A. R. DAVE, M. S. SHAH, D. A. MEHTA, J.

( 1 ) HAVING gone through the judgment of my learned Brother Justice M. S. Shah, in view of the reasons which follow hereinafter we record our opinion.

( 2 ) THE assessee is a Public Limited Company. The Company manufactures Fertilizers and Caprolactum. The assessment years are : 1977-78, 1978-79 and 1979-80, the respective accounting periods being calendar year 1976, 1977 and 1978.

( 3 ) THE assessee entered into a contract for supply of plant and machinery equipments with M/s. Hitachi Zosen of Japan on deferred credit basis. Accordingly, the assessee was required to make payment in instalments over a period of time. The liability for the years under consideration has increased by reason of fluctuation in exchange rate. The assessee claimed the following amounts for each of the years under consideration as allowable business expenditure. (1) Rs. 9,21,658. 00, (2) Rs. 26,49,336. 00, (3) rs. 57,77,322/ -. The claim of the assessee was negatived and it was held that the expenditure in question was capital in nature.

( 4 ) THE assessee preferred an alternative claim that the aforesaid expenditure went to increase the actual cost of the plant and machinery and hence the assessee should be granted investment allowance under section 32a of the Income-tax Act,1961 (The Act ). The Income Tax Officer rejected the claim of the assessee stating that conditions for applicability of section 32a were not satisfied. The Commissioner of Income Tax (Appeals), before whom the assessee went in appeal held that the order of the Income Tax Officer was correct because the years under consideration are not the years when the assets were either installed or first put to use, and this was the basic requirement for applicability of Section 32a of the Act. The Income Tax Appellate Tribunal, in the Second Appeal preferred before it upheld the claim of the assessee on the basis of the reasons stated in earlier orders wherein development rebate had been granted to the assessee in the same set of facts and circumstances.

( 5 ) THE Tribunal has raised the following question of law at the instance of the Commissioner of Income Tax for the opinion of this Court :"whether, the Tribunal has been right in law and on facts in holding that the assessee is entitled to investment allowance on account of additional expenditure in the cost of plant and machinery on account of realignment of currency ?"

( 6 ) WHEN the matter came up before the Division Bench, revenue placed reliance upon the decision of this Court in the case of C. I. T. Vs. Windsor Foods Ltd. ,235 ITR 249 (Guj. ). On behalf of the assessee reliance was placed on various provisions of the Act as well as the decisions of other High Courts which have taken a contrary view. The Division Bench was of the prima facie opinion that the view expressed by this Court in the case of Windsor Foods Ltd. (supra) did not appear to be correct as the aspect of Section 43a of The Act commencing with non obstante clause and hence overriding other provisions of the Act, was not taken into consideration. Accordingly, the matter is placed before the Larger Bench for deciding the Reference.

( 7 ) THE Division Bench of this Court in the case of Windsor Foods Ltd. (supra) was called upon to decide the following question :"1. Whether, on the facts and in the circumstances of the case and in law the Tribunal was right in coming to the conclusion that the assessee was entitled to investment allowance on the amount of Rs. 80,414. 00 being the additional liability arising due to fluctuation in foreign exchange rate in respect of the payment of outstanding instalments of machinery ?"thus, as the question itself indicates the additional liability arose due to exchange fluctuation in respect of payment of outstanding instalments. This is what was held in the said case :-"the extent of addition (or reduction as the case may be), to the actual cost of the asset is directly connected with the liabilit

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