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Commissioner of Income-tax, Tamil Nadu-iv Vs. M.S. Sahadevan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 189, 314 and 315 of 1976 and 1237 of 1979
Judge
Reported in[1980]123ITR820(Mad)
ActsIncome Tax Rules, 1962 - Rule 5; Income Tax Act, 1961 - Sections 32
AppellantCommissioner of Income-tax, Tamil Nadu-iv;commissioner of Income-tax, Madras;addl. Commissioner of I
RespondentM.S. Sahadevan;p.S. Arumugaswamy;neo Litho Press
Excerpt:
direct taxation - depreciation - income tax rules, 1962 and section 32 of income tax act, 1961 - whether offset press was 'other electrical machinery' within relevant entry in schedule to act of 1961 under which separate rates of depreciation was set out for distinct category of machinery - no proper investigation of nature of machinery under consideration in respect of which higher rate of depreciation was claimed - tribunal directed to dispose of matter on basis of details of nature of machinery. - .....the facts and in the circumstances of the case, the tribunal was right in holding that the litho offset machinery and another machinery which is embedded with electrical equipments would constitute 'other electrical machinery' found under entry iii(iii) e - 3(b) of column i of part i of appendix i to the income-tax rules, 1962, and that, therefore, the assessee was entitled to depreciation in respect of these machinery at 10 per cent. (2) whether the tribunal's view that any machinery which runs on electricity would constitute 'other electrical machinery' under entry iii(iii) e-3 (b) of the income-tax rules, 1962, is sustainable in law ?' 4. in t.c. no. 1237 of 1979, the assessee claimed depreciation at 10 per cent. on the offset printing machinery. without giving any reasons the ito.....
Judgment:

Sethuraman, J.

1. In all these cases, the common question is whether the offset press is 'other electrical machinery' within the meaning of the relevant entry in the Schedule to the I.T. Act under which separate rates of depreciation are set out for distinct categories of machinery.

2. We shall first take T.C. No. 189 of 1976. The assessee is carrying on the business of running a calendar press, printing press, offset printing press, etc. He claimed depreciation at the rate of 10% for the assessment year 1966-67. The ITO was of the view that the correct depreciation allowable under the rules was only 7%. He, therefore, worked out the depreciation accordingly and granted it. On appeal, the AAC accepted the assessee's contention that the entire machinery was run under electric power and that it should be considered as electrical machinery within the scope of r. 5 of the I.T. Rules read with App. I to the Rules. The ITO appealed to the Tribunal, which found that the machines were offset printing machines used in litho works and that the proper rate of depreciation would be 10 per cent. The question referred as arising out of this order of the Tribunal runs as follows :

'Whether, on the facts and in the circumstances of the case, the 'new machinery' and 'offset press' used by the assessee in the litho works would constitute 'other electrical machinery including electrical generators and motors (other than tramway motors)' under Rule 5 of the Income-tax Rules and that, therefore, depreciation should be granted thereon at 10% instead of the general rate of 7 per cent. ?'

3. We may briefly refer to the broad features of the others two cases which are also before us, before proceeding further to discuss the legal position. In T.C. Nos. 314 & 315 of 1976, the assessee is engaged in the manufacture and sale of calendars, marriage invitation cards, etc. The ITO granted depreciation to the assessee on offset machine, D.C. Size Polygraph Offset machine, cutting machine, Polygraph (Planeta) offset machine and four colour airline offset printing machine at 7 per cent. as against the claim of 10 per cent. made by the assessee. The AAC, on appeal, accepted the assessee's claim on the ground that the machinery was electrically operated. The matter was taken in appeal to the Tribunal by the ITO and the Tribunal confirmed the AAC's order. The questions referred as arising out of this order of the Tribunal are :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the litho offset machinery and another machinery which is embedded with electrical equipments would constitute 'Other electrical machinery' found under Entry III(iii) E - 3(b) of Column I of Part I of Appendix I to the Income-tax Rules, 1962, and that, therefore, the assessee was entitled to depreciation in respect of these machinery at 10 per cent.

(2) Whether the Tribunal's view that any machinery which runs on electricity would constitute 'other electrical machinery' under Entry III(iii) E-3 (b) of the Income-tax Rules, 1962, is sustainable in law ?'

4. In T.C. No. 1237 of 1979, the assessee claimed depreciation at 10 per cent. on the offset printing machinery. Without giving any reasons the ITO allowed depreciation only at 7 per cent. The AAC, on appeal, held that these items were all fully embedded with highly sophisticated electrical devices and they were also operated by electric power and that being so, they fell within the category covered by the entry mentioned above. The department appealed to the Tribunal which confirmed the order of the AAC more or less for the same reasons as those given by him and also following its earlier order in one of these cases. The question referred in this case runs as follows :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the machinery used by the assessee in offset printing would constitute 'other electrical machinery including the electrical generators and meters (other than meter)' under Rule 5 of the Income-tax Rules, 1962, and, therefore, depreciation should be granted thereon at 10 per cent. but not at the general rate of 7 per cent. ?'

5. Section 32 of the I.T. Act, 1961, provides for the allowance of depreciation at such percentage on the actual cost thereof to the assessee as may in any case or class of cases be prescribed. Rule 5 of the I.T. Rules, 1962, provides that depreciation should be calculated at the percentages specified in the second column of the table in Pt. I of App. I to the I.T. Rules. During the relevant years the Schedule was slightly differently worded. The rates of depreciation are first distributed over certain categories, namely, (i) Building, (ii) Furniture and Fittings, and (iii) Machinery and Plant. In the case of machinery an plant there are two types of provisions. There is the general rate of 7 per cent. and certain special rates are to be applied to the whole of the machinery and plant used in certain concerns, for instance, in aerating gas factories the special rate of depreciation is 9 per cent., in the case aluminium factories it is 10 per cent., and so on. Electrical engineering works is a special category for which 10 per cent. was prescribed. There is another category under the heading 'Special rates to be applied to other machinery and plant'. In this category, the particular types of machines are brought under alphabetical headings. Under the alphabetical heading 'E' the broad categories are as follows;

(1) Earth moving machinery employed in heavy construction works such as dams, tunnels, canals, etc.

(2) Electric supply undertakings.

(3) Electrical machinery.

(4) Electro-plating and electro-welding plant.

(5) Embroidery machines.

We are now concerned with the special heading (3) dealing with electrical machinery. Under this heading, the following categories occur :

(a) Batteries. ... 30 per cent.(b) Other electrical machinery includingelectrical generators and motors(other than tramway motors) ... 10 '(c) Switchgear and instruments, trans -formers and other stationary plantand wiring and fittings of electriclight and fan installations. ... 10 '(d) Underground cables and wires ... 7.5 per cent.(e) Overhead cables and wires. ... 5 '(f) X-ray and electro-therapeuticapparatus and accessoriesthereto. ... 30 per cent.

6. In the present case, the assessee claimed depreciation at 10 per cent. relying on the entry (b) quoted above. It refers to 'other electrical machinery including electrical generators and motors'. It excludes 'tramway motors' because tramways are separately dealt with under the alphabetic heading 'L' and depreciation at the rate of 10 per cent. is granted to them. The tramways are classified with 'Locomotives, rolling stock, etc.'.

7. The question now for our consideration is the meaning to be assigned to words 'electrical machinery'. The learned counsel for the Commissioner contended that 'electrical machinery' should only be taken to mean 'machinery producing, transmitting for storing electricity'. We are unable to agree with this submission because electric supply undertakings have been separately dealt with under the main entry (2) under the alphabetical head 'E'. No purpose is served by repeating the same machinery in another heading. Therefore, item (b) above referring to 'other electrical machinery' must necessarily be some other machinery than machinery used in electric supply undertakings.

8. The extreme contention urged on behalf of the assessee is that any machinery which is run by electricity could be 'other electrical machinery'. We are unable to accept this submission either. The expression 'electricity machinery' cannot be taken to mean 'machinery which is driven by electricity or whose motive power is electricity'. There is some difference between 'electrical machinery' and 'electrically operated machinery'. The operation is one thing and the nature of the machinery is another. We would, therefore, not accept the extreme contention urged on behalf of the assessee.

9. In our opinion, the correct way in which the entry is to be understood lies in between these two extremes. Wherever the machinery is such that in-built into it is the electric motor, then it would be electrical machinery. For instance, taking a mono-bloc, it is possible to have a motor pump separately and an electric motor separately. In such a case, it would not be electrical machinery. But the mono-bloc is worked electrically because it cannot be operated except with the aid of electricity, as the electric motor is in-built into it. Other examples may also be though of. Therefore, the nature of the enquiry in order to find out whether it is electrical machinery or not is to investigate whether the electric motor is in-built into the machinery and whether it forms vital and inseparable part and parcel of the machinery. The fact that electrical devices are put into the machinery would not by itself determine the character of the machinery. The electrical devices would only be for the purpose of allowing electricity to pass through the particular item to produce the desired results. Such machinery cannot be taken to be electrical machinery. However, where the machinery itself is a single unit with the electric motor forming a vital and inseparable part of it, then the machinery would be electrical machinery.

10. We find that in all these cases the ITO rejected the assessee's claim without practically giving the details of the nature of the machinery possessed by the assessee. The AAC accepted the assessee's claim and the Tribunal confirmed it. The result was that there has been practically no proper investigation of the nature of the machinery under consideration in respect of which higher rate of depreciation is claimed.

11. In the circumstances, in the absence of proper details of the nature of the machinery, we are obliged to return the reference unanswered. The Tribunal may get the necessary materials from the assessee and then proceed to dispose of the question de novo in the light of what is indicated above.


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