COMMISSIONER OF INCOME TAX Vs. MAZAGAON DOCK LIMITED

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, the Tribunal has referred the following questions of law to this Court for opinion at the instance of the Revenue :

(2.) IT is agreed by the learned counsel for the parties that out of the above questions, three questions, viz., question Nos. 1, 3 and 4 are covered by a decision of this Court in the assessee's own case in CIT vs. Mazagaon Dock Ltd. (1991) 191 ITR 460 (Bom) and, in view of the same, these three questions should be answered in the affirmative, i.e., in favour of the assessee and against the Revenue. These questions are answered accordingly.

(3.) THE assessee is a public limited company fully owned by the Govt. of India. It was originally incorporated in the year 1934. At that time its principal shareholders were the British India Steam Navigation Co. and the Peninsular & Oriental Steam Navigation Co. The company was taken over by the Govt. of India on 19th April, 1960. Till then, the activities of the company were limited to repairs of ships and building small crafts like barges and tugs. There were two small dry docks and shops geared primarily for ship repair work with machinery out of date and unusable for building of big ships. When the Govt. of India took over the company, it was decided to install new and modern facilities at the docks for taking up the work of building big war ships and other ocean going vessels. The total cost of the project was estimated at Rs. 832 lakhs. There are two steps in the construction of a ship, the first step being the construction upto the hull stage carried out on the shipway and the second step being fitting of machinery and equipment and taking of trials, etc., which is done in the wet dock. The assessee, therefore, constructed two new ship building berths capable of accommodating ships of approximately 15,000 tonnes DWT along with a plasters and assembly ship and other attendant facilities. To facilitate the second part of the construction process, the tidal Kasara Basin in Mazagaon Dock was converted into an impounded wet dock. To move the ship from the first to the second stage of construction, the vessels had to be towed from the shipways of the Kasara Basin Wet Dock. On completion of the ship building work, the vessels proceed to the outer waters and the open sea for delivery. The assessee, however, found that the sea bed in front of Mazagaon Dock was only about 1.2' below zero datum at a normal tide of 10'. The question of provision for modern facilities for the assessee was, therefore, investigated by the assessee through a firm Sir Alexander Gibbs Partners. The said firm recommended dredging an approach channel which would connect Mazagaon Dock Ltd. with the main channel of Bombay Port Trust ("BPT") for the purpose of bringing ships into the Kasara Basin, where the second stage of construction of the ship was to proceed. The technical consultants M/s Bruce White, Wolfe Barry & Partners, who were appointed to give guidance to the assessee on the dredging work as recommended above, advised that it would be cheaper to carry out the work departmentally instead of giving a contract to an outsider on turn key basis. In order to obtain a minimum depth of 25' at mean high tide, capital dredging was undertaken and an approach channel of 1.1/4 mile in length was dug in the sea bed. The creation of this approach channel consisted of dredging silt, murrum and rock. The assessee, therefore, purchased a dredger at a cost of Rs. 47.35 lakhs and also constructed two Hopper Barges for removing silt. The dredging of rocks was, however, entrusted to a contractor by the name of Ivan Mulutinovic Pim Contractors for Rs. 46.21 lacs, the work being of a specialised nature. The total cost incurred by the assessee on this capital dredging amounted to Rs. 1,26,85,312. In spite of this capital dredging, the assessee is required annually to remove silt, etc., with which, however, we are not concerned.