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Aruna Mills Ltd. Vs. Commissioner of Income-tax, Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 13 of 1962
Judge
Reported in[1966]59ITR507(Guj)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantAruna Mills Ltd.
RespondentCommissioner of Income-tax, Ahmedabad
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredManeklal Vallabhdas Parekh v. Commissioner of Income
Excerpt:
- - commissioner of income-tax must be held to be no longer good law. the spindles in respect of which the aforesaid expenditure was incurred and for which the development rebate was claimed by the assessee are clearly machinery and, when installed in the ring-frames, would constitute a self-contained unit for spinning......commissioner of income-tax must be held to be no longer good law. the spindles in respect of which the aforesaid expenditure was incurred and for which the development rebate was claimed by the assessee are clearly machinery and, when installed in the ring-frames, would constitute a self-contained unit for spinning. though, therefore, they by themselves may not be said to be a self-contained unit, they must be held to be 'machinery' and the spindles must also be held to have been installed for the purposes of the second paragraph of clause (vi) and clause (via) and, consequently, the expenditure incurred in their purchase and in substituting them for the old spindles would be entitled to development rebate. in disallowing the development rebate. our answer to the question referred to.....
Judgment:

J.M. Shelat, C.J.

1. This reference pertains to the assessment years 1958-1959 and 1959-1960 of which the relevant previous years were the calender years 1957 and 1958 respectively and raises a short question whether the assessee-company was entitled to development rebate under section 10(2) (vib) of the Indian Income-tax Act, 1922, in respect of the cost of certain spindles purchased by the assessee-company at Rs. 25,063 and Rs. 67,980 respectively in the two account years.

2. The assessee-company carried on at all material times the business of manufacturing and selling cotton textiles. In the two accounting years, namely, calendar years 1957 and 1958, the company replaced ordinary, spindles by roller bearing spindles at the cost of Rs. 25,063 and Rs. 67,980 respectively and debited these amounts to the machinery repairs account. The company claimed that the expenses incurred on these spindles having been held to be of a capital nature in the previous years, it was entitled to development rebate under section 10(2) (vib). Both the Income-tax Officer and the Assistant Commissioner rejected the claim and on a further appeal to the Tribunal, the Tribunal also rejected the claim on a concession made on behalf of the assessee-company that the roller bearing spindles could not run by themselves and that they had to be put to use in conjunction with the other machinery; in the company's mills. The Tribunal held that the roller bearing spindles were, in view of the aforesaid concession, not self-contained units capable of being put to use in the business for the benefit of which they were installed, and rejected the claim for the development rebate on that ground.

3. At the time when the Tribunal decided the appeal, there was conflict of judicial opinion on this question. The High Court of Bombay in Maneklal Vallabhdas Parekh v. Commissioner of Income-tax had taken the view that no development rebate could be climbable in respect of a machinery which was not a self-contained unit. The High Courts of Madras and Kerala, on the other hand, in Mir Mohd. Ali v. Commissioner of Income-tax and Mrs. George Mathew v. Commissioner of Income-tax, respectively, had taken a view contrary to the Bombay view. The Tribunal naturally followed the Bombay view in view of the decision in Maneklal Vallabhdas Parekh's case being binding upon it. The conflict, however, has now been resolved by the decision of the Supreme Court in Commissioner of Income-tax v. Mir Mohammad Ali, which was taken in appeal before the Supreme Court by the Commissioner of Income-tax, Madras, against the aforesaid decision of the Madras High Court. In that case, the respondent was a bus owner and transport operator at Vellore, and was possessed of a fleet of buses. During the relevant year he replaced petrol engines in two of his buses by new diesel engines at a cost of Rs. 18,544. Before the Income-tax Officer, apart from claiming the normal depreciation under the first paragraph of clause (vi) of section 10(2), he also claimed depreciation under the second paragraph of clause (vi) and clause (via). The Income-tax Officer, however, only allowed twenty-five per cent. depreciation under the first paragraph of clause (vi). In appeals before the Tribunal, the claim made by the respondent was negatived on the ground that, however important an engine might be for running of a motor, it was after all part of an equipment and it could not by itself become 'machinery' for the purpose of claiming extra depreciation, as envisaged in the aforesaid sub-section. On a question referred to the High Court of Madras, the High Court decided in favour of the respondent, and hence, the appeal before the Supreme Court. The Supreme Court adopted with approval the definition of 'machinery' given by the Privy Council in Corporation of Calcutta v. Chairman, Cossipore and Chitpore Municipality, namely, that 'machinery' meant some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances, by the combined movement and inter dependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result, and observed that the word 'machinery'. The Supreme Court also held that the same meaning must also be given to the word 'machinery' in all clauses, namely, clauses (iv), (v), (vi) and (via) of section 10(2) of the Income-tax Act and therefore, if a machinery was 'machinery' for the purpose of giving an allowance in respect of insurance or for repairs or in respect of normal depreciation, or for the purpose of the first paragraph of clause (vi), it was also 'machinery' for the purposes of the second paragraph of clause (vi) and clause (via). It further held that the expression 'installed' in the second paragraph of clause (vi) and clause (via) did not necessarily 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' and therefore, when a diesel engine was fixed in a vehicle, it was installed within the meaning of the expression in clauses (vi) and (via) of section 10(2). On this reasoning, the Supreme Court held that the respondent in that appeal was entitled to deduction of the extra depreciation allowance under the second paragraph of clause (vi) and clause (via) of section 10(2). In view of this decision, the decision of the High Court of Bombay in Maneklal Vallabhdas Parekh v. Commissioner of Income-tax must be held to be no longer good law. The spindles in respect of which the aforesaid expenditure was incurred and for which the development rebate was claimed by the assessee are clearly machinery and, when installed in the ring-frames, would constitute a self-contained unit for spinning. Though, therefore, they by themselves may not be said to be a self-contained unit, they must be held to be 'machinery' and the spindles must also be held to have been installed for the purposes of the second paragraph of clause (vi) and clause (via) and, consequently, the expenditure incurred in their purchase and in substituting them for the old spindles would be entitled to development rebate. In disallowing the development rebate. Our answer to the question referred to us must therefore be in the affirmative. The Commissioner will pay to the applicant the costs of this reference.

4. Question answered in the affirmative.


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