1. This appeal of the revenue relates to the assessment year 1978-79 and arise out of the order of the Commissioner (Appeals), dated 15-4-1982. The revenue contests the appeal on the grounds (i) that on the facts and in the circumstances of the case the Commissioner (Appeals) erred in holding that the re-conditioned machinery is termed as 'new machinery' and qualify for investment allowance, (ii) that on the facts and in the circumstances of the case the Commissioner (Appeals) erred in directing the ITO to allow deduction of Rs. 23,795 on account of investment allowance in respect of the above machinery, and (iii) that on the facts and in the circumstances of the case the Commissioner (Appeals) erred in directing the ITO to allow depreciation on motor cars.
2. The assessee had claimed investment allowance of Rs. 23,795 in the profit and loss account submitted with the revised return. The aforesaid claim was made by the assessee in respect of rolling mill machinery manufactured by the assessee for its use. The machinery was manufactured by the firm from secondhand parts purchased from the market. The assessee when required to justify the claim, pointed out to the ITO by its letter dated 20-1-1981 that the investment allowance was claimed on new additions of machinery amounting to Rs. 95,183. The ITO examined some of the bills. In the process of verification, the ITO came across the following bills:(1) Rs. 11,340 Purchased on 28-5-1976 (old machine roll and parts) Bill No. 534 of Steel Corporation of India admitted vide letter dated 23-1-1981.(2) Rs. 5,200 Purchased on 3-10-1977 (Chiled Roll, Bill No. 12 of Bombay Metal Co., Calcutta admitted vide order sheet entry dated 30-1-1981).(3) Rs. 20,800 Purchased on 27-8-1977 (Rolls, Bill No. 30 of Bombay Metal Co., Calcutta admitted vide order sheet entry dated 30-1-1981).
It was accepted by the assessee that the remaining machinery and parts were also old. According to the ITO, investment allowance under Section 32A of the Income-tax Act, 1961 ('the Act') was admissible only on new machinery. The machinery prepared by the assessee from scrap and second hand parts could not be said to be a new machinery. On this interpretation, the claim of the assessee came to be rejected by the ITO after getting instructions from the IAC.3. On appeal before the Commissioner (Appeals), the learned Counsel for the assessee contended that the ITO has taken a very narrow view in deciding the claim of the assessee. The counsel for the assessee drew the attention of the Commissioner (Appeals) to certain observations of Income Tax Law by Chaturvedi and Pithisaria, Second edition, Vol. 1.
These are as under: New Machinery etc.,- The word 'new' may have different meanings, but, when used with reference to a machine, its meaning is 'new made or brought into existence for the first time' which is one of the meanings given in the Shorter Oxford Dictionary. One does not discover the meaning of the word 'new' by trying to find out what is meant by the word 'old'. Nor is it of any assistance to say that the word is relative. 'New' as Used in these provisions cannot mean 'new to the assessee'. The word 'new' in this context must mean not existing before; now made or brought into existence for the first time 'in contradistinction and antithesis to the word 'used'.
On the basis of the aforesaid observations of the author the learned Counsel for the assessee contended that the machinery though made of old parts having brought into existence for the first time, the same should be considered as new machinery and the assessee is entitled to relief under Section 32A. After hearing the learned Counsel for the assessee, the Commissioner (Appeals) directed the ITO to allow deduction to the assessee with respect to investment allowance claimed by the assessee for the reasons stated by him in his order.
The ITO consistent with the partial disallowance of motor cars expense, has also disallowed one-third claim out of depreciation on cars and scooters.
4. On appeal before the Commissioner (Appeals), it was contended by the learned Counsel for the assessee that the disallowance on account of such depreciation is unwarranted having regard to the language employed in rule 5 of the Income-tax Rules, 1962 ('the Rules'). The Commissioner (Appeals) accepting the contention of the learned Counsel for the assessee directed the ITO to allow the claim of the assessee following the decision of Waterfall Estates Ltd. v. CIT. As against this order of the Commissioner (Appeals) the revenue is in appeal before us.
5. The 1 earned departmental representative contended before us that on examination of the bills it is found out by the ITO that the assessee has purchased old and secondhand parts for the purpose of manufacturing rolling mill machine. Since the aforesaid machine has been made with old and secondhand parts, it cannot be said that it is a new machine entitled for a claim of investment allowance under Section 32A. He, therefore, supported the order of the ITO.6. The learned Counsel for the assessee, on the other hand, supporting the order of the Commissioner (Appeals) contended before us that the materials required for manufacturing rolling mill machine are (a) steel plate for rolling mill body and other accessories; (b) steel forging for pedestal bearing boxes and gears; (c) steel rods for screw and tai rods; (d) axle for rolling mill shaft; (e) fly wheel for rolling drive; and (i) steel rolls for hot rolling mills and chilled rolls for cold rolling. After an elaborate manufacturing-process with a help of gas, welding rods, carbide, tools, rough casting, nuts and bolts, paints, cutting oil, emery paper and cloth, the final product of rolling mill machine is got. Therefore, according to him, it is not merely the assembling of old parts, but the new machine is brought into existence after an elaborate manufacturing process. He, therefore, contended that the assessee is entitled to claim investment allowance under Section 32A in respect of the aforesaid machinery.
7. We have carefully considered the facts and circumstances of the case and the arguments advanced by both the sides. In the case of Cochin Co.
v. CIT  67 ITR 199 (SC), their Lordships of the Supreme Court have held that the word 'new' in the context of Section 10(2)(vi) and (via) of the Indian Income-tax Act, 1922 ('the 1922 Act') must be construed as meaning not existing before, new made, or brought into existence for the first time', and in contradistinction and antithesis to the word 'used'. The question before the Supreme Court was whether initial and additional depreciation was allowable in regard to two reconditioned machines imported and used by the appellant for its business, and the only facts appearing from the record were that the machines had been in use but had, immediately before import, been completely stripped and rebuilt after including replacement of worn out parts and incorporating the latest modifications. Probably taking support of the ratio laid down in the aforesaid decision the authors Chaturvedi and Pithisaria in their book Income Tax Law, Second edition, Vol. 1, at page 612 have observed that 'new' as used in this provision cannot mean 'new to the assessee'. The word 'new' in this context must mean 'not existing before, now made or brought into existence for the first time' in contradistinction and antithesis to the word 'used'. If we understand the ratio laid down by the Supreme Court in its proper perspective, the assessee is entitled to claim investment allowance in respect of the machinery which was not existing before and which is brought into existence for the first time. If we apply the ratio laid down by the Supreme Court to the facts of this case, the rolling mill machine in respect of which the investment allowance is claimed by the assessee has been brought into existence for the first time, though the aforesaid machine was made with the old and secondhand parts purchased from the market. As seen from the facts on record, the machine that the assessee has manufactured was not used before and what might have been possibly used earlier would be the component parts which were acquired from the scrap dealers. We are, therefore, of the opinion that the ITO is not justified in refusing the claim of investment allowance under Section 32A made by the assessee on the ground that the machinery is not new and we fully agree with the order passed by the Commissioner (Appeals) on this count and the appeal filed by the revenue on this count is, accordingly, dismissed.
8. Regarding the second ground since the Commissioner (Appeals) has allowed the entire depreciation claimed by the assessee following the decision of the Madras High Court in the case of Waterfall Estates Ltd. (supra) and since the revenue has not cited any decision contrary to the decision relied upon by the Commissioner (Appeals), mentioned supra, we agree with the order passed by the Commissioner (Appeals) on this ground also and the appeal filed by the revenue is, accordingly, dismissed.