Commissioner of Income-Tax, Madras Vs.
Mir Mohd. Ali, Bus Owner, Vellore [1964] INSC 137 (24 April 1964)
24/04/1964 SIKRI, S.M.
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.
CITATION: 1964 AIR 1693 1964 SCR (7) 846
CITATOR INFO:
D 1975 SC 481 (3)
ACT:
Income Tax-Depreciation allowance-Replacement
of petrol engine in a bus by new Diesel engine-If amounts to installation of
machinery 'Installation of machinery", Meaning of-Indian Income-tax Act,
1922 (11 of 1922), ss. 10(2)(vi). 10 (2) (via).
HEADNOTE:
The assessee, who was the owner of a fleet of
buses, replaced the petrol engines in two of his buses by new Diesel engines
incurring an expenditure of Rs. 18,544/in this connection, during the year of
account ending with March 31, 1950. For the relevant assessment year he claimed
depreciation allowance under the second para of cl. (vi) and cl.
(via) of s. 10(2) of the Indian Income-tax
Act, 1922, apart from the normal depreciation under the first para of cl.
(vi) but he was allowed only 25 per cent depreciation
under the first para ,of cl. (vi) on the ground that he was not entitled to
extra depreciation under s. 10(2)(vi). or s. 10(2)(via) because the ,engine was
only part of an equipment and could not by itself become machinery and that
when an engine was fixed in a motor vehicle it could not be said to be
installed within the meaning of those sub-sections.
Held: (per Subba Rao and Sikri, JJ.) (i) The
assessee was entitled to extra depreciation under ss. 10(2)(vi). and 10(2)
(via) of the Indian Income-tax Act, 1922, in respect of the diesel oil engine
fitted to the motor vehicles in replacement of the existing engines.
(ii)The definition of "machinery"
given by the Privy Council in the case of Corporation of Calcutta v. Chairman,
Cossipore and Chitpore Municipality (1922) L.R. 48 I.A. 435, is applicable, and
according to that definition a diesel engine is clearly "machinery".
And when an engine is fixed in a vehicle it is installed within the meaning of
the expression in cls. (vi) and (via).
Per Shah, J. (dissenting)--Replacement of a
petrol engine by a new diesel engine in a motor car cannot be said to be
installation of machinery. To be installed, the machinery must for the purpose
of the business be brought into service as a self-contained unit, and it would
be difficult to regard the introduction of a mere part, which has no
independent use in the business conducted by the assesses, as machinery
installed for the purpose of the second para of cl. (vi) of s. 10 (2).
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 145 of 1963.
Appeal from the judgment and order dated
November 16. 1959, of the Madras High Court in Case Reference No. 82 of 1956.
S. K. Kapur and R. N. Sachthey, for the
appellant.
S. Swaminathan and R. Gopalakrishnan, for the
respondent.
847 S. T. Desai, J. B. Dadachanji, O. C.
Mathur and Ravinder Narain, for the intervenor.
April 24, 1964. The judgment Of SUBBA RAo and
SIKRI In, JJ.
was delivered by SIKRI J. SHAH J. delivered a
dissenting Opinion.
SIKRI, J.-This is an appeal by the
Commissioner of Income Tax, Madras, against the judgment of the High Court,
dated November 16, 1959, on a certificate granted by the High Court under s.
66A(2) of the Indian Income Tax Act, 1922.
The respondent, Mir Mohd. Ali, hereinafter
referred to as the assessee, is a bus owner and transport operator at Vellore,
North Arcot District. He had a fleet of buses, and during the year of account
ending with March 31, 1950 (relevant to assessment year 1950-51) he replaced
the petrol engines in two of his buses (MDJ 583 and MDJ 723) by new Diesel
engines, incurring an expenditure of Rs. 18,544/in this connection. Before the
Income Tax Officer, apart from claiming normal depreciation under the first
Paragraph of cl. (vi) of s. 10(2), he also claimed depreciation under the
second paragraph of cl. (vi) and cl. (via) of the Indian Income Tax Act, 1922.
The Income Tax Officer only allowed 25 per cent depreciation under the first
paragraph of cl. (vi). The assessee appealed unsuccessfully to the Appellate
Assistant Commissioner on this point. There were other points involved in the
appeal but as we are not concerned with them in this appeal, they are not being
mentioned. On further appeal, the Appellate Tribunal held that "the
assessee is not entitled to extra depreciation under s. 10(2) (vi) or s.
10(2)(via) because however important the engine might be for running of a
motor, 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 these sub-sections. We have to hold that the "installation of
the new engines is only a capital addition, for the above reasons the assessee
was rightly refused the extra depreciation he claims". The Income Tax
Appellate Tribunal, on the application of the assessee, referred the following
question to the High Court:
"Whether extra depreciation is
admissible under the provisions of section 10(2)(via) of the Income Tax Act, in
respect of a diesel oil engine fitted to a motor vehicle in replacement of the
existing engine." We may mention that another question regarding
disallowance of interest had also been referred to the High Court but we are
not concerned with that in the present appeal.
848 As the High Court felt that there had
been an accidental slip in framing the question, it amended the question as and
the amended question reads:
"Whether extra depreciation is
admissible under the provisions of s. 10(2)(vi) and section 10(2)(via) of the
Income Tax Act in respect of the diesel oil engines fitted to the motor
vehicles in replacement of the existing engines".
The High Court answered this question in the
affirmative i.e., in favour of the assessee. The Commissioner of Income Tax, on
obtaining a certificate under s. 66A(2) of the Income Tax Act, has filed this
appeal.
Before attempting to answer the question, it
is necessary to set out the relevant provisions of the Income Tax Act. The
relevant provisions, as in force at the relevant time, were:
s. 10(2) Such profits or gains shall be
computed after making the following allowances, namely-(iv)in respect of
insurance against risk of damage or destruction of buildings, machinery, plant,
furniture, stocks or stores, used for the purposes of the business, profession
or vocation, the amount of any premium paid;
(v) in respect of current repairs to such
buildings, machinery, plant or furniture, the amount paid on account thereof;
(vi)in respect of depreciation of such
buildings, machinery, plant, or furniture being the property of the assessee, a
sum equivalent, where the assets are ships other than ships ordinarily plying
on inland waters, to such percentage on the original cost thereof to the
assessee as may in any case or class of cases be prescribed and in any other
case, to such percentage on the written down value thereof as may in any case
or class of cases be prescribed;
and where the buildings have been newly
erected, or the machinery or plant being new has been installed, after the 31st
day of March, 1945, a further sum (which shall however not be deductible in
determining the written down value for the purposes of this clause) in respect
of the year of erection or installation equivalent,(a) in the case of buildings
the erection of which is begun and completed between the 1st day 849 of April 1946
and the 31st day of March 1952 (both dates inclusive), to fifteen per cent of
the cost thereof to the assessee;
(b) in the case of other buildings, to ten
per cent of the cost thereof to the assessee;
(c) in the case of machinery or plant, to
twenty per cent of the cost thereof to the assessee:
Provided that(via) in respect of depreciation
of buildings newly erected, or of machinery or plant being new which has been
installed, after the 31st day of March, 1948, a further sum (which shall be
deductible in determining the written down value) equal to the amount
admissible under clause (vi) (exclusive of the extra allowance for double or
multiple shift working of the machinery or plant and the initial depreciation
allowance admissible under that clause for the first year of erection of the
building or the installation of the machinery or plant) in the assessments for
such of the five years commencing on the 1st day of April, 1949, and ending
with the 31st day of March, 1954:
Provided that where, in respect of such
machinery or plant, the assessee establishes that the market value of similar
machinery or plant on the 31st day of March, 1953, is lower than the original
cost, then, subject to the provisions of clause (vi), there shall be made in
the assessment for the year commencing next after that date a further allowance
(which shall be deductible in determining the written down value) of an amount
by which the written down value of the machinery or plant as on that date
(without deduction of the initial depreciation admissible in the first year)
would have exceeded the corresponding written down value thereof as on the same
date if the market price of the machinery or plant had been taken as the actual
cost of the assessee;
(vii)in respect of any such building,
machinery or plant which has been sold or discarded or demolished or destroyed,
the amount by which the written down value thereof exceeds the amount 850 for
which the building, machinery or plant, as the case may be, is actually sold or
its scrap value:
Provided that (5) In sub-section (2)
..........`plant' includes vehicles, books, scientific apparatus and surgical
equipment purchased for the purpose of the business, profession or
vocation......." The point at issue before us has been considered by three
High Courts. The Bombay and Andhra Pradesh High Courts have held against the
assessee while in the judgment under appeal, the Madras High Court has held in
favour of the assessee. The High Court of Andhra Pradesh, in the case of B.
Srikantiah v. Commissioner of Income-Tax Andhra Pradesh(1), followed the Bombay
case and expressly dissented from the Madras case.
In the judgment under appeal (reported as Mr.
Mohd. Ali v. Commissioner of Income-Tax, Madras(2), the High Court arrived at
the conclusion by the following steps:
(a)Machinery must be given the same meaning
with reference to each of the statutory provisions, in s. 10(2)(vi) and s. 10(2)(via);
(b) A diesel engine is machinery by the test
laid down in the case of Corporation of Calcutta v. Chairman, Cossipore and
Chitpore Municipality(3);
(c) 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;
(d) 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.
The question then is: Which is the correct
view? First, the history of para two of cl. (vi) may be noticed. The object of
the Income Tax (Amendment) Act, 1946 (VIII of 1946), which first inserted the
provisions regarding extra depreciation, was to encourage the modernisation and
rehabilitation of industry and trade. The Second World War (1961) 41 I.T.R.
518. (2) (1960) 38 I.T.R. 413.
(3) (1922) I.L.R. 49Cal. 190.
851 had ended recently and during the long
war machinery and plant had not only not been replaced or modernised but had
been subjected to excessive wear and tear and needed rehabilitation. During the
War, there had also been great,,, -advance in technology.
It is then pertinent to point out that the
word 'machinery' occurs in cls. (iv), (v), (vi) and (via) of s. 10(2). Prima
facie the same meaning must be given to the word ,machinery' in all these
clauses. If a machine is machinery for purposes of giving an allowance in
respect of insurance or for repairs or in respect of normal depreciation or for
the purpose of para one of cl. (vi), it must also be machinery for the purpose
of second para of cl. (vi) and cl. (via).
But it is said that the scheme of para two of
cl. (vi) and cl. (via) is different from that of para one of cl. (vi) inasmuch
as before it can qualify for extra depreciation, the machinery must be new and
must be installed, and the rate of depreciation is provided in the Act itself.
Keeping in view this scheme, it is urged that the word 'machinery' must be
given a restricted meaning in para two of cl. (vi) and cl. (via), and the
meaning suggested is that 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 was installed". That this is the true meaning, it is further
said, is evidenced by the definition of the word 'plant' in s. 10(5). It is
argued that this definition indicates that for purposes of para two of cl. (vi)
and cl.
(via), 'plant', including a vehicle should be
viewed as a unit and component parts thereof are excluded from its purview, and
'machinery' should also be considered in the same light.
Let us now examine these contentions. First,
we do not think that there is anything in the scheme of the second para ,of cl.
(vi) and cl. (via) that throws any light on the construction of the word
'machinery' in these clauses. It is true that the machinery must be new and it
must be installed and the rate of allowance is prescribed in the Act itself.
But the requirement that the machinery must be new does not tell us what is
'machinery'. Assuming for the present that a diesel engine is machinery, if an
assessee buys and instals a secondhand diesel engine, he will not be given the
extra allowance under the second para of cl. (vi), and the ground would be that
the engine is not new and not that because it is second-hand, it is not
machinery.
Similarly, if it is purchased but not
installed, the ground of refusal would be that it has not been installed and
not that because it has not been installed it has ceased to be machinery.
Suppose a new machinery is purchased but not installed, it would not qualify
for extra depreciation on the ground that it has not been 852 installed and not
because it has ceased to be machinery due to its non-installation. The fact
that the rate of depreciation is provided for in the Act has also no bearing on
the question of the construction of the word 'machinery'.
This fact only indicates that the legislature
had made up its mind as to the extent of encouragement to be given to industry
and, therefore, it did not consider it necessary to delegate this to the
rule-making authority.
The definition of the word 'plant' in s.
10(5) equally does not throw any light on the meaning of the word 'machinery'.
The word 'plant' is of wide import, but even
so it may be argued that vehicles, books, scientific apparatus and surgical
equipment are not 'plant' in all businesses, professions and vocations. The
legislature settled this possible controversy, but without throwing any light
on the true meaning of the word 'machinery'.
What then is the test for determining whether
a mechanical contrivance is machinery for the purposes of second para of cl.
(vi) and cl. (via)? The Privy Council in the case of Corporation of Calcutta v.
Chairman, Cossipore and Chitpore Municipality(1) hazarded the following
definition of `machinery':
"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 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." They
had already observed that the word 'machinery' must mean more than a collection
of ordinary tools. The Privy Council case was not a tax case but prima facie
the ordinary meaning of the word 'machinery'-and the word machinery' is an
ordinary and not a technical word-must, unless there is something in the
context, prevail in the Indian Income Tax Act also.
According to the above definition, a diesel
engine is clearly 'machinery'. Indeed, r. 8 of the Income Tax Rules treats
aero-engines separately from aircraft. It is true that this rule cannot be used
to interpret the clauses in the Act but it does show that components of an
aircraft, which are machinery, can be treated separately.
(1) (1922) I.L.R 49 Cal. 190 853 Further,
when the assessee purchased the diesel engines, they were not 'plant' or part
of a plant, because they had not been installed in any vehicle. They were,
according to the definition given by the Privy Council, machinery. They, were
not yet part of a plant, and, according to the Act, 20' per cent of the cost
thereof was allowable to the assessee.
All the conditions required by the Act are
satisfied. If we look at the point of time of purchase and installation, what
was purchased and installed was machinery.
The learned counsel next contended that the
assessee is not entitled to extra depreciation because a diesel engine cannot
be said to be installed. He urges that the word 'installed' is wholly
inappropriate to cover the fixing of a diesel engine in a motor vehicle. We are
of the opinion that there is no force in this contention. As observed by the
Bombay High Court in the case of Commissioner of IncomeTax v. Saraspur Mills
Ltd.(1) the expression 'installed' did not necessarily mean 'fixed in position'
but was also used in the sense of 'inducted or introduced'-, or to use the
language of the Madras High Court in the case of Commissioner of Income Tax,
Madras v. Sri Ram Vilas Services (Pvt) Ltd.(2), installed would certainly mean
'to place an apparatus in position for service or use'. We are of the opinion
that when an engine is fixed in a vehicle it is installed within the meaning of
the expression in cls. (vi) and (via).
Accordingly, we hold that the High Court was
correct in answering the question referred to it in the affirmative.
The appeal, therefore fails and is dismissed
with costs.
SHAH, J.I am unable to hold that the
respondent is entitled to the allowance under s. 10(2)(vi) paragraph 2, in
respect of the diesel engines claimed by him.
Section 10 of the Indian Income-tax Act provides
that tax shall be payable on the profits and gains of an assessee under the
head 'profits and gain of business, profession or vocation". By sub-s. (2)
in the computation of taxable profits certain allowances prescribed therein are
permissible.
We are primarily concerned in this appeal
with the initial allowance permissible under the second paragraph of cl. (vi)
of sub-s. (2). But cls. (iv), (v), (vi), (vi)(a) and (vii) are inter-related
and it may be necessary briefly to refer to those provisions By cl. (iv)
allowance for premium paid in respect of insurance against risk of damage or
destruction of buildings, machinery, plant, furniture, stocks or stores, used
for the purposes of the business, profession or vocation is admissible. Under
cl. (v) an amount paid on account of any current repairs to such buildings,
machinery, plant or furniture is (1),(1959) 36 I.T.R. 580.
( 2 ) (1960) 38 I.T.R. 25.
854 an admissible allowance. Clause (vi)
recognises by the first paragraph a right to normal depreciation of a
percentage on the prescribed valuation of such buildings.
machinery, plant or furniture, which are the
property of the assessees. The second paragraph at the material time stood as
follows:
"and where the buildings have been newly
erected, or the machinery or plant being new has been installed, after the 31st
day of March, 1945, a further sum (which shall however not be deductible in
determining the written down value for the purposes of this clause) in respect
of the year of erection or installation equivalent, etc. etc." Clause
(vi)(a) which was inserted by Act 67 of 1949 permitted a further depreciation
allowance In respect of buildings newly erected or of machinery or plant being
new which had been erected or installed after March 31, 1948, in not more than
five successive assessments, for the financial years next following the
previous year in which such buildings were erected, or machinery or plant
installed. Clause (vii) permitted as an allowance the difference between the
written down value and the sale price or scrap value of such buildings,
machinery or plant which had been sold, discarded, demolished or destroyed.
All these clauses dealt with allowances in
respect of assets of the specified description and used for the purpose of
business, profession or vocation. The depreciation allowance permitted under
the first paragraph of cl. (vi) which may be called the normal allowance is in
respect of all buildings, machinery, plant and furniture of the assessee used
for the purpose of his business. By the second paragraph of cl. (vi) an initial
allowance in the year in which buildings have been newly erected or the
machinery or plant being new has been installed after March 31, 1945, is
allowable. Use of the definite article "the" in the second paragraph
indicates that the buildings, machinery or plant referred to in that paragraph
must also be used for the purpose of the business, profession or vocation of
the assessee. However to qualify for the initial allowance under paragraph two,
the buildings must be newly erected or the machinery or plant being new must
have been installed, after March 31, 1945.
Two rival views are pressed upon us in
support of the respective cases of the Commissioner and the assessee as to the
meaning of the second paragraph. The Commissioner contends that the buildings,
machinery or plant for which the initial allowance is admissible 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 erected or installed. It is submitted
that the second paragraph of cl.
(vi) was en855 acted with the object of
giving a fillip to industry which had been starved during the war years of new
machinery and building activity. But the buildings, machinery, or plant to
qualify for the initial allowances were not intended to be in the nature of
replacement, addition, or repair to existing units: they had to be buildings
newly erected or machinery or plant being new installed. On behalf of the
assessee it was contended that the Legislature has not put any restriction of
the nature suggested on behalf of the Commissioner and, therefore, any building
or a part thereof newly erected or any new machinery or plant or a part thereof
installed,. qualified for the benefit of the initial allowance.
The question to be decided is one about the
intention of the Legislature. Can it be said that when to an existing building
a room even a floor is added, that the additional construction is a building
newly erected? In my view, that does not appear to be the intention. Such an
addition to an existing structure, becomes a part of the structure, and cannot
be said to be a building newly erected. If every alteration or addition in an
existing building is covered by the second paragraph of cl. (vi) mere repairs
falling within the words of cl. (vi) may also qualify for initial allowance. If
a mere addition to a building cannot be regarded as such an erection as is
contemplated by the second paragraph of cf. (vi), it would be difficult to hold
that the machinery or plant would include part of machinery or plant.
Counsel for the assessee concedes that
replacement of a petrol engine by a diesel engine in a motor transport vehicle
is not installation of plant. The question is whether it is installation of
machine. In my view replacement of a petrol engine by a new diesel engine in a
motor-car cannot be said to be installation of machinery within the meaning of
the relevant clause. To be installed the machinery being new must for the
purpose of the business be brought into service as a self-contained unit. If
the argument of the assessee is sound, every bolt, nut, rod or flywheel which
constitute a part of machinery would qualify for the initial allowance and the
difference between the allowance for repairs and initial allowance may be
obliterated. Counsel for the assessee also did not, as I understood him,
contend that replacement of a mere part of machinery was installation of
machinery within the meaning of the second paragraph of cl. (vi). The Legislature
has not given any definition for that expression, and the expression
"machinery" is otherwise somewhat difficult to define. The Judicial
Committee in Corporation of Calcutta v. Cossipore and Chitpore Municipality(1)
when it was called upon to consider whether a tank supported on (1) L. R. 48
I.A. 435.
856 columns, and which could be filled by
pumping from a reservoir belonging to the Corporation could be regarded as
machinery within the meaning of the Bengal Municipal Act, 1884, observed at p.
445:
"If their Lordships were obliged to run
the hazard of the attempt (to define machinery) 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 contrivance, 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." But we are not called upon in this case to decide
whether a diesel engine is in the abstract machinery: the question is whether a
diesel engine, which is used for replacing a petrol engine, in a vehicle used
by a transport operator for the purpose of his business is machinery installed
within the meaning of s. 10(2)(vi) paragraph 2. Whether "machinery"
is some contrivance for supplying motive power to another contrivance which
directly produces an article or is a mechanical contrivance which produces or
assists in the production of an article, it would be difficult to regard
introduction of a mere part, which has no independent use in the business
conducted by the assessee, as machinery installed for the purpose of the second
paragraph of cl.
(vi). The Legislature has provided for the
normal depreciation by paragraph 1 of cl. (vi) and in respect of newly
installed machinery it has provided for the initial allowance, the object being
to induce industrialists to start new industries or to extend their existing
industries by erecting new buildings, or installing new machinery or plant.
A diesel engine by itself may undoubtedly be
used in a business other than that of a transport operator, for instance, for
working a pump to draw underground water and may for that purpose be regarded
as a self-contained unit.
But that is not decisive of the question
whether in the business of a transport operator a diesel engine used to replace
a petrol engine may be regarded as machinery installed. Machinery installed
within the meaning of paragraph 2 of s. 10(2)(vi) is qualified by the
expression "used for the purposes of the business", and therefore
unless as a self-contained unit the machinery is used for the purposes of the
business, initial depreciation would not be admissible in respect thereof. That
it may be capable of being used in another 857 business by the same or another
assessee as a self-contained unit is irrelevant in considering its
admissibility for initial allowance in the business in which it is actually
used.
It would be fruitless to refer to the
schedule under rule 8 of the Income-tax Rules for computing the allowance in
respect of the depreciation under s. 10(2)(vi). The schedule catalogues
different items in respect of which depreciation is admissible at the rates
prescribed. But whether a particular item is admissible for initial allowance
in the second paragraph must depend upon two factors-(i) that it is in respect
of the year of erection or installation that the initial allowance is
permissible; and (ii) the building or the machinery is used for the purposes of
the business. If it is a predicate of admissibility to initial allowance that
the machinery must be new and a self-contained unit in the particular business
in the carrying on of which the initial allowance is claimed, the fact that in
certain conditions that machinery may be regarded as self-contained for the
purpose of another business in which it is used, would furnish no guide in
ascertaining whether initial allowance is permissible as a deduction in the
assessment of taxable income of the business in which it is actually used.
In my view the appeal should be allowed and
the question referred for opinion should be answered in the negative.
ORDER In accordance with the opinion of the
majority the appeal is dismissed with costs.
Appeal dismissed.
Back
