MAHINDRA AND MAHINDRA LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference three applications are consolidated into one income -tax reference and, accordingly, we have answered the questions as per Reference Application No. 1561 of 1982 filed by the assessee and Reference Applications Nos. 1708 of 1982 and 1709 of 1982 filed by the Department.

(2.) THE main dispute falls under Reference Application No. 1709 of 1982 filed by the Department under which the following questions of law arise for determination. 'I, Whether, on the facts and in the circumstances of the case, the sum of Rs. 57,74,064 due by the assessee to Kaiser Jeep Corporation of America and written off by the lender constituted taxable income of the assessee ? 2. Whether, on the facts and in the circumstances of the case, the assessee having obtained deduction of Rs. 27,29,585 by way of depreciation on the cost of machinery and toolings, was taxable under Section 41(1) of the Income -tax Act as the cost of the machinery/ toolings being forgone by Kaiser Jeep Corporation during the assessment year 1976 -77 ?

(3.) WHETHER the Tribunal was right in holding that the amount of Rs. 57,74,064 constituted a benefit of perquisite in cash and, therefore, it did not fall within Section 28(iv) of the Income -tax Act ?' 3. Questions Nos. 2, 3 and 4 referred to hereinabove are reframed questions. They have been reframed with the assistance of the learned advocates on both sides. Facts : 4. In this reference, we are concerned with the accounting year ending October 31, 1975, corresponding to the assessment year 1976 -77. The assessee, Mahindra and Mahindra Limited, had detailed plans to expand its jeep product line by including FC -150 and FC -170 models. On June 18, 1964, therefore, the assessee entered into an agreement with Kaiser Jeep Corporation situate in America. In terms of this agreement, Kaiser Jeep Corporation (hereinafter referred to for the sake of brevity as 'KJC') agreed to sell to the assessee dies, welding equipments, and die models (hereinafter referred to for the sake of brevity as 'toolings'). This was for production of special type of jeeps by the assessee in India. The price of the toolings was agreed at 6,50,000 c.i.f., Bombay. The import of the toolings was approved by the Government of India, Department of Heavy Engineering, Ministry of Industry, vide their letter dated January 15, 1965. By that letter, the Government of India approved the request of the assessee for importing the toolings required for manufacture of jeeps valued at Rs. 36.50 lakhs against a loan from KJC bearing interest of 6 per cent., free of income -tax and repayable after ten years in instalments. The import of toolings was done against a licence dated April 9, 1965, which was obtained by the assessee for a c.i.f. value of Rs. 31,26,500. Since the assessee could not secure foreign exchange, KJC agreed to provide loan for an amount of 6,50,000 repayable after ten years in instalments with interest at 6 per cent., free of income -tax. For this purpose, the assessee addressed a letter on June 7, 1965, to the Reserve Bank of India. Consequently, the loan arrangement was approved, both by the Reserve Bank of India and Ministry of Industry. On the licence, a condition was imposed to the effect that the foreign exchange involved equivalent to Rs. 31,26,500 would be net out of foreign exchange loan of 6,50,000 obtained by the assessee from Kaiser Jeep International Corporation of USA. At this stage, it may be mentioned that the export marketing unit of KJC was Kaiser Jeep International Corporation also situate in USA. The total cost of the toolings received was 6,50,000. The toolings were received as per invoice dated September 29, 1965, for 309,693.37; October 29, 1965, for 339,861.63 and on November 16, 1965, for 445.00 in all amounting to 6,50,000. Consequently, in terms of the approval granted by the Central Government, the assessee received loan for securing the toolings from KJC for which the assessee gave three promissory notes dated September 16, 1965, October 28, 1965, and November 19, 1965, in all for 6,50,000. Accordingly, the toolings were supplied by KJC.