Industrial Syndicate Ltd., Yamunanagar, Haryana Vs. The Commissioner of Income
Tax, Haryana, Rohtak  INSC 57 (10 March 1999)
R C Lahoti,
S P Bharucha, Syed Shah Mohammed Quadri Bharucha, J.
appeal are the judgments and orders of Division Benches of the Punjab and Haryana High Court. The
assessment years involved are Assessment Years 1970-71 to 1977-78. The High
Court answered in the negative and in favour of the Revenue the following question
on the facts and in the circumstances of the case, the Tribunal was right in
law in holding that the words corrosive chemicals employed in entry (ii)B(7) of
Para III of Part I of Appendix I to the Income-tax Rules, 1962, contemplates
not only free chemicals but also non-free chemicals of corrosive effect.
is in appeal. The assessee manufacturers, among other things, sugar. It claimed
depreciation at the higher rate of 15% on machinery it used in the manufacture
of sugar, which was detailed in a statement placed before the Income tax
Officer. It did so having regard to Item 3(ii)B(7) of Para III of Part I of
Appendix I to the Income Tax Rules, 1962, which reads thus :
and plant coming rate of depreciation 15% into contact with corrosive
filed in support of its case the opinion of an expert. The Income Tax Officer
rejected the assessees claim of higher depreciation at the rate of 15% on such
machinery. He declined to consider the expert opinion on the ground that the assessee
was unable to produce the expert for cross-examination. He referred to the
meaning of the word chemical and concluded that cane juice was not something
which was obtained through a chemical process nor was it used for chemical
effect. The contention of the assessee that, during the manufacture of sugar,
the juice was treated with corrosive chemicals like sulphuric and phosphoric
acid, which had corrosive effect on the sugar machinery, could not be given any
importance as the quantity used was quite small and it was not those acids
which came into contact with the machinery. They formed a very small part and
their use was confined to a particular stage. It was the cane juice which was
the main substance that came into contact with the machinery. The Appellate
Assistant Commissioner dismissed the assessees appeal. His view was that
depreciation was allowable at the higher rate on such plant and machinery in
which chemicals with high corrosive potentials were used for manufacturing
purposes and the manufacture of sugar did not fall in such category.
Income Tax Appellate Tribunal disagreed. It noted that the only criticism
directed against the statement which had been tendered by the assessee before
the Income Tax Officer was that it included machinery that came in contact, not
with corrosive chemicals, but with cane juice and molasses, which were not
corrosive chemicals but, at best, corrosive materials. The Tribunal found no
force in this criticism for the reason that the corrosive chemicals
contemplated in the said entry were not only free chemicals but also non-free
chemicals provided they were corrosive in effect so far as metals are
the order of the Tribunal the question, quoted above, was referred to the High
Court. The High Court disagreed with the Tribunal for the reason that,
according to it, lime and sulphuric acid were mixed with the sugarcane juice to
filter and purify the juice but, by their mixture, the juice itself was not
converted into a chemical.
was made to the dictionary meaning of the word chemical and it was said that it
was obvious therefrom that sugarcane juice could not be covered by the term
simply because some acid has been mixed with it for its filtration.
acid and the lime were mixed in the sugarcane juice for the purpose of its
filtration and once the chemical reaction had been caused, most of its effect
was lost. Whatever remained settled down along with the sediments at the
bottom. Thereafter, the filtered sugarcane juice which came into contact with
the machinery before it was converted into crystallised sugar could not be said
to be a corrosive chemical.
understand that the authorities declined to rely upon the experts opinion
because he was not produced for cross-examination. But neither the Income Tax
Officer nor, indeed, the High Court were entitled to make statements on
technical matters for which no basis had been laid on the record by either the
Revenue or the assessee. If the High Court was of the view that further
material was required , the appropriate course was to require the Tribunal to
take further evidence and draw up a Supplemental Statement of Case.
apart, there appears to be some misunderstanding of what the said entry is
intended to convey. Depreciation at a higher rate is allowed to machinery that
comes into contact with corrosive chemicals. Corrosive chemicals corrode the
machinery. They erode and, by reason of such erosion, the life of the machinery
is truncated. To compensate, depreciation is allowed at a higher rate. It is
not intended that the machinery must come into contact with a pure corrosive
chemical. It is enough that what passes through the machinery contains
chemicals which are corrosive and which, therefore, have the effect of wearing
instant case, with this understanding of the said entry in mind, the Tribunal
shall take further evidence, giving both the assessee and the Revenue the
opportunity of producing it, and, based thereon, shall decide whether the
machinery for which the assessee claims depreciation at the higher rate is
entitled to it. It shall then draw up a Supplemental Statement of Case and the
matter shall be re-heard by the High Court, having regard to what is found by
the Tribunal and to this judgment. The appeals are allowed. The judgments and
orders under appeal are set aside. The matters are remanded to the Tribunal to
be proceeded with as set out hereinabove.
order shall also govern Appeal No.5671/85 where reference of the question of
law aforementioned was declined. Even in this matter the Tribunal shall conduct
a further enquiry as indicated above and draw up a Supplemental Statement of
Case and it shall then refer the question aforementioned to the High Court.
order as to costs.
counsel for the intervenors submits that he is entitled to the same order as we
have just passed. We cannot pass such an order in an intervention application.
only purpose of granting an intervention application is to entitle the intervenor
to address arguments in support of one or the other side. Having heard the
arguments, we have decided in the assessees favour. The intervenors may take
advantage of that order.
on the intervention application accordingly.