Commissioner of Income Tax Madras v. Southern Roadways (P) Ltd.

GUPTA, J. These two appeals by special leave arise out of two references, one under sec. 66(1) of the Income-Tax Act, 1922, and the other under sec. 256 (1) of the Income-Tax Act, 1961. The two ap. peals relate respectively to assessment years 1961-62 and 1962-63. The assessee in both cases is a private limited company, engaged .in transport business and owns a fleet of lorries and buses. In both appeals the appellant is the Commissioner of Income-Tax (Central), Madr11s. In respect of the assessment year 1961-62, the T.ribunal allowed the claim of the assessee for developm~nt rebate on the new diesel engines ins-talled by the assessee in its ~hides. The Tribunal however dismissed a similar claim made by the assessee in the assessment year 1962-63 when the Income-Tax Act, 1961 had come into force. Two questions were referred, to the High\Coun, one in each of these two cases; both · questions involve similar query though they_ are framed somewhat differently because of the contrary dr-eisions out of which the refer-ences arise. In Civil Appeal No. 211 of 1970 which relates to the assessment year 1961-62 the question referred under sec. 66(1) is:

· "Whether on the facts and in the circumstances of the case, tht: Tribunal was right in l2lw in holding that the asse-ssee was entitled to claim development rebate on new diesel engines fitted to vehicles."

The question in Civil Appeal No. 212 of 1970 referred under sec. 256 (1) of the Income-Tax Act, 1961, relates to the assessment year t962-63 and reads :

"Whether on the facts and in the circumStances of the case, the Tribunal was right in holding that · development rebate was not allowable on· the new diesel engines installed on road transport vehicles."

During the accounting period ending with March 31, 1961, relevant to the assessmeflt year 1961-62, the assessee fitted 11 new diesel engines to its vehicles and claimed development rebate of Rs. 23,740/- on the cost of the engines. The Income-Tax Officer disallowed the claim and on appeal by the assessee the Appellate Assistant Commissioner affiirin-ed the order of the Income-tax Officer. On funher appeal to the Tri-bunal by the assessee, the Tribunal allowed the 'claim for development rebate on the view that new diesel engines fitted to vehicles were "machinery installed" within the meaning of sec. 10(2)(vi-b) of the Incomei-Tax Act, 1922.

The assessee fitted new-.,diesel engines to two of its transport vehides during the accounting year ending with March 31, 1952, relevant to tlie 11Ssessment year 1962-63, and claimed development rebate of Rs. 3,144/ on the cost of these engines. The Income-tax Officer dis-allowed this claim and his order was affirmed by the Appellate Assis-tant Commissioner on appeal. The Tribunal in this case held thE1t a diesel engine by itself might be machinery but, when fitted to a r'oad transport vehicle, it became part of the vehicle and the 1111estion of development rebate had to be considered in such a case in regard! to · thti larger unit, namely, the road transport vehicle on which no df:ve-lopment rebate was admissible under sec. 33 of the Income-Tax Act, 1961. · On this view the Triburial affirmed the order dis8llowing the claim.

The High Court answered the question referred to it in each c:ase M irt favour of the assesse'e and disposed of the two references In identical Janguage. The Judgment of the High Court In both cac. re1<h1 ·as follows: ·

"This reference is covered by the Judgment of the Supreme Court in Commissioner of Income-Tax v. Mir Mohammad (53 I. T. R. 165). In view of this the reference is answered in favour of the assessee. No costs."

In Mir Mohamlnad's case on which the High Court based .its decisions, the assessee,. ·a bus-owner and transport operator, replaced the petrol engines in two of his buses incurring expenditure in that connection during the year of account ending with March 31, 1950, relevant to the assessment year 1950-51. This Court bv a majority held .that the same meaning ought to be given to the word "machinery" in all the clauses, namely, clauses (iv), ( v), (vi) and (vi-a) of sec. 10 (2) of the Income-Tax Act, 1922 as then in force, that a diesel engine was clearly machinery, and that when an engine was fixed in a vehicle it was installed within the meaning of the expression in clauses (vi) and (vi-a) of sec. 10( 2) as it then stood. This Court accordingly held that the assessee was entitled to tl).e extra depreciation allowances under the second paragraph of clause (vi) and clause (vi-a) of sec. 10( 2) as in force at the relevant time.

Sec. 10(2) as in force on ARril 1, 1950 which governed Mir ·D Mohammad's case is not quite the same as')he section as it stootl on

April 1, 1961 which is the law to be considered in Civil Appeal No. 211 of 1970 which relates to the assessment year 1961-62. The sec-tion. has undergone several changes in the meantime. Clause (vi-b) which governs the case of the assessee as regards the assessment year 1961-62 was inserted in sec. 10(2) with effect from April 1, 1955 and· that clause as originally introduced was again substituted by a new one in 1958. The provisions of sec. 10 of Income-Tax Act, 1922 applic-able to the assessee's claim in the assessment vear 1961-62 are as follows :

"10. BUSINESS.-( 1) The tax shall be payable by an assessee under the head "Profits and gains of business, profes-sion or vocation" in respect of the profits or gains of any business; profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making . the following allowances, namely :-

** ** ** ** ( vi.b) in respect of a new ship acquired or new machi-nery or plant installed after the 31st day of March, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of-aequisition of the ship or of the installa-tion of the machinery or plant, equivalent to,-

(i) xx xx xx (ii) in the case of machinery or plant installed before the ff 1st day of April, 1961, twenty-five per cent, and in

the case Of machinery or plant installed after the 31st day of March, 1961, twenty per cent of the actual · cost of the machinery. or plant to the assessee:

Explanation 1. x x x Explar,iation 2. x x x Provided that no (l.llowance under this clause shall be made unless-

( a) x x x x "

(b) x x x x x Provided further that no allowance under this clause shall be made in respect of any machinery or plant which con· sists of office appliances or road transport vehicles.

x x x x x''.

Clause ( vi·b) allowing development rebate on the cost of a new ship acquired or new machinery or plant installed after March 31, 1951,-, as already stated, was not in sec. 10(2) as applied to Mir Mohammad's c:ase. It is of course possible to argue on the authority of Mir Mohammad's case that the diesel-engines fitted by the ;,ssessee to its vehicles were machinery "installed" within the meaning of clause (yi·b) but the second proviso to the clause says that "no aHowance under this cla1lse shall be made in respect of any machinery or plant which consists of office appliances or road transport vehicles". In view of this proviso which was inserted in the clause with effect from April I, 1960 no d1:velopment rebate could be claimed in respect of road transport vehicles in the assessment re:ar 1961·62. Counsel for .the assessee contended that the c!iesel engines in regard to which develop· ment rebate h'ad been claimed retained their character as machine!'y though they were fitted to the transport vehicles and accordingly, the argument proceeded, the proviso taking away the right to development ·rebate in res])1~ct of road transport vehicles had no application. We ·do not consider the argument sound. Clause (vi-b) allows develop-ment rebate in respect of new machinery or plant which was used for the purpose of the business carried on by the assessee. In this case it ]s not claimed that the diesel engines as such were used by the assessee for its business.; admittedly the vehicles in which the engines were fixed were what the assessee used for the purpose of its business. · Clearly therefore. the proviso is attrtlcted to bar the claim for development rebate in the a,ssessment year 1961-62. ·

As regards the assessment year 1962-63 the claim for. development r~bate was made under sec. 33 of the ·income-Tax Act, 1961. This section so far ,as it is relevant for the present purpose is as follows :

"33. (l)(a), Jn.respect of a new ship or new machinery· or plant '(other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accord1lnce with and subject to the provisions of this sec-tion and of sec.tion 34, be allowed a deduction in respect of the previq_µs year in which the ship was acquired or the machinecy or plant wa.s installed or. if the ship, machinery or plant .is first put to use in the~ immediately, succeeding previous year, than, in respect of that previous year, a sum by way of' • development • -" rebate ' as *" soecified in clause (b), .

Here, the provision allowing development rebate itself leaves out office appliances and road transport vehicles from its scope. Sec. 33 of the Income-Tax Act, 1961 is materially different from the provision of law on which the decision in Mir Mohammad's case was based. The High Court was therefore in error in answering the questions referred to it in these cases in favour of the assessee.

In the result both these appeals are allowed and the answers given by the High Court to the questions referred to it are discharged. In

and in favour of the Revenue. In Civil Appeal No. 212 of 1970 the question is answered in ·the affirmative and in favour of the Revenue. The appellant will be entitled to his costs in this Court and. in the High. Court; one hearing free.

Appeals allowed'..

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. '.lll and 212 of 1970. · ,

Appeal by Special Leave from the Judgment & Order dated the 4th September, 1967 of the Madras High Court in Tax Cases Nos. ·155 and 156 of 1965.

T. A. Ramachandran and S. P. Nayar, for the appellant.

S: Swaminathan and S, Gopalakrishnan, for the respondent.