TMI Blog1967 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the question which has been referred to us there is a slight omission as regards development rebate. Under the provisions of law, which were in force at the relevant time, development rebate could have been claimed only under section 10(2)(vib) of the Act and not section 10(2)(via) of the Act, which referred only to additional depreciation and not to development rebate. We, therefore, reframe the question as follows in order to bring out the real controversy between the parties : " Whether, on the facts and in the circumstances of the case, was the assessee-company entitled to deduction of the development rebate under section 10(2)(vib) and additional depreciation under section 10(2)(via) for the assessment year 1957-58, and additional depreciation under section 10(2)(via) for the assessment year 1958-59, in respect of the new machinery imported and installed by Messrs. Sanghavi and Sons which business was taken over by the assessee-company ?" The assessment years in question are 1957-58 and 1958-59, the relevant previous years being financial years 1956-57 and 1957-58 respectively. One M. K. Sanghavi was the sole proprietor of a business carried on at Bombay in the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders for the two years, the assessee-company filed appeals to the Appellate Assistant Commissioner and that officer upheld the disallowance of the assessee's claims in respect of development rebate and depreciation allowance. Thereafter, the assessee went in appeal to the Appellate Tribunal and before the Tribunal sufficient material was placed by the assessee to show that Messrs. Sanghavi and Sons had not used the machine prior to April, 1956 ; and further, that the machinery was new in the hands of the assessee-company and that the machines were installed in the year under consideration. Because these materials were available, the Tribunal directed that the matter should be restored to the file of the Appellate Assistant Commissioner and directed that the assessee's contention should be considered afresh and the matters should be disposed of. After the appeals went back to him after the remand, the Appellate Assistant Commissioner admitted the evidence and Considered the new evidence, but ultimately upheld the disallowance of the two claims for development rebate and additional depreciation. Against the orders passed by the Appellate Assistant Commissioner after remand, again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first year of erection of the building or the installation of the machinery or plant) in not more than five successive assessments for the financial years next following the previous year in which such buildings are erected and such machinery and plant installed and falling within the period commencing on the 1st day of April, 1949, and ending on the 31st day of March, 1959." Section 10(2)(vib) is in these terms : (vib) in respect of machinery or plant being new, which has been installed after the 31st day of March, 1954, and 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 installation equivalent to twenty-five per cent. of the actual cost of such machinery or plant to the assessee : Provided that no allowance under this clause shall be made unless the particulars prescribed for the purpose of clause (vi) have been furnished by the assessee in respect of such machinery or plant. " As regards the additional depreciation allowance under section 10(2)(via), there is the decision of the Bombay High Court in Commissioner of Income-tax v. Parle Bottling Company Limited (Unreported In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10(2)(vi) where the words used are " such percentage on the original cost thereof to the assessee ". Even these words do not find a place in section 10(2)(via) and it must be borne in mind that the claim is not made by the assessee on the footing that the machinery is newly erected in the year when the assessee-company acquired the machinery. The claim is made on the footing of the written down value. The additional depreciation under section 10(2)(via) is in no way different from the ordinary depreciation permitted under section 10(2)(vi). In respect of certain buildings, machinery and plant the ordinary depreciation is doubled and that double depreciation is permissible for five years. It is not disputed that the assessee-company is entitled to the ordinary depreciation under section 10(2)(vi) ; if that is so, there is no reason whatever why he is not entitled to the additional depreciation under section 10(2)(via) for the period laid down by the legislature." This decision of the Bombay High Court having been delivered prior to the bifurcation of the bilingual State of Bombay, on May 1, 1960, is binding on us and apart from the decision being binding on us, we respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to have started the business afresh and should not be deemed to continue the existing business. In our opinion what is really important is the business which is certainly the income yielding asset and which is the source from which the taxable income is determined and not the assessee who actually becomes subject to the payment of tax. . . . . The claim for deduction by way of depreciation allowance is one that is primarily attached to the building, machinery or plant though the relief by way of allowance can only be claimed by the assessee who carried on the business during the accounting period." In Commissioner of Income-tax v. Netherlands Steam Navigation Co. Ltd. the provisions of section 10(2)(via) came up for consideration before the Calcutta High Court and at page 780, S. P. Mitra J., delivering the judgment of the Calcutta High Court, observed : " In our view, in construing clause (via) of section. 10(2), the following principles should be borne in mind for the purpose of the present reference : (1) Section 10(2)(via) confers a relief on the assessee. It should, therefore, be strictly construed. The assessee must establish that his case falls within the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alcutta High Court and the learned judges of the Calcutta High Court have observed that they accept the principles enunciated by the Madras High Court in that case. Against these three decisions---one of the Bombay High Court, the other of the Madras High Court and the third of the Calcutta High Court---there is a decision of the Kerala High Court in Commissioner of Income-tax v. Cochin Company. In that particular case, there was no transfer of a business together with the newly installed machinery as part of the business by the person installing the machinery. What happened in that case was that certain reconditioned machines which were purchased by the assessee-company were installed and additional depreciation allowance in respect of those reconditioned machines was claimed by the assessee-company. According to the Kerala High Court, since these machines were reconditioned machines and not altogether new machines, the benefit of the provisions of section 10(2)(via) could not be given to the assessee-company. At page 313 of the report, the learned judges of the Kerala High Court have observed : " It is true that the word ' new ' has different meanings, but, when used with ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that judgment. Under these circumstances, so far as the question of additional depreciation is concerned, we hold that the question referred to us as regards the additional depreciation for the two assessment years in question must be answered in favour of the assessee. We may also point out at this stage that the learned Advocate-General appearing on behalf of the Commissioner, has not argued this point, though he has not given up the point before us, in view of the aforesaid judgment of the Bombay High Court, which is binding on this High Court ; and, therefore, the only question which was seriously urged before us was as regards the development rebate claimed under section 10(2)(vib) of the Act. Under section 10(2)(vib) of the Act, which we have set out above, it is clear that, (1) the machinery or the plant should be new ; (2) it must have been installed after 31st March, 1954 ; (3) it must have been wholly used for the purpose of the business carried on by the assessee ; (4) the development rebate can only be allowed in respect of the year of installation ; and (5) the development rebate can only be to the extent of 25% of the actual cost of machinery or plant to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rebate is claimed and not prior to the commencement of the relevant previous year of the assessee. So far as the words " machinery or plant being new which has been installed after 31st day of March, 1954 " are concerned, those words of section 10(2)(vib) are common with the words occurring at the commencement of section 10(2)(via). It is true, as the learned Advocate-General, on behalf of the Commissioner, has pointed out, that the two concepts, one of development rebate and the other of additional depreciation allowance, are different. The concept of depreciation allowance is that it is spread over a number of years and the depreciation allowance is computed on the basis of the written down value of the machinery or the plant ; of course, the original cost to the assessee in question having always to be borne in mind. To that extent, the meaning which the words would convey in the context of section 10(2)(via) would, to a certain extent, differ from the meaning of the words occurring in section 10(2)(vib), which deals with development rebate. The development rebate has to be paid once and for all, and that too in the year of installation. The development rebate is not to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. It was urged before us on behalf of the department that the words, " which is wholly used for the purposes of the business carried on by the assessee " impliedly carry with them the concept that the installation of the new machinery or plant must have been by the assessee claiming the development rebate. It was urged in this connection by the learned Advocate-General that though the phrases, " which has been installed after the 31st day of March, 1954 " and " which is wholly used for the purposes of the business carried on by the assessee " may be read as disjunctive phrases and as separate qualifications of machinery or plant, still by the words, " wholly used for the purposes of the business carried on by the assessee " by necessary implication it is conveyed by the legislature that the assessee himself must have installed the machinery. We are unable to accept this contention urged before us on behalf of the revenue. The words, " which is wholly used for the purposes of the business carried on by the assessee " are required to be used because it is in respect of the business carried on by the assessee that the allowances under section 10(2), including the allowance of deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be allowed at the rate of 25% of the actual cost of such machinery or plant to the assessee. Looking at the phrases, " which has been installed after the 31st day of March, 1954 " which is wholly used for the purposes of the business carried on by the assessee " and " the actual cost of such machinery or plant to the assessee " occurring in section 10(2)(vib), on a plain grammatical construction it is clear that the legislature has not provided either expressly or by necessary implication that development rebate can only be allowed to the person originally installing the new machinery and not to the successor-in-business of that person. The legislature has not stated " installed by the assessee when it referred to the machinery or plant in section 10(2)(vib). It was sought to be urged before us that with effect from April 1, 1958, the legislature has provided in section 35(11) of the Act as to what is to happen when development rebate has been allowed to an assessee in respect of the machinery or plant and within a period of 10 years from the end of the year in which the machinery or plant was installed that machinery or plant has been sold. Now, we are concerned as regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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