(1) The first of the two questions referred to this Court under S. 66(1) of the Income-tax Act was,
'Whether on the facts and in the circumstances of the case, the disallowance of any portion of payment of interest of Rs. 12541 in the first year, Rs. 20851 in the second year and Rs. 40302 in the third year on the amounts borrowed by the assessee for the purpose of his business is correct?' That actually the assessee paid Rs. 12541 in the first year (the account year ending with 31-3-1949), Rs. 20851 in the second year and Rs. 40302 in the third year towards interest on the loans he had contracted was apparently accepted by the Tribunal. What was ultimately allowed by the Tribunal as deduction was Rs. 8000 in the first year, Rs. 14,000 in the second year and Rs. 13,000 in the third year. The question is whether the claim of the assessee should have been allowed in full.
(2) The accounts of the assessee were rejected as unreliable, and the gross income of the assessee had to be estimated under the proviso to S. 18 of the Act in each of the three assessment years. The Assistant Commissioner and the Tribunal rightly overruled the view of the Income-tax Officer, that under such circumstances nothing was allowable as deduction, though the assessee had expended the amounts in question to meet the interest charges. But how much of the loans was borrowed for the transport business of the assessee, he had to prove, and while no accounts were produced for the third year, the books produced for the first two years were rejected as unreliable.
The Tribunal had therefore necessarily to estimate how much of the payments represented interest on loans borrowed and utilised for the transport business of the assessee. It was for the assessee to prove that each of the loans on which he paid interest in the years in question was utilised for his business, and that burden the assessee did not discharge. There is really no material on record to sustain any possible contention, that the estimates ultimately upheld by the Tribunal were unreasonable. We have to answer the first question in the affirmative and against the assessee.
(3) The second question, which related only to the assessment year 1950-51 ran:
'Whether extra depreciation is admissible under the provision of S. 10(2)(vi-a) of the Income-tax Act in respect of a diesel oil engine fitted to a motor vehicle in replacement of the existing engine.' The relevant facts were not in dispute. In the year of account ending 31-3-1950, the assessee replaced the petrol driven engine in two of the buses MDJ 593 and MDJ 723 by new diesel engines and he incurred an expenditure of Rs. 18,544 on the purchase of these two diesel engines. He claimed deduction for the depreciation allowances permitted by paragraph (1) of S. 10(2)(vi) of the Act (normal or initial depreciation), paragraph (2) of S. 10(2)(vi) of the Act (additional or extra depreciation) and by S. 10(2)(vi-a) (additional and special depreciation).
The claim for normal depreciation was allowed by the Income-tax Officer himself, but he disallowed the claims under the other two heads, and that disallowance was ultimately confirmed by the Tribunal. The question as it has been framed by the Tribunal would appear to refer only to the disallowance of the claim under S. 10(2)(vi-a) and not the disallowance of the claim under paragraph (2) of S. 10(2)(vi). Quite obviously it was an accidental slip, because what the Tribunal stated in its order on appeal was:
'In our opinion the assessee is not entitled to extra depreciation under S 10(2)(vi) or 10(2)(vi-a) ...................'
So we amended the question, and the amended question runs:
'Whether extra depreciation is admissible under the provisions of S. 10(2)(vi) and S. 10(2)(vi-a) of the Income-tax Act in respect of the diesel oil engines fitted to the motor Vehicles in replacement of the existing engines.'
Section 10(2)(vi) and 10(2)(vi-a) of the Act provided for allowance for depreciation of machinery and plant among other things which belonged to the assessee and which he utilised for his business. While S. 10(5) of the Act defines the expression plant, 'plant includes vehicles, books, scientific apparatus, and surgical equipment purchased for the purposes of the business, profession or vocation', the term 'machinery' itself has not been given any statutory definition. It should however be obvious that the word machinery must be given the same meaning with reference to each of the three statutory provisions we have now to consider, paragraphs (1) and (2) of S. 10(2)(vi) and S. 10(2)(vi-a). If the diesel engine was machinery for the normal depreciation for which the first paragraph of S. 10(2)(vi) provided, it would continue to be machinery also for the additional allowances for depreciation under the second paragraph of S. 10(2)(vi) and S. 10(2)(vi-a). In the absence of a statutory definition the normal meaning of the word machinery has to be accorded to it.
(4) In Corporation of Calcutta v. Cossipore and Chitpore Municipality, ILR 49 Cal 190 : AIR 1922 PC 27, their Lordships of the Privy Council stated at p. 201 (of ILR Cal): (at p. 32 of AIR):
'Their Lordships concur with Lord Davey in thinking that there is great danger in attempting to give a definition of the word 'machinery' which will be applicable in all cases. It may be impossible to succeed in such an attempt. If their Lordships were obliged to run the hazard of the attempt, they would be inclined to say that the word 'machinery' when used in ordinary language prima facie means some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent 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.'
That may not be an exhaustive test. But even judged by that test a diesel engine is certainly machinery.
(5) The learned counsel for the assessee drew our attention to the decision of the Court of Appeal in Madan and Ireland Ltd. v. Hinton, (1958) 37 ATC 317. The headnote runs:
'The appellant carried on business as a manufacturer of boots, shoes and slippers. A number of of heavy machines were used in the business, and the knives and lasts were inserted into the machines. The knives wear out quickly and have to be replaced frequently. Every type of shoe requires its own shape of knife and last. The machines cannot function without the knives and lasts, and the knives and lasts are useless except when placed in the appropriate machines............. it was contended on behalf of the respondent that the expenditure on the knives and lasts was not expenditure on capital account, but on revenue account; and that they were not parts of the machines, but were chattels. It was contended on behalf of the appellant that the expenditure was on capital account, since it was expenditure on machinery or plant, and so was entitled to an investment allowance...............'
The Court of Appeal held (1) that the knives and lasts were machinery or plant; (2) that the expenditure was capital expenditure; and (3) that an investment allowance should be made in respect of that expenditure. The investment allowance the Court of Appeal had to allow was something analogous to the additional depreciation allowance for which S. 10(2)(vi-a) provided. We have referred to this case only to emphasise what their Lordships of the Privy Council pointed out in ILR 49 Cal 190 : AIR 1922 PC 27, that it may not be possible or desirable to give an exhaustive definition of the word 'Machinery'. It may not however be necessary to extend the principle laid down by the Court of Appeal in (1958) 37 ATC 317, to decide whether diesel engines constituted machinery within the meaning of S. 10(2)(vi), and S. 10(2)(vi-a) of the Income-tax Act.
(6) The further requirement of the second paragraph of S. 10(2)(vi) is that the machinery being new must have been installed between 1-4-1946 and 31-3-1956. Section 10(2)(vi-a) applies to new machinery installed after 31-3-1948. We had to consider in : 38ITR25(Mad) , Commr. of Income-tax v. Sri Rama Vilas Service (Pr.) Ltd., the scope of the statutory requirement of 'installed' and judged by that term we have to hold that the diesel engines were 'installed' when they were fitted to the buses to run them.
(7) Of the reasons given by the Tribunal for disallowing the claim for additional depreciation only one requires consideration. The other were really irrelevant, for example, that the assessee did not show in his books the sale price of the old engines, or that he did not show that anything was wrong with the old petrol driven engines. While it was not necessary that the assessee should prove that the installation of diesel engines improved immediately the profit earning capacity of the buses, even that was satisfied in this case. The Tribunal stated.
'In our opinion, the assessee is not entitled to extra depreciation under Ss. 10(2)(vi) or 10(2)(vi-a) because however important the engine might be for the running of a motor car, it is after all part of an equipment and it cannot by itself become 'machinery' for the purpose of claiming extra depreciation as envisaged in those two sub-sections.' Virtually the same idea was put in different words by Mr.Rama Rao Sahib, learned counsel for the Department. He pointed out that the bus was a plant within the meaning of Ss. 10(2)(vi) and 10(2)(vi-a). He urged that, when the diesel engine became part of that plant, no separate depreciation could be claimed on a part of that plant, that is, the diesel engine fitted to that vehicle, and the assessee's only right thereafter was to claim depreciation on the plant as a whole. On the plant, that is, the bus, only the normal depreciation would be permissible, and not the additional depreciation for which the second paragraph of S. 10(2)(vi) and S. 10(2)(vi-a) provided; the buses had been acquired anterior to 1946.
(8) The contention of the learned counsel for the Department was backed by the authority of the decision of the Bombay High Court in Maneklal Vallabhadas v. Commissioner of Income-tax : 37ITR142(Bom) . With all respect to the learned Judges, we are unable to share the view they took o the scope of Ss. 10(2)(vi) and 10(2)(vi-a). At p. 144 of the report the learned Judges observed.
'We are also unable to agree with the alternative contention........... that these diesel engines constitutes 'machinery being new which has been installed'. In our view, in order that initial depreciation should be allowable on machinery, it must be a self-contained unit capable of being put to use in the business, profession or vocation for the benefit of which it is installed. In the present case, the diesel engines installed by the assessee do not satisfy that test.'
In our opinion, machinery does not cease to be machinery merely because it has to be used in conjunction with one or more machines. Nor does it cease to be machinery merely because it is, for instance, installed as part of a manufacturing or industrial plant. We have already referred to the observations of their Lordships of the Privy Council in ILR 49 Cal 190 : AIR 1922 PC 27, a portion of which is worth repetition at this stage,
'.........machinery.... means some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts generate power.'
(9) We are unable to see anything in the concept of machinery as that word is understood in the English language or in the statutory provisions S. 10(2)(vi) and 10(2)(vi-a) of the Act, that justifies the adoption of the test formulated by the learned Judges of the Bombay High Court in : 37ITR142(Bom) , that the machinery must be a self contained unit. Does an electric motor which provides power cease to be machinery because it is part of an industrial plant, and except to provide power for that plant the electric motor would be needless for the business of the assessee? All that the statute (S. 10(2)(vi) and 10(2)(vi-a)) requires is that it must be new machinery, and that that machinery must be used in the business of the assessee. If integration with other pieces of machinery, all of which together may constitute an industrial or manufacturing plant, does not divest that item of machinery of its character of machinery, we fail to see why any difference should be made when the integration of the machinery is with a motor bus, which was a vehicle in a plant for the purposes of S. 10(2)(vi) and 10(2)(vi-a). It must be remembered that it is an inclusive definition of plant that has been given in S. 10(5) of the Act. We can see no basis, statutory or otherwise, for the view, that machinery loses its identity as machinery for the purpose of S. 10(2)(vi) and 10(2)(vi-a) if it is made part of a 'plant'.
(10) Another of the main contentions rejected in : 37ITR142(Bom) , was apparently that the diesel engine fitted into the bus was itself a plant within the meaning of S. 10(2)(vi) and 10(2)(vi-a). The learned Judges observed.
'Evidently, the assessee has purchased diesel engines for his business and he has installed them in vehicles. Though by the definition of 'plant' vehicles are included, we would not, especially in interpreting a taxing statute, be justified in holding that what is installed in a vehicle which in substance forms part thereof would also be regarded as included in the connotation of that expression. We are therefore unable to accept the contention.......... that because the diesel engines are installed in the vehicles, initial depreciation is allowable to the assessee in respect of those engines.'
We feel that it should not be necessary for the disposal of the case before us to consider whether a claim for depreciation could be founded on the basis, that the diesel engine was plant within the meaning of S. 10(2)(vi) and 10(2)(vi-a). The statutory provision for depreciation is in the alternative. Whether it is plant or whether it is machinery without its being itself a plant, the assessee is entitled to claim the statutory allowance for depreciation. We have held that the diesel engine was machinery, and that it continued to be machinery even after it was made an integral part of the bus. That should suffice to uphold the claim of the assessee, that he was entitled to all the three classes of depreciation allowances for which provision was made in paragraphs 1 and 2 of S. 10(2)(vi) and S. 10(2)(vi-a) of the Act.
(11) We should like to refer again to (1958) 37 ATC 317. The concentration there was on the question, whether the knives and lasts constituted machinery or plant. It was apparently taken for granted that if they could be brought within the scope of statutory expression 'machinery' or 'plant', the fact that they were integrated with other machinery did not bar the grant of the allowances to which new machinery was entitled. Of course, that decision is not authority as such for the conclusion we have reached, that the diesel engines of the assessee came within the scope of the statutory expression 'new machinery', and the fact that they were made parts of vehicles was not relevant in deciding whether the assessee was entitled to the further allowances for depreciation for which paragraph (2) of S. 10(2)(vi) and S. 10(2)(vi-a) provided.
(12) We answer the second question as amended by us in the affirmative and in favour of the assessee.
(13) As neither side has wholly succeeded in this reference, each party will bear its costs.
(14) Order accordingly.