1. The question that we have to answer in this reference under s. 256(1) of the I.T. Act. 1961, is this :
'Whether, on the facts and in the circumstances of the case, the appellant was entitled to a deduction in respect of the discarded dies, either under section 28 of the I.T. Act, 1961, or under any other provision of the assessment year 1963-64 ?'
2. The question is raised at the instance of the assessee.
3. The assessee deals in and manufactures cameras. During the accounting year relevant to the assessment year 1963-64, the assessee purchased second hand dies of the value of Rs. 42,490 out of which it wrote off a sum of Rs. 31,867 during the same accounting year. The dies had been purchased for manufacturing cameras with American collaboration, but these cameras, when so produced, were found to be defective. According to the assessment order, the assessee admitted that nothing but trial samples dies could not be said to have been used in the assessee's business and this was upheld by the AAC. The assessee took the matter to the Tribunal in second appeal. The Tribunal set aside the order of the AAC and directed him to dispose of the matter afresh after giving another opportunity to the assessee to prove that the dies were actually used in its manufacturing process. The appeal was decided afresh by the AAC and the claim of the assessee was partially allowed. It was held that the total cost of 36 dies imported by the assessee was Rs. 42,490; of these 15 were discarded and the proportionate amount was allowed.
4. The Raven appealed to the Tribunal. The Tribunal upheld, on the basis of the material on record, the AAC's finding that the dies were actually utilized in the manufacture of cameras in the accounting year in question. However, the legal position appeared to the Tribunal to be in favour of the Revenue. The only two sections in the Act under which a write-off of his nature could possibly be claimed were s. 32(1)(iii) and s. 28. question was 'sold, discarded, demolished or destroyed in previous year (other than the previous year in which it is first brought into use).......'. It did not, therefore, apply to the assessee's case where the write-off had admittedly taken place in the previous year in which the dies were first brought into use. Under s. 28, only items of a revenue nature were permissible for the assessee. There being no provision in the Act enabling the write-off that had been claimed by the assessee, the Tribunal reversed the order of the AAC.
5. The assessee then sought a reference of the question that we have quoted above.
6. An argument was advanced before us by the learned counsel for the assessee that, admittedly, was not advanced before the Tribunal. It was pointed out by her that the dies were purchased by the assessee in the manufacture of cameras during the previous year. Emphasis was laid upon the sword in parenthesis in s. 32(1)(iii), viz., '(other than the previous year in which it is first brought into use)'. It was submitted that the dies being second-hand, they had been first brought into use at a pointer of time much earlier than during the previous year. The words in parenthesis did not require account to be taken only of when the assessee first brought the dies into use. Support was drawn by the counsel from the first proviso to s. 32(1)(ii), which reads thus :
'Provided that where the actual cost of any machinery or plant does not exceed seven hundred and fifty rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of this business or profession.'
7. Counsel pointed out that where the legislature intended to say so, it had expressly used the words 'first put to use by the assessee for the purposes of his business or profession'. The fact that such or similar words were not used in s. 32(1)(iii) showed that the legislature did not intend account to be taken only of first use by the assessee.
8. Mr. Joshi, the learned counsel for the Revenue, submitted that the provisions of s. 32(1)(iii) should be read in the context in which they appear. He laid stress on the opening words of sub-section (1) of s. 32 which says : 'In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall..... be allowed'. In his submission, so read in the context, it was implicit that account could be taken only of when the assessee had first brought the dies into use. Mr. Joshi cited a judgment of the Supreme Court in Liquidators of Pursa Limited v. CIT : 25ITR265(SC) . It was held there that the machinery or plant in respect of which allowance was claimed must be used for the purpose of the assessee's business and for the purpose of earning profits therein.
9. In the instant case, the Tribunal has come to an unequivocal finding that the dies were utilised by the assessee in the manufacture of cameras during the previous year. Having regard to this finding, the authority that Mr. Joshi relied upon does not assist us. We are impressed by the argument of counsel for the assessee that s. 32(1)(iii) does not in the parenthetical portion use the words 'by the assessee', whereas this is made unambiguously clear in the first proviso to s. 32(1)(iii). Were it not for the parenthetical portion, the assessee would be entitled to the allowance thereunder. It is the parenthetical portion which excludes the assessee from that allowance. The parenthetical portion must, therefore, be strictly construed. So construed, there is no doubt in our minds that where, as here, the machinery is second-hand, the assessee is entitled to claim the allowance under s. 32(1)(iii) though he may have first brought the machinery into use only in the previous year.
10. Upon this construction, we answer the question posed thus :
'On the facts and in the circumstances of the case, the assessee was entitled to a deduction in respect of the discarded dies under section 32(1)(iii) of the Income-tax Act, 1961'.
11. Counsel for the assessee also relied upon ss. 28 and 37 of the Act. We see no reason now to deal with these arguments.
12. Having regard to the fact that the contention which we have upheld was not advanced before the Tribunal, we direct that each party should bear its own costs.