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Commissioner of Income-tax Vs. Indian Turpentine and RosIn Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 596 of 1964
Judge
Reported in[1970]75ITR533(All)
ActsIncome Tax Act, 1922 - Sections 10(2) and 10(5)
AppellantCommissioner of Income-tax
RespondentIndian Turpentine and RosIn Co. Ltd.
Appellant AdvocateShanti Bhushan, Adv. General and ;R.R. Misra, Adv.
Respondent AdvocateV. Sarup, Adv.
Excerpt:
- .....of section 10(2) of the act. clause (vi) provides for depreciation of buildings, machinery and plant. clause (via) deals with depreciation of buildings newly erected or of machinery or plant installed after march 31,. 1948. it will be noticed that all these clauses (vi), (via), and (vib) use the-words 'machinery' and 'plant'. the tribunal rightly observed that. there is a presumption that the legislature must have used the words. 'machinery' and 'plant' in various clauses of section 10(2) of the act in the same sense.5. in commissioner of income-tax v. mir mohammad ali, [1964] 53 i.t.r. 165 (s.c.), the assessee was a transport operator. the assessee replaced petrol engines in two buses by diesel engines incurring an expenditure of rs. 18,544. the question arose whether in addition to.....
Judgment:

V.G. Oak, C.J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922 (hereafter referred; to as,' the Act'). The assessee is a company manufacturing and selling rosin and turpentine. For a long time the company was using electricity on D.C. system. In order to reduce electricity charges the company decided to change over from D.C. system to A.C. system. The change involved a total expenditure of .Rs. 1,11,407. The company claimed a deduction of Rs. 27,852 as development rebate. This claim was disallowed by the Income-tax Officer. The decision was upheld in appeal by the Appellate Assistant Commissioner. But the assessee succeeded before the Appellate Tribunal, Allahabad. The Tribunal held that the assessee was entitled to development rebate under Section 10(2)(vib) of the Act, The Tribunal was not sure whether all the equipments used in the change over was new. The case was, therefore, remanded to the Income-tax Officer to dispose of the claim of the assessee for development rebate on that footing. The appeal was partly allowed. At the request of the Commissioner of Income-tax, U. P., the Tribunal has referred the following question of law to this court :

' Whether, on the facts and in the circumstances of the case, the electrical installations installed by the assessee-compony, as a result of a change over from D.C, to A.C. system, constitute plant and machinery and whether development rebate was admissible in respect of expenditure incurred in connection therewith? '

2. The assessee claimed development rebate under Clause (vib) of Sub-section (2) of Section 10 of the Act. Clause (vib) is ;

'In respect of machinery or plant being new, which has been installed after the 31st day of March, 1954, and which is wholly used for the purposes, of the business carried on by the assessee, a sum by way of development rebate in respect of the year of installation equivalent to 25 per cent. of the actual cost of such machinery or plant to the assessee...'

3. It was not disputed for the department that the expenditure in question was wholly used for purposes of the business of the assessee. But it was urged for the department that the expenditure was not in respect of any machinery or plant. So, the main question for consideration in this reference is whether the expenditure of Rs. 1,11,407 was in respect of any 'machinery or plant' within the meaning of Clause (vib) of Section 10(2) of the Act.

4. In order to understand the meaning of the words 'machinery' and 'plant', used in Clause (vib), it will be convenient to consider certain other clauses of Section 10(2) of the Act. Clause (vi) provides for depreciation of buildings, machinery and plant. Clause (via) deals with depreciation of buildings newly erected or of machinery or plant installed after March 31,. 1948. It will be noticed that all these Clauses (vi), (via), and (vib) use the-words 'machinery' and 'plant'. The Tribunal rightly observed that. there is a presumption that the legislature must have used the words. 'machinery' and 'plant' in various clauses of Section 10(2) of the Act in the same sense.

5. In Commissioner of Income-tax v. Mir Mohammad Ali, [1964] 53 I.T.R. 165 (S.C.), the assessee was a transport operator. The assessee replaced petrol engines in two buses by diesel engines incurring an expenditure of Rs. 18,544. The question arose whether in addition to normal depreciation the assessee was entitled to extra depreciation allowances under the second paragraph of Clause (vi) and Clause* (via) of Section 10(2) of the Act. It was held that the assessee was pntitled to deduction of extra depreciation allowances under the second, paragraph of Clauses (vi) and (via) of Section 20(2). It was further held that the same meaning ought to be given to the word 'machinery' in the various Clauses (iv), (v), (vi)and (via) of Section 10(2) of the Act. On the same reasoning, the word 'machinery' should have the same meaning in Clause (vib) of Section 10(2) of the Act.

6. In Raju and Mannar v. Commissioner of Income-tax, [1963] 50 I.T.R. 202 it was held by theMadras High Court that a diesel engine is mahcinery and fitting the engine in a motor vehicle is installation within the meaning of Section 10(2)(vib) of the Act. So, a person who owns lorries is entitled to claim development rebate and extra depreciation in respect of diesel engines which he has fitted up in his lorries replacing old petrol engines. The decision of the Madras High Court was upheld by the Supreme Court in Commissioner of Income-tax v. Raju and Mannar, [1966] 60 I.T.R, 246 (S.C.).

7. The Tribunal described the change over from D.C. system to A.C. system thus :

' This involved new installations of poles, cables, conductors, switchboards for distribution to various feeders.'

8. In Commissioner of Income-tax v. Mir Mohammad Ali, the Supreme Court explained that the expression 'installed' in the second paragraph of Clause (vi) and Clause (via), did not necsssarily mean 'fixed in position' but was also used in the sense of induct or introduce or placing an apparatus in position for service or use. Where an engine was fixed in a vehicle it was installed within the meaning of the expression in Clauses (vi) and (via) of Section 10(2) of the Act. The word 'installed' must carry the same sense in Clause (vib) of Section 10(2) of the Act.

9. The word 'plant' as used in Sub-section (2) of Section 10 of the Act has been defined in Sub-section (5) of Section 10 :

'Plant includes vehicles, books, scientific apparatus and surgical equipment purchased for the purposes of the business, profession or vocation.'

10. The definition of plant contained in Sub-section (5) of Section 10 is very wide. The term 'plant' includes such articles as books and scientific apparatus. There should, therefore, be no difficulty in treating poles, cables, conductors and switch-boards for distribution of electricity as plant within the meaning of Clause (vib) of Section 10(2) of the Act.

11. It is significant that the Income-tax Officer allowed normal depreciation on these very articles under Clause (vi) of Section 10(2) of the Act. He must have allowed depreciation on the footing that these articles constitute machinery or plant within the meaning of Clause (vi) of Section 10(2) of the Act. If the poles, cables, conductors and switch-boards coustituted 'machivery or ptant' within the meaning of Clause (vi), there is no reason why they should not constitute 'machinery or plant' within the meaning of Clause (vib) of Section 10(2) of the Act. Even if there is some difficulty inlooking upon poles, cables, conductors and switch-boards as machinery, thereis no difficulty in accepting the assessee's case that these articles constitute aplant within the meaning of Clause (vib) of Section 10(2) of the Act. TheTribunal was, therefore, right in holding that the assessee is entitled todevelopment rebate under Clause (vib) of Section 10(2) of the Act.We answered the question referred to this court as follows :

' On the facts and in the circumstances of the case, the electrical instal-ations installed by the assessee-company as a result of a change over from D.C. to A.C. system constitute plant. Consequently, development rebate was admissible in respect of expenditure incurred in connection therewith.'

12. The assessee shall receive from the Commissioner of Income-tax, U.P. Rs. 200 as costs of this reference.


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