/) (g) and 300-A of the Constitution-Whether D
impo_sed unreasonable and oppressive burden on the assessee-Nature and
effect of amendment-Position before and after the amendment-Explained.
Constitution of India, 1950 :
Articles 14, 19 ( 1) (g) and 300-A--Retrospective amendmellt of Section
E
35 (2) of the Income Tax Act, 1961-Wliether violative of-Completion of
pending asses~1nents and also reopening or rectification of cotnpleted assessments of earlier years in cases where double benefit was granted-Wl1ether
unreasonable and imposed oppressive burden on assessee.
Statute Lott-Retrospective operation-A1nended provision given retroF
spective effect-Whether open to challenge as ilnposing oppressive burden-Whether new obligation created under new provision.
Section 32 (1) (ii) of the Income Tax Act, 1961 provided for depreciation, while computing business income for purpose of income tax. It was
allowed at a percentage of the written down value of certain capital assets G
employed in the business. Section 35(1) provided for the deduction of
four types of expenditure on scientific research and the deduction
provided under 35 (1) (iv) was to the effect that in respect of any expenditure of a capital nature on scientific research related to the business
carried on by the assessee, such deduction as may be admissible under the H
153
154
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
A
provisions of sub-section (2). Sub-Section (2) provided that, for the purposes of clause (iv) of sub-section (1), one-fifth of the capital expenditure
incurred in any previous year should be deducted for that previous year;
and the balance of the expenditure should be deducted in equal instalments in each of the four immed.iately succeeding previous years. It furB ther provided in clauses (iv) and (v) that where a deduction was allowed
for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction should be allowed under
clauses (i), (ii) and (iii) of sub-section (1) of section 32 for the same
previous year in respect of that asset; and where the asset mentioned in
clause (ii) was used in the business after it ceased to be used for scientific
C
research related to that business, depreciation should be admissible
under clauses (i), (ii) and (iii) of sub-section (1) of Section 32.
Explanation 1 to Section 43(1) also provided that where an asset was
used in business after it ceased to be used for scientific research related
D to that business and a deduction had to be made under clause (i), clause
(ii) or clause (iii) or sub-section (!) or sub-section (IA) of Section 32 in
respect of that asset, the actual cost of the asset to the assessee, as
reduced by the amount of any deduction allowed under clause (iv) of
sub-section (I) of Section 35.
E
The pro•isions of Section 32(1) (ii) and Section 35(2) (I) (iv). and
(v) read with Explanation 1 ·to Seetion 43(1) virtually repeated the
provisions contained in Section 10(2) (vi) and 10(2) (xiv) of the 1922 Act.
In 1968, there was an amendment in the provisions of Section 35(2).
F
The effect of the amendment was that the entire amount of capital expenditure incurred in relation to scientific research was allowed as a deduction in on.e year, instead of being spread over a period of five years as was
the position earlier.
G
Thereafter, the Finance Act, 1980 made an amendment with
retrospective effect from 1.4.1962, i.e. from the date of commencement of
Act of 1961 which provided under clause (iv) of Section 35(2), that where

## Text

_Characters 0–39,987 of 71,538. This is a partial read: ask again with offset=39987 for what follows._

..
..
ESCORTS LIMITED AND ANR. ETC. ETC.
v.
UNION OF INDIA AND ORS.
OCOTBER 22, 1992
[S. RANGANATHAN, V. RAMASWAMI AND
B.P JEEVAN REDDY, JJ.]
Income Tax Act, 1922/Income Tax Act, 1961 :
A
B
Sections JO (2) (vi) and (xiv) /32 (1) (ii), 35 (1) (iv), 35 (2) (iv), 43 · C
(1).. Explanation-Depreciation-Scientific Research-Deductions in computing business income-Depreciation allowance in re~pect of the asset as also
allowance in respect of expenditure incurred on the Scientific Research--
Whether pennissible- Retrospective amendment of Section 35(2 )-Whether
violative of Articles 14,19 (/) (g) and 300-A of the Constitution-Whether D
impo_sed unreasonable and oppressive burden on the assessee-Nature and
effect of amendment-Position before and after the amendment-Explained.
Constitution of India, 1950 :
Articles 14, 19 ( 1) (g) and 300-A--Retrospective amendmellt of Section
E
35 (2) of the Income Tax Act, 1961-Wliether violative of-Completion of
pending asses~1nents and also reopening or rectification of cotnpleted assessments of earlier years in cases where double benefit was granted-Wl1ether
unreasonable and imposed oppressive burden on assessee.
Statute Lott-Retrospective operation-A1nended provision given retroF
spective effect-Whether open to challenge as ilnposing oppressive burden-Whether new obligation created under new provision.
Section 32 (1) (ii) of the Income Tax Act, 1961 provided for depreciation, while computing business income for purpose of income tax. It was
allowed at a percentage of the written down value of certain capital assets G
employed in the business. Section 35(1) provided for the deduction of
four types of expenditure on scientific research and the deduction
provided under 35 (1) (iv) was to the effect that in respect of any expenditure of a capital nature on scientific research related to the business
carried on by the assessee, such deduction as may be admissible under the H
153
154
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
A
provisions of sub-section (2). Sub-Section (2) provided that, for the purposes of clause (iv) of sub-section (1), one-fifth of the capital expenditure
incurred in any previous year should be deducted for that previous year;
and the balance of the expenditure should be deducted in equal instalments in each of the four immed.iately succeeding previous years. It furB ther provided in clauses (iv) and (v) that where a deduction was allowed
for any previous year under this section in respect of expenditure represented wholly or partly by an asset, no deduction should be allowed under
clauses (i), (ii) and (iii) of sub-section (1) of section 32 for the same
previous year in respect of that asset; and where the asset mentioned in
clause (ii) was used in the business after it ceased to be used for scientific
C
research related to that business, depreciation should be admissible
under clauses (i), (ii) and (iii) of sub-section (1) of Section 32.
Explanation 1 to Section 43(1) also provided that where an asset was
used in business after it ceased to be used for scientific research related
D to that business and a deduction had to be made under clause (i), clause
(ii) or clause (iii) or sub-section (!) or sub-section (IA) of Section 32 in
respect of that asset, the actual cost of the asset to the assessee, as
reduced by the amount of any deduction allowed under clause (iv) of
sub-section (I) of Section 35.
E
The pro•isions of Section 32(1) (ii) and Section 35(2) (I) (iv). and
(v) read with Explanation 1 ·to Seetion 43(1) virtually repeated the
provisions contained in Section 10(2) (vi) and 10(2) (xiv) of the 1922 Act.
In 1968, there was an amendment in the provisions of Section 35(2).
F
The effect of the amendment was that the entire amount of capital expenditure incurred in relation to scientific research was allowed as a deduction in on.e year, instead of being spread over a period of five years as was
the position earlier.
G
Thereafter, the Finance Act, 1980 made an amendment with
retrospective effect from 1.4.1962, i.e. from the date of commencement of
Act of 1961 which provided under clause (iv) of Section 35(2), that where
a deduction ·Was allowed for any previous year under this sectio_n in
respect of expenditure represented-wholly or p3rtly by an as·set, no deduction should be allowed under clauses (i), (ii) and (iii) of sub-section (1) of .
H Section 32, for the same or any otheir previous year in respect of that asset.
..
..
\
I
\
j
ESCORTS LTD. v. U.O.L
155
In the Writ Petitions filed before this Court on behalf of the assesA
sees it was contended that the allowances in respect of depreciation on the
one hand and of capital expenditure on scientific research on the other are
two totally different and independent heads of allowances; one was a
notional allowance to provide for the wear and tear of a capital asset
employed in the business as the years rolled by; and the other was an
allowance for actual expenditure of a capital nature, granted to give lillip
to new industrial innovations and development of indigenous know-how
and techniques by proper planning on research and development by
various business houses; and, therefore_, there was nothing wrong in construing the statute as providing cumulatively for both types of deductions
B
in respect of the same capital asset; that both the types of allowances were C
permissible under the statute except to the extent limited by clauses(iv)
and (v) of Section 35 of the Act/Clauses (d) and (e) of the proviso to
Section 10(2) (xiv) of the 1922 Act; that this interpretation of the statutory
provisions was very clear, patent and unambiguous; that the retrospective
amendment of the provision would impose unexpected and impossible D
burden on them over the years, jeopardise their solvency and lay them
open to action by creditors and financial institutions ~nd such an onerous
burden was unreasonable and oppressive and the provision imposing such
a burden violated the fundamental rights of the assessees under Articles
14 and 19(1) (g) of the Constitution that retrospective provisions may be
permissible even in taxing staiutes in certain special circumstances such E
as in the case of provisions clarifying the impact of a statute, provisions
curing defective legislations in the light of the judicial decisions and the
like, but if the legislature chose to impose a totally new burden, which was
not at all in contemplation earlier and proceeded to give full retrospective
effect thereto, such an attempt should be struck down as unreasonable F
and discriminatory, that the amendment was not in the nature of a
statutory clarification of an ambiguity but a totally new and fresh imposition sought to be unjustifiably given retrospective effect, and that the
statute did not intend one deduction to preclude the other.
On behalf of the Revenue, it was contended <hat the deduction G
provided by Section 35 (1) (iv) was in the alternative to the deduction
provided by clauses (i), (ii) and (iii) of sub-section (I) and sub-section
•
(lA) of Section 32; if one was availed of, the other was not available, not
only during the year or years in which the deduction under Section 35(1)
(iv) was availed of, but permanently; for the reason that if both were H
156
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
A
allowed to be availed of, it amounted to grant of 200% deduction viz., 100%
under Section 35(1) (Iv) and another 100% under sub-sections (I) and
(IA) of Section 32, and this was totally outside the contemplation of the Act.
B
c
D
E
F
G
Dismissing the writ petitions, this Court,
HELD: Per Ranganathan J. (For himself and Ramaswami, J.)
I.I. There is a fundamental, though unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same
business outgoing; if it is intended it will be clearly expressed. In other
words, in the absence of clear statutory indication to the contrary, the
statute should not be read so as to permit an assessee two deductions -
both under Section 10(2) (vi) and section 10(2) (xiv) under the 1922 Act
or under Section 32 (i) (ii) and 35(2) (iv) of the 1961 Act - qua the same
expenditure. The use of the words "in respect of the same previous year"
in clause (d) of the proviso to Section 10(2) (xiv) of the 1922 Act and
Section 35 (2) (iv) of the 1961 Acl: is not a contra-indication which permits
a disallowance of depreciation only in the previous years in which the
other allowance is actually allowed. The purpose of the words above
referred to is totally different. That the two allowances cannot be and are
not intended to be granted in respect of the same asset or expenditure, can
be easily seen from the limitation imposed by these words. Where the
capital asset is orie of the nature specified, the assessee can get only one
of the two allowances in question but not both. For determining which of
the two allowances should be granted - that which the assessee chooses or
that which the assessing officer might prefer, it is necessary for the statute
to define this and this is what has been done by the rider in clause (d) of
the proviso to Section 10(2) (xiv) of the 1922 Act Section 35(2) (iv) of the
1961 Act.
It mandates that the asssessee should, in such a case, be
granted the special allowance for scientific research and not the routine
and annual one for depreciation.. Clause ( d) of the proviso lo Section
10(2) (xiv) of the 1922 Act and Section 30(2)(iv) of the 1961 Act thus fall
into place as an appropriate and necessary provision. The provision
contained in clause (e) of the proviso to Sectirn 10(2) (xiv) of the 1922 Act,
re-enacted in Explanation to Section 43(1) of the 1961 Act, also reinforces
this line of approach. Therefore, 1it is not correct to say that the allowances under the two provisions are by nature unconnected with, and indpenH dent of, each other. (171-D-H; 172·A-E]
..
ESCORTS LTD. v. U.O.l.
157
1.2. Under the provisions of the statute as they stood earlier, the A
assessees could not have claimed continued grant of depreciation after the
expiry oflive previous years before the 1968 amendment and after the expiry
of the first year after the 1968 amendment, even though the entire cost of the
capital asset in question had been allowed to be writen off completely against
the business profits of those five previous years or one previous year as the
case may be. It is impossible to conceive of the legislature having envisaged
a double deduction in respect of the same expenditure even though it is true
that the two heads of deduction do not completely overlap and there is some
difference in the rationale of the two deductions under consideration. The
B
last few words of the English statute, viz., "assets for any year of assessment
during any part of which they were used by the person carrying on the trade C
for scientific research related to the trade" show that there is really no
difference between the English and Indian Acts; the former also in terms
prohibits depreciation only so long as the assets are used for scientific
research. (169-F-H; 171-8,C]
1.3. In the circumstances, it is clear that, even before the 1980- D
amendment, the Act did not permit a deduction for depreciation in respect
of the cost of a capital asset acquired for purposes of scientific research
to the extent such cost has been written off under Section 10(2) (xiv) of the
1922 Act/35(1) & . (2) of the 1961 Act. Prior to 1968, such assets qualified
E
for an allowance of one-fifth of the cost of the asset in five previous years
starting with that of its acquisition and during these years the assessee
could not get any depreciation in relation thereto. In respect of assets
acquired in previous year relevant to assessment year 1968-69 and thereafter, their cost was written off in the previous year of acquisition and no
depreciation would be allowed in that year. This is clear from the statute.
Equally, it is not envisaged, that depreciation could be allowed on them
F
thereafter and also that it could be allowed starting with the original cost
of the asset despite its user for scientific research and the allowances
made under the 'scientific research' clause. There was no difficulty at all
in the interpretation of the provisions. The mere fact that a baseless
claim was raised by some over-enthusiastic assessees who sought a double G
allowance or that such claim may perhaps have been accepted by some
authorities is not sufficient to attribute any ambiguity or doubt as to the
true scope of the provisions as they stood earlier. [173-E-H; 174-A]
C.I. T. v. Inl!ian Telephone Industries Ltd., (1980) 126 I.T.R. 528 and
C.l.T. v. Hico Products, (1991) 187 l.T.R. 517, overruled.
H
158
Slll'REME COURT REPORTS [1992) SUPP. 2 S.C.R.
A
Lohia Machines Limited v. Union of India, (1985) 152 l.T.R. 308 S.C.;
B
Alkali & Chemical Corporation of India Ltd, v. C./. T., (1986) 161 l.T.R. 820
Cal.; C.l.T v. Indian Explosives Ltd., (1992) 192 I.T.R. 144 Cal.; t.J.T. v.
lntemational lnstmments P. Ltd .. (1983) 144 I.T.R. 936 Kar. and Warner
Hindustan Ltd. v. C.l.T., (1988) 171 l.T.R. 224 A.P., referred to.
1.4. The assessees may ha,·e some possible case only if the earlier
statutory provisions can be said to have been unambiguously in favour of
the assessee and the 1980 amendment had radically altered the provisions
to cast a new and substantial burden on the assessee with retrospective
effect but there is no ambiguity. The 1980 amendment has effected no
C change at all in the provisions except to set out m~re clearly and categorically what the provision said even earlier. Thus, even without the amendment, the assessees cannot claim the depreciation allowanct in question.
Even if it is assumed that there was an ambiguity or doubt as lo interpretation, that was retrospectively clarified by the legislature. Therefore,
the validity of the amendment cannot be challenged.
This is indeed
D beyond all doubt. [174-C-G]
Rai Ramkrishna v. State of Bihar, [1964] 1 S.C.R. 897;Asst. Commissioner of Urban Land Tax v. Buckingham & Camatic Co. Ltd., [1970] 1
S.C.R. 268; Krishnamurthi & Co. v. State of Madras, [1973] 2 S.C.R. 54; Hira
E Lal Rattan Lal v. Sales Tax Officer and Anr., (1973) 31S.T.C.178 and Shiv
Dutt Rai Fateh Chand v. Union of India, (1984) 148 l.T.R. 644, referred to.
F
Per Jeevai Reddy, J. (Concurring)
1.1. A double deduction cannot be a matter of inference; it must be
provided for in clear and express langnage, regard having to its serious
.
.
.
impact on the i:ovenues of the State. If the Legislature/Parliamsnt want1'd to
provide for more than iOO% deduction they would have said so; as they done
in cases where they have provided for what is called
11weighted deduction",
vide Section 35(8) of the Act of 1961. It is not possible to agree that while
introducing clause (xiv) in sub-section (2) of Section 10 of the 1922 Act
G consequent on the introduction of Section 20(4) in the U.K. Finance Act,
1944, the Indian Legislature as also the Parliament made a conscious
departure from the English Amendment with the idea of providing an
additional incentive over and above the deduction on account of depreciation, to induce the lndian_assessees to invest more in scientific research.
H
[177-E-H]
-!
ESCORTS LTD.'" U.0.1.
159
1.2. The underlying reason in clause (iv) or Section 35(2) or Act of A
1961 providing that during the years or )·ear in \l'hich the assessee avails
or the deduction under Section 35(1) (iv), he should not avail of the
deduction on account or depreciation provided by clauses (i), (ii) and (iii)
or sub· section (1) and sub-section (lA) or Section 32 is to ensure that the
assessee does not get double deduction for example, \Vhere the asset was
acquired prior to April 1, 1957, the deduction under Section 35(1) (iv)
would be allowed in five consecutive years. If during the very five previous
years, depreciation under the aforementioned provisions is also allowed,
the assessee would obtain, at the end or five years, a double depreciation
B
i.e., 100% under Section 35 and almost 100% under Section 32. (In many
cases, the rate of depreciation under Section 32 is 20% or even higher). If C
such a course was barred by clause (iv) during the initial five years, it
would not be reasonable to say that same thing can be achieved by
claiming the deduction after the expiry of five years. If both the deduc·
lions are in the alternative, as indicated by clause (iv), they must be
understood as being in the alternative and not consecutive. It would be a D
rather curious thing to say (in the case of an asset acquired prior to April
1, 1967) that Parliament barred claim for depreciation under Section 32
even in the first year when only 20% of the cost of the asset is allowed as
deduction under Section 35(1) (iv), it barred it in the second, third and
fourth years, when the deduction had reached 40, 60 and 80 per cent but
permitted it be claimed after the fifth year, by which year the entire 100% E
cost was allowed as a deduction. No express provision was necessary to
say what is so obvious. The position after April 1. 1967 is no different.
That the aforesaid view is the correct one is indicated by Explanation (I)
to clause (1) of Section 43 [the corresponding provision in the 1922 Act
being sub-clause (e) of clause (xiv) of Section 10(2) of 1922 Act].
F
[177-H; 178-A-E]
1.3. The amendment of Section 35(2) in 1980 is merely clarificatory
in nature. It makes explicit what was implicit in tht!' provisions. Question
of its constitutionality, therefore, does not arise. Though purporting to be G
retrospective, it does not take away any rights which had legally vested in
the assessees. [180-B]
Commissioner of Income Tax v. Hico Products Pvt. Ltd, (1991) 187
l.T.R. 517, overruled.
H
160
SUPREME COURT REPORTS [1992) SUPP. 2 S.C.R.
A
1.4. None of the assessments relating to any ofthe assessment years in
question has become final. They are pending at one or the other stage and in
one or the other forum. Since the amendment under challenge merely makes
explicit which was implicit in the unamended clause, there is no question of
any right vesting in the assessee and its being taken away:[180-H; 181-A]
B
ORIGINAL JURISDICTION: Writ Petition No. 90 of 1981 etc. etc.
c
(Under Article 32 of the Constitution of India).
Dr. Devi Prasad Pal, Dinesh Vyas, P.H. Parekh, B.N. Aggarwal, A.S.
Rao, Ravinder Narain, S. Ganesh, A.K. Verma, Amrita Mitra, Ms. Priya
Hingorani, S. Sukumaran, Ms. Amrita Mitra, Ms. S.Bagga, Krishan Kumar,
Bhaskar Pradhan, Ms. Poonam Madan, Ms. Gauri Advani, S. Pathak, B.
Lal. B.P. Aggarwal, Ms. Geetanjali Mohan, P.K. Mukherjee and S.C. Patel
for the Petitioners.
D
S.C. Manchanda, B.B. Ahuja, Manoj Arora, S. Rajappa and Ms. A.
Subhashini for the Respondents.
The Judgment of the Court was delivered by
RANGANATHAN, J. The seeds of the present controversy were sown
E
as early as in 1946. It is unfortunate that this matter should be coming up
before this Court for its consideration nearly five decades later, though it
must be pointed out that the issue in its present form is the outcome of an
amendment made by the Finance (No.2) Act, 1980 (hereinafter referred to
as 'the 1980 Act') to the Income Tax Act, 1961 (hereinafter referred to as
F
'the 1961 Act'). It is also a curious co-incidence that the 1980 Act effected
two amendments in the 1961 Act with retrospective effect and the validity
of both these provisions have been challenged before the courts. The first
was the controversy with regard to the retrospective amendment of s.80-J
which was settled by this Court by its decision in Lohia Machines Limited
G
v. Union of India, (1985) 152 I.T.R. 308 (SC). It is the second amendment
to the provisions contained in section 35(2) of the 1961 Act that has given
rise to the present controversy between the parties.
The question is really one of interpretation -of two important
provisions relating to the computation of business income for purposes of
H
income tax. We may start with the provisions of the Indian Income Tax
ESCORTS LTD. v. U.0.1. [RANGANATHAN, J.J
161
Act, 1922 (hereinafter referred to as the '1922 Act'). The computation of A
business income for pilrposes of income "tax was ·dc;;~e in accordance with
the provisions of section 10 of the said Act. .In the proces~ of making such
. computation, the Act provided for two important deductions (among
others), in respect of. the capital assets employed in the business. The first
w.as the deduction under clause (vi) of Section 10(2) of an allowance in
respect of the depreciation of building, machinery, plant or furniture being
the ·property of the assessee and us~ for th.e purposes of the business: at
a prescribed percentage of the written down value of such assets. This ·
allowance is calculated, in respect of the year of acquisition of the property,
at a percentage of its actual cost to the assessee and in subsequent years
at a graduated scale. on the basis of the actual cost less the depreciation
allowances granted in the preceding years. In strict principle, this is an
allqwanee of capital n~ture but it is now well settled that the allowance of
depreciation has to be taken into account in order to. ascertain the true
profits of ~ business and, therefore.; an· assessee ~s permitted -~o de_duct, in
B
c
the computation of the business income year after year, the prescribed D
percentage of the value of the a~sets used for the purposes of-business ..
The second allowance was not . there in ·the 1922 Act originally and was .
introduced by the Income-tax (Amendment) Act, 1946. The introduction
was of certain allo\vances in respect of expenditure on.
11sc.ientific research
related to ~he business", _an exp_ression which wa's _·defined in a~ faii:iy ·
coniprehensive manner by .the statute. · Three types Of alloWance_s were
E
permitted in respect of this category of expe~diture of which we are here
· concerned with only one. This provision wa; contained in Clause (xiv)' of
S.10(2) which permitted: a deduction.
1'in respect. of any expenditure of a 'capital n~tur-e on scien·
·p
·tific research related to the business, an allowance for each
of the five c.ons~cutivc previous year.s beg~nning with the ·
year in which the expenditure.was incurred, or where the
expenditure W<:tS incurred prior to the Commencement of
the business, for each of the five consecutive previous yet;trs
beginning with the year in which the business was comG
· menced, equal to one-fifth of such expenditure:
Provided that no allowance shall be made for any
expenditure incurred niore than three years ·before the
commencement of the business: ·
H
A
B
c
D
E
F
162
SUPREME COURT REPORTS IJ.992] SUPP. 2 S.C.R.
Provided further that -
xxx
xxx
xxx
( d) where a deduction is allowed for any previous year
under this clause in respect of expenditure represented
wholly or pa~tly by any asset, no deduction shall be allowed
under claus~ (vi) or clause (vii) for the same previous year
in respect of that asset;
( e) where an asset is u:;ed in the business after it ceases to
be used for scientific research related to that business, and
a claim for an allowance under clause (vi) or clause (vii) is
made in respect of that asset, the actual cost to the assessee
of the asset shall be treated as reduced by the amount of
any deductions allowed under this clause;"
A cursory and conjoint reading of section 10(2) (vi) and section 10(2) (xiv)
suggests that where an ossessee incurs expenditure of a capital nature on
scientific research related to the business and the expenditure results in
the acquisition of an asset, the assessee can claim, under clause (vi), a
deduction of the specified percentage of the written down value of the asset
and under clause (xiv) he can ask for a deduction, in five consecutive years,
of the expenditure he has incurred on the acquisition of the asset. For this
purpose, we are assuming that an asset used for scientific research related
to the business is also ipso facto an asset used for the purpose of business.
There has been some debate before us as to whether this is always so but
we need not enter into that controversy for the purposes of the present
case.
It will at once be seen that, if these two provis10ns are applied
simultaneously, it would result in granting an assessee a double allowance
in respect of the same expenditure - one of the entire amount over a period
G
of 5 years and the other a percentage of the expenditure over a number
of consecutive years at a graded scale as already mentioned. The question
at once leaps to the mind as to whether it could have been the intention
of the legislature to permit both these deductions simultaneously to an
assessee. The provisions of clauses (d) and (e) of the proviso to S.10(2)
H
(xiv) contain a clue to answer this question. More about it later.
ESCORTS LTD. v. U.0.1. [RANGANATHAN, J.]
163
We next turn to the provisions of 1961 Act. The topic of depreciaA
tion is dealt with by section 32. Section 32(1) (ii) provides for depreciation.
As under the 1922 A~t, it is allowed at a percentage of the written down
value of certain capital assets employed. in the bussiness. The topic of
scientific research expenditure is dealt with by section 35 .. Section 35(1)
provides for the deduction of four types of expenditure on scientific . B
research and what we are concerned with is the deduction provided under
section 35(1) (iv), which is to the following effect :
(iv) in respect of any expenditure of a capital nature on
scientific research related to the business carried on by the
assessee, Buch deduction as may be admissible under the·
provisions of sub-sedion (2)."
Sub-section (2) provides that, for the purposes of clause (iv) of sub-section
(1), one-fifth of the capital expenditure incurred in any previous year shall
be deducted for that previous year; and the balance of the expenditure shall
be deducted in equal instalments in each of the four immediately succeeding previotis years.
T~ere is an explanation whi~h is not relevant· for our
present purposes. Reading S.35(2) further, it pro.vides in clauses (iv) .and .
( v) as follows :
·
"(iv) where a deduction is allowed for any previou< year
u~der this section in respect .of exp~nditurc repreSented
wholly or partly by an asset, no deduction shall be allowed
under clauses {i), (ii) and (iii) of sub-section (1) of'section ·
32 for the same previous year in.respect of that asset;
(v) where the asset mentioned itl clause (ii) is used in the
business after it ceases to be used· for scientific research
related to that business, depreciation shall be. admissible
under clauses (i), (ii) and (iii) of sub-section (1) of section
32.11
c
E
F
Reference must also be.made to Explanation 1 to s. 43(1) in.this G
context. It read as follows at the relevant time :
"Explanation : Where an asset is used in business a~ter it
ceases to be Used for scientific r~search related to that
business and a deduction has to. be m.ade under clause (i),
H
A
B
164
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
clause (ii) or clause (iii) of sub-section (1) or sub-section
(lA) of section 32 in respect of that asset, the actual cost
of the asset to the assessee, as reduced by the amount of
.. any deduction allowed under clause (iv) of sub-section (1)
of section 35 or under any corresponding provision of the
Indian Income-tax Act, 1922 (11of1922).'
From the above it will be seen that the pro\isions of Section 32( 1)
(ii) and Section 35(2) (i) (iv) and (v) read with Explanation 1 to s.43(1)
virtually repeat the provisions contained in Section 10(2) (vi) and 10(2)(xiv)
of the 1922 Act, so that the question earlier posed still loomed in the
C background of 1%1 Act.
D
E
F
In 1968 there was an amendment in the provisions of Section 35(2).
The sub-section was amended to read as follows :
'(2) For the purposes of clause (iv) of sub-section (1),--
(i) in a case where such capital expenditure is incurred
before the 1st day of April, 1%7, one-fifth of the capital
expenditure inc•irred in any previous year shall be
deducted for that previous year; and the balance of the
expencliture shall be deducted in equal instalments for each
of the four immediately succeeding previous years;
(i-a) in a case ':"here such capital expenditure is incurred
after the 31st day of March, 1%7, the whole of such capital
expenditure incurred in any previous year shall be
deducted for that previous year.'
The effect of this amendment was only to provi<•' that the entire amount
of capital expenditure incurred in relation to scientific research was allowed as a dedection in one year instead of being spread over a period of
five years as was the position earlier. This amendment does not touch the
G
controversy in issue before us and it bas no solution to offer to our present
difficulty.
.
The provisions of Section 10(2) (vi) and (xiv) of the old Act had been
administered between 1946 and 1%2 and the provisions of Section 32 and
35 of the 1%1 Act have been administered since 1%2. The question
. H whether an assessee can simnltaneously claim an allowance or deduction
ESCORTS LTD. v. U.O.l. [RANGANATHAN, J.]
165
in respect of the same expenditure once under Section 32 and again in
A
Section 35 must have cropped up in some cases and it does appear that
such a doubll3 claim was put forward in some cases. The contention on
behalf of the assessees was that the allowances in respect of depreciation
on the one hand and in respect of capital expenditure on scientific research
on the other are two totally different and independent heads of allowances.
One is a notional allowance to provide for the wear and tear of a capital
asset employed in the business as the years roll by; the other is an allowance
for actual expenditure of a capital nature granted, on the eve of our
country's independence, in order to give fillip to new industrial innovations
and the development of indigenous kil,O)V-~Ow and techniques by proper
planning on research and development by·,various business houses. It is
therefore suggested that there is nothing absurd in construing the statutes
act as providing cumulatively for both types of deductions in respect of the
same capital asset. The only limitations on this right are the two placed
B
c
by the statute itself. The first limitation, contained in clause ( d) of the
proviso to Section 10(2) (xiv) and s.35(2) (iv) is that both the deductions D
cannot be claimed "for the same previous year" in respect of the same
capital asset. The second limitation is found in clause ( e) of the proviso
to Section 10(2) (xiv) and s.35(2) (v) which say that if a capital asset used
for scientific research ceases to be so used but is thereafter brought into a
business for use therein, the actual cost for purposes of granting depreciation in respect of the asset thereafter should be taken as the amount of its
original cost reduced by the amount of deductions allowed under Section
10(2) (xiv) or s.35(2). In other words, the contention of the assessee was
and is that both the types of allowances are permissible under the statute
except to the extent limited by clauses (d) and (e) of the proviso to Section
10(2) (xiv) of the 1922 Act and reproduced in clauses (iv) and (v) of
Section 35(2) of the 1961 Act.
Before us it is claimed on behalf of the assessee that this interpretation of the statutory provisions is very clear, patent and unambiguous. It
is alleged that despite this, some Income-tax Officers started disallowing
the claim of depreciation in respect of such capital assets even in previous
years during which no deduction was claimed or allowed under Section
10(2) (xiv) or Section 35(2), contrary to the clear language of clause (d) of
s.10(2) (xiv) and s.35(2) (iv). These orders were reversed on appeal either
E
F
G
by the Appellate Commissioner or by the Tribunal. It was suggested that
these decisions were almost unanimously in favour of the assessee but the
H
A
B
c
D
E
166
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
department persisted in pursuing the matter upto the stage of the High
. Court. Only one reference on this topic came up before the High Courts
and is reflected in the decision of the Karnataka High Court, reported as
CIT v. Indian Telephone Industries Ltd., (1980) 126 I.T.R. 528. This was a
referenc~ of the year 1977 made at the instance of the Commissioner of
Incorne Tax and the Commissioner of Income Tax lost this reference. The
High Court re-affirmed the position contended for ·by the assessee as the
one and only possible interpretation of the statutory provisions. It is,
therefore, contended that there was, and could have been, no doubt that
an assessee was entitled to claim depreciation allowance in respect of such
assets in respect of previous years other than those in which an allowance
had been allowed under the other head. We shall revert later to this aspect
of the matter.
At this stage, th_e Finance (No.2) Act, 1980 intervened .. It amended
section 35(2) (iv) to read as follows :
"(iv) where a deduction is allowed for any previous year
under this section in resped of expenditure represented
wholly or partly by an asset, no deduction shall be allowed
under clauses (i), (ii) ar,d (iii) of sub-section (1) of section
32 for the same or any other previous year in respect of that
asset.
11
(Emphasis added)
The Finance Act made this amendment retrospeotive w.e.f. 1.4.62, that is,
the date of the commencement of the 1961 ·Act. This amendment is
F
undoubtedly far-reaching in its effect. It will result in completion of the
pending assessments of several years on the footing of the new provision.
It will also involve re-opening or rectification of completed assessments of
earlier years, to the extent ·pern1issible under the provisions of sections 148
and 154, in cases where assessees had been granted "double allowance"
accepting their contention at the time of the original assessments. The
G
effect will be not for one assessment year but for a number of assessment
years in succession. Painting a very grim picture of the consequences of
giving full retrospective effect to the amendment, the assessees say that it
will impose unexpected and impossible burden on them over the years,
jeopardise their solvency and lay them open to action by creditors and
H
financial institutions. Such an onerous burden, it is said, is unreasonable
-
ESCORTS LTD. v. U.0.1. [RANGANATHAN, J.J
167
and oppressive and the provision imposing such burden violates the funA
damental rights of the assessees under Articles 14 and 19(1) (g) of the
Constitution of India. It is on this plea that, even though assessments and
appeals are pending in several of these cases, the petitioners chose to
approach this Court by way of writ petitions under Article 32 of the
Constitution. These are mostly writ petitions of the year 1981 and are now
coming up for hearing after a period of 10 years.
B
Learned counsel for the assessees do not contest the competence of
the legislature to enact the impugned provision, nor do they dispute the
right of the legislature to give retrospe.ctive effect to statutory provisions.
The contention only is that retrospective provisions may be permissible C
even in taxing statutes in certain special circumstances such as in the case
of provisions clarifying the impact of a statute, provisions curing defective
legislations in the light of the judicial decisions and the like. They, however, say that if the legislature chooses to impose a totally new burden,
which was not at all in contemplation earlier and proceeds to give full
retrospective effect thereto, such an attempt should be struck down as D
unreasonable and discriminatory. The principal questions, therefore, for
our consideration are :
(1) Were the earlier statutory provisions capable of only
one interpretation, namely, that placed by the assessees or
was there any ambiguity in relation thereto ?
(2) If there was some doubt or ambiguity about the earlier
legislation, and the 1980 Act clarified the position by a
retrospective amendment, would it offend the provisions
of the Constitution ?
(3) If, on the other hand, the earlier provision was very
clear and capable of only one interpretation, as placed by
the assessee, was the legislature within its rights in amending the provision retrospectively w.e.f. 1.4.62 and thus imposing an unreasonable tax burden on the assessees ?
Taking up the first of the three questions, it has to be considered
from two angles, one factual and the other, legal. An attempt was made
E
F
G
on behalf of the petitioners to project an image as if the interpretation
sought to be placed by the department on pre-1980 provisions to disallow H
168
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
A
depreciation on such assets was so far-fetche.d that it never received the
approval of the higher appellate authorities. It was suggested that the
appeals by assessees against the disallowance invariablysucceeded and it
was the Department t_hat had to move the High Court on reference, the
first of which references came up before the Karnataka High Court in
B
c
C.l. T. v. Indian Telephone Industries (1980)126 l.T.R. 548 and was
answered against the: Department. On the basis of such allegations the
petitioners attempted to.make out that the Department's interpretation was
patently untenable _and that the 1980 amendment is not in _the nature of a
statutory clarification of an ambiguity but a totally new and fresh imposition sought to be unjustifiably given retrospective effect.
But, as Shri B.B. Ahuja has pointed out on the basis of the averments
of the petitioner in one of the cases, viz., W.P.I 153/81, the impression
sought to be created by the petitioners does not accord with the correct
facts. The position in the case is available only as it stood at the time when
D the writ petition and the counter affidavit were filed and subsequent
developments are not known. Nevertheless, the picture that emerges is
this. In that case, the Income-lax Officer (I.T.O.) is said to have allowed
depreciation on assets used for ~1Cientific research, for the assessment year
1969-70, though this is denied by the department. The claim was perhaps
disallowed by the I.T.O. for the assessment year 1970-71, but it was allowed
E
by the Allahabad Bench of the Income-tax Appellate Tribunal (I.T.A.T.)
by its order dated 30.8.76. For the assessment year 1971-72, the I.T.O.
disallowed the depreciation.
The Appellate Assistant Commissioner
(A.A.C.) allowed it. The department appealed to the Delhi Bench of the
I.T.A.T. which accepted the department's plea by its order dated 13.8.79
F
placing reliance on the decision of a Special Bench of the l.T.A.T. It has
been stated that the assessee filed an application for reference to the High
Court which was pending when the writ petition was filed. For the assessment years 1972-73 to 1974-75, the assessments are pending as a stay order
had been obtained for reasons which are not known. For the assessment
years 1975-76 and 1976-77, the assessee claimed depreciation on a number
G
of items of scientific research assets.
The l.T.O. "allowed" the claims
subject to the' rider that
11there is no provision to give deduction of more
than 100% of the expenditure by way of depreciation". The assessec
appealed to Commissioner of Income-tax (Appeals) who disallowed the
claim. For 1977-78, the I.T.O. disallowed the claim and the C.I.T. disH
missed the assessee's appeals. For assessment years 1978-79 to 1980-81,
-
ESCORTS LTD. v. U.O.l. [RANGANATHAN, J.]
169
the assessme~ts are stated to be pending. The above facts are sμfficient A
t'o show that,. atleast after 1.4.1968, - there is no inform:ition before μs as
to the position between 1.4.1946 and 31.3.1968 - the Department has been
putting forward its objections on the issue and that the same was the
subject matter of controversy at various appellate stages, some decided in
favour of, and some against, the assessce. A Special Bench of the l.T.A.T.