1967 (7) TMI 17 - HC - Income Tax

New machinery imported and installed by M/s. S & Sons which business was taken over by the assessee-company - assessee entitled to deduction of the development rebate u/s 10(2)(vib) and additional depreciation u/s 10(2)(via) -

Issues Involved:
1. Entitlement to development rebate under section 10(2)(vib) for the assessment year 1957-58.
2. Entitlement to additional depreciation under section 10(2)(via) for the assessment years 1957-58 and 1958-59.
3. Interpretation of the term "new machinery" and its implications for development rebate and additional depreciation.

Detailed Analysis:

1. Entitlement to Development Rebate under Section 10(2)(vib) for the Assessment Year 1957-58
The core issue was whether the assessee-company was entitled to a development rebate for machinery initially installed by a predecessor entity, Messrs. Sanghavi and Sons. The court clarified that the development rebate could be claimed only under section 10(2)(vib) and not section 10(2)(via), which pertains to additional depreciation. The court rephrased the question to reflect this accurately.

The court examined the conditions under section 10(2)(vib), which stipulate that the machinery must be:
- New.
- Installed after March 31, 1954.
- Wholly used for the business carried on by the assessee.
- The rebate is allowed in the year of installation and is equivalent to 25% of the actual cost to the assessee.

The court rejected the argument that the machinery must be installed by the assessee claiming the rebate, emphasizing that development rebate can be granted if the new plant or machinery has been wholly used for the purposes of the business carried on by the assessee. The court also noted that the development rebate is calculated based on the actual cost to the assessee, not the original cost when first installed.

2. Entitlement to Additional Depreciation under Section 10(2)(via) for the Assessment Years 1957-58 and 1958-59
The court referred to previous judgments, particularly the Bombay High Court's decision in Commissioner of Income-tax v. Parle Bottling Company Limited, which held that a successor entity is entitled to additional depreciation even if it did not originally install the machinery. The court endorsed this principle, stating that additional depreciation is similar to ordinary depreciation and should be allowed for the period prescribed by the legislature, regardless of whether the machinery was installed by the predecessor or the successor.

The court also cited the Madras High Court's decision in Veerappa Transports v. Commissioner of Income-tax, which supported the view that the benefit of additional depreciation attaches to the machinery itself and not necessarily to the entity that installed it.

3. Interpretation of the Term "New Machinery" and Its Implications
The court discussed the interpretation of "new machinery" in the context of section 10(2)(vib) and section 10(2)(via). It referred to the Supreme Court's decision, which clarified that "new" means "not existing before, now made or brought into existence for the first time," contrasting it with "used." The court concluded that the machinery in question was new when installed by Messrs. Sanghavi and Sons and remained new when taken over by the assessee-company.

The court also addressed an argument regarding the timing of the installation, noting that the entire plant, consisting of six machines, was installed as a single unit in April 1956. Therefore, the machinery was considered installed in the relevant financial year, meeting the criteria for development rebate and additional depreciation.

Conclusion
The court concluded that the assessee-company was entitled to:
- Development rebate under section 10(2)(vib) for the assessment year 1957-58.
- Additional depreciation under section 10(2)(via) for the assessment years 1957-58 and 1958-59.

The court answered the question in the affirmative for both parts and ordered the Commissioner to pay the costs of the reference to the assessee.

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