D. R. KHANNA J. - In compliance with the directions of this court, the Income-tax Appellate Tribunal has referred the following question under s. 256 (2) of the I. T. Act, 1961, for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that development rebate and depreciation were admissible on plant and machinery on the entire sum of Rs. 92,000 ?'
The background of the facts is that the firm, Pure Ice Cream Co., which is carrying on the business of manufacture and sale of ice-cream, effected certain constructions in its premises and incurred an expenditure of Rs. 1,34,999. This expenditure, however, was ultimately brought down to Rs. 92,000 after a settlement with the contractor who had carried out the construction. The assessed claimed that all this expenditure was incurred on cold storage room, platform for machines, observation tower and cooling tower, etc. This was accepted by the ITO at the original assessment stage and the entire amount was allowed as incurred on the installation of the machinery and plant. The appropriate depreciation and development rebate as permissible on machinery were then allowed.
Subsequently, the ITO was of the opinion that the said expenditure included cost of certain construction on masonry work which could not be treated as machinery and, thereforee, the assessed was not entitled to the said benefit to that extent. He also considered that depreciation was allowable at the rate of 5% as on factory building. The assessment was, thereforee, reopened under s. 147 (b) of the Act. The assessed was required to give details of the different items which were covered by the said construction which had resulted in the incurring of the expenditure of Rs. 92,000. This the assessed failed to do. The ITO, thereforee, treated the entire amount of Rs. 92,000 as incurred in the construction of the factory building. The development rebate was withdrawn and depreciation at the rate of 5% as permissible to the factory building was allowed.
The assessed then feeling aggrieved, moved an appeal before the AAC and during the course of the same, filed details of the different items of construction. The AAC examined them and found that several items could not be termed as the part of plant or machinery installation. Their details were given as under :
Pure Ice Cream Factory (Exterior)
Serial Nos.1, 7, 8, 10, 12 & 16.
Factory building (Exterior Walls)
Serial Nos. 17 to 25.
Main entrance, First Floor Front
Store rooms-Ist Floor Rear (Office)
Serial No. 78
Serial Nos. 88 to 100, 103 and 104
Excavation of engine & pasteurising
And Seriall Nos. 122 to 130
The total cost of these items as given above, when considered in the context of the total settlement arrived at with the contractor vis-a-vis the initial bill of Rs. 1,34,999, came to Rs. 58,130. The rest of the expenditure totalling to Rs. 33,886 was attributed by the AAC towards the cost of plant and machinery installation. The other amount of Rs. 58,130 was excluded and development rebate thereon was withdrawn while depreciation was restricted to 5% only.
The assessed feeling still aggrieved, then moved the Appellate Tribunal. Two points were urged : firstly, the entire expenditure of Rs. 92,000 should have been considered as expended towards the plant and machinery installations, and, secondly, the recourse to s. 147 (b) of the Act was not permissible as the matter had already been considered by the ITO at the initial assessment stage. A mere change of opinion upon the same facts, it was pleaded, was attempted to be arrived at the reassessment stage. The Tribunal did not go into the second question. However, with regard to the first contention it was held that the entire expenditure of Rs. 92,000 was incurred over the construction or installation of plant and machinery and must, thereforee, be treated as a part of the plant and machinery and was entitled to the rate of depreciation and development rebate as permissible on plant and machinery.
It is in these circumstances that the revenue feeling aggrieved has got the present reference moved.
As this reference came up for hearing, the controversy has been now rendered into a narrow compass. So far as the expenditure incurred on cold storage room, platform for machinery, observation tower the cooling tower were concerned, they had to be allowed as expenses towards plant and machinery installation. The development rebate and depreciation at the rate of 15% as applicable to machinery should be allowed on the expenditure of these items. It has further not been disputed that even with regard to the construction of the cold storage room, which was an essential part of the machinery and without which the machinery could not effectively work and ice cream could not be produced, had to be treated in similar manner. However, with respect to the other items we find that their nature has not been brought out by the AAC and the Tribunal. Some of the items mentioned are main entrance, exterior walls, store-rooms, etc. It is not clear if the exterior walls pertain to the boundary walls of the factory building or are inter-connected or linked to the plant and the building relatable to the plant as to form a sort of integral part of the machinery and plant. In the absence of these details it is difficult to express any opinion about the nature of these different items.
From the side of the assessed it has been pleaded that all these items were in fact in integral part of the cold storage and of the ice cream manufacturing machinery plant. It has been asserted that the store room too was an integral part of the cold storage room.
We are afraid it is not possible to give any final adjudication on these matters unless the nature and details of these different items are available. We find that the Tribunal made no attempt to go into this aspect. We are, thereforee, constrained to restore the matter back to the Tribunal. Let expenses incurred on cold storage room, platform for machines, observation tower and cooling tower be treated as allowable for the purpose of allowance of development rebate and also higher rate of depreciation as applicable to plant and machinery. The Tribunal should also next look into the other items and consider as to what extent they can be treated as an integral part of the plant, and the other items, thereforee, are entitled to the benefit of development rebate and depreciation as aforesaid. The question referred shall stand answered accordingly. Looking at the circumstances, no order as to costs.