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Commissioner of Income-tax, Karnataka-ii Bangalore Vs. Mysore Iron and Steel Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 100 of 1975
Judge
Reported in[1978]115ITR219(KAR); [1978]115ITR219(Karn)
ActsIncome Tax Act, 1961 - Sections 33
AppellantCommissioner of Income-tax, Karnataka-ii Bangalore
RespondentMysore Iron and Steel Ltd.
Appellant AdvocateS.R. Rajasekharamurthy, Adv.
Respondent AdvocateG. Sarangan, Adv.
Excerpt:
.....the tribunal was upheld. - the case of the assessee, therefore, clearly fall under section 33 of the act which provides that, in respect of a new machinery (other than office appliances or road transport vehicles) which is own by an assessee and is wholly use for purposes of business carried on by him, there shall be allowed a deduction, in accordance with and subject to the other provisions of the act, a sum by way of development rebate, as specified in clause (b) of section 33(1) of the act......reiterated by the supreme court in sree meenakshi mills ltd. v. commissioner of income-tax : [1967]63itr207(sc) . 6. the tribunal was, therefore, right in holding that the assessee was entitled to the rebate in respect of new machinery used for the construction of the buildings in question. question no. 1 has, therefore, to be answered in the affirmative. in view of the above, the answer to the second question also has to be in the affirmative. both the questions are accordingly answered in the affirmative and in the favour of the assessee.
Judgment:

Venkataramaiah, J.

1. The two questions which are referred to us under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), are :

'1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to development rebate in respect of machinery whose value was Rs. 8,53,960 for the assessment year 1965-66

2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to the full depreciation in respect of machinery which was used partly for the construction of new buildings and partly for installation of new machinery ?'

2. The assessee is M/s. Mysore Iron and Still Ltd., Bhadravati. During the assessment year in question it claimed development rebate under section 33 of the Act in respect of certain machinery consisting of air-compressors, overhead trollies and other equipment which had been used by it for the purpose of constructing new building for the expansion of its existing factory and for installation of new machinery. The value of the machinery so used was Rs. 8,53,960. The Income-tax Officer declined to allow the rebate on the ground that the machinery in question had been used for construction of building and that was not the business of the assessee. On appeal, the Appellate Assistant Commissioner of Income-tax reversed the finding of the Income-tax Officer and directed him to allow rebate as prayed for. The Tribunal confirmed the order of the Appellate Assistant Commissioner of Income-tax. The above two questions are referred to us at the instance of the department.

3. It is no doubt true that the business in which the assessee is engaged in manufacture of iron and steel. In order to manufacture iron and steel it should have necessary factory buildings. When the assessee itself constructs buildings for expansion of its factory, it does so for the purpose of its business. When any new machinery is used for such construction, then the machinery is used for the purpose of its business. The case of the assessee, therefore, clearly fall under section 33 of the Act which provides that, in respect of a new machinery (other than office appliances or road transport vehicles) which is own by an assessee and is wholly use for purposes of business carried on by him, there shall be allowed a deduction, in accordance with and subject to the other provisions of the Act, a sum by way of development rebate, as specified in clause (b) of section 33(1) of the Act.

4. Sri S. R. Rajasekharamurthy, learned counsel for the department, relied, in support of his case, upon the decision of this court in Bharat Earth Movers Ltd. v. Bhagyamma [1975] 1 Kar LJ 17, in which the question for consideration before this court was whether an employee of a person who had been engaged as a contractor by Bharat Earth Movers Ltd. to construct certain buildings for its use could claim compensation from Bharat Earth Movers Ltd. under the provisions of the Workmen's Compensation Act. This court held that since the construction of buildings which had been entrusted to an independent contractor was not the business of Bharat Earth Movers Ltd., it was not liable to pay the compensation. On the basis of the above decision it was urged by Sri Rajasekharamurthy that since the construction of buildings was not part of the business of the assessee in this case, the assessee could not claim development rebate in respect of machinery which had been used for the construction of the buildings in question. We are of the view that no assistance can be derived by the department from the decision in the case of Bharat Earth Movers Ltd. [1975] 1 Kar LJ 17 , where the construction of buildings had been actually entrusted to an independent contractor. In the present case, the buildings were actually constructed by the assessee itself departmentally and the buildings were intended for its business. The expression 'for the purposes of business carried on by him' appearing in section 33(1) are of wide import as observed by the Supreme Court in Commissioner of Income-tax v. Malayalam Plantations Ltd. : [1964]53ITR140(SC) . The relevant observations of the Supreme Court are as under :

'The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide : it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However, wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business.'

5. The above view is again reiterated by the Supreme Court in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax : [1967]63ITR207(SC) .

6. The Tribunal was, therefore, right in holding that the assessee was entitled to the rebate in respect of new machinery used for the construction of the buildings in question. Question No. 1 has, therefore, to be answered in the affirmative. In view of the above, the answer to the second question also has to be in the affirmative. Both the questions are accordingly answered in the affirmative and in the favour of the assessee.


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