TMI Blog1990 (12) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... for higher development rebate on the ground that the machinery installed by: the assessee for the purpose of engaging itself in the business of manufacture and sale of cranes and winches would not fall under Schedule V. Regarding the claim of the assessee for depreciation on the cars, the Income-tax Officer found that the cars had been used by the directors for non business purposes also and disallowed one-fifth of the depreciation claimed by the assessee. On appeal by the assessee before the Appellate Assistant Commissioner, the assessee furnished statements disclosing the proportionate cost of the gears manufactured by it in the total cost of production of cranes and winches of different varieties. Taking this into account, the Appellate Assistant Commissioner opined that had the assessee chosen to restrict it manufacturing activity to gears only, relief under section 80-1 of the Act would have been available to it, as gears are one of the items enumerated in Schedule VI, but the fact that the assessee chose to manufacture its own gears and utilise the same in the cranes and winches could not deprive the assessee of the benefit of the provisions of section 80-I of the Act. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee will be entitled to relief of depreciation as claimed. That is how, under section 256(2) of the Act, at the instance of the Revenue, the following common questions of law, for the assessment years 1971-72 and 1972-73, have been referred to this court for its opinion. "(1) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in sustaining the finding of the Appellate Assistant Commissioner that a component part of the machinery manufactured by the assessee falls under the items listed in the Sixth Schedule and, therefore, the assessee would be entitled to relief under section 80-1 in respect of a portion of its profits ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to higher development rebate in respect of the machinery exclusively used for the manufacture of gears ? (3) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee would be entitled to full depreciation in respect of the cars used by it ?" Learned counsel for the Revenue contended that the manufacture of gears was not the business of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as engaged in a priority industry and the gross total income of the assessee should include profits and gains attributable to such priority industry. In that case, the assessee would be entitled to deduction from such profits and gains, of an amount, as specified in section 80-I of the Act, in computing the total income of the company. The emphasis appears to us to be on the granting of relief to such of those assessees as are engaged in priority industries in the manufacture of one or more of the items enumerated in Schedule VI of the Act. It may be that one of the items manufactured falling under Schedule VI is sold as such by the assessee. Equally, such an item manufactured by the assessee and falling under Schedule VI could be used by the assessee as a component in the other products manufactured by it. In either event, it would be a case of manufacture by the assessee of one of the items falling under Schedule VI. Therefore, the manufacture of gears, falling under item 22 of Schedule VI by the assessee, and the use thereof by the assessee as a component in the other products manufactured by it would not render the manufacture of gears, as such, any the less the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule V, then, the assessee would be entitled to the benefit of higher development rebate as provided therein. The Income-tax Officer proceeded to deny the benefit of higher development rebate to the assessee, as in his view, it was not engaged in the manufacture or production of one of the items falling under Schedule V. However, the Appellate Assistant Commissioner found that the assessee should be allowed development rebate at higher rate if it could establish that there had been exclusive use of certain plant and machinery installed for the manufacture of gears only, and that, if the assessee failed to make out a case for exclusive use of the plant and machinery solely for the manufacture of gears, the assessee's claim for higher development rebate was not admissible. A further direction was also given that the assessee should furnish the relevant particulars in this behalf before the Income-tax Officer which should be considered by the Income-tax Officer for the purpose of determining the admissibility of the development rebate at a higher rate as claimed by the assessee. This direction was also upheld by the Tribunal. We do not see how, when the assessee is engaged in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for business and non-business purposes as well. Even in the course of the appeals preferred by the assessee before the Appellate Assistant Commissioner, the only plea taken was that the disallowance was on the high side. That there was a user of the cars for business purposes and non-business purposes as well was not disputed before the appellate authority. Nor was this in any manner questioned before the Tribunal. In view of the factual user of the cars for business as well as non-business purposes not having been challenged before any of the authorities, it has to be taken that the cars in respect of which depreciation had been claimed by the assessee had been used for business as well as non-business purposes. In such a situation, the proper provision under which the claim for depreciation has to be considered and dealt with is section 38(2) and not section 32(1) read with rule 5 of the Rules. The Tribunal, in the course of its order, had made a reference to section 38(2) of the Act, but had nevertheless proceeded to hold that the user of the cars by the assessee, even for one day in the course of the accounting year, would enable the assessee to get the benefit of deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to Rs. 1,200 as initial depreciation. But the Tribunal allowed deduction of Rs. 2,400 as claimed by the assessee. On a reference, the Patna High Court pointed out, referring to section 10(2)(vi) and section 10(3) of the Indian Income-tax Act, 1922, that section 10(2)(vi) is controlled by section 10(3) of that Act which expressly restricted the allowance to a fair proportional part of the amount which would be allowable if the machinery was wholly used for the purposes of business, in a case where the machinery was not wholly used for the purposes of the business, but was used both for the purposes of business and for private purposes. Again, in Waterfall Estates Ltd. v. CIT [1981] 131 ITR 223 (Mad), referring to section 38(1) and (2) of the Act, it was pointed out that subsection (1) deals with cases where the expenditure is partly personal and partly for the purpose of business, while sub-section (2) of section 38 applies to cases where part of the expenditure was with reference to non business activities, in which case, proportionate allowance is contemplated and that section 38 is applicable only to those cases where the expenditure or allowance relates to the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd lift were used for business purposes of the assessee and without reference to section 38(2) of the Act while, on the facts of this case, we find that there had been an admittedly mixed user of the cars for the purposes of business and non-business purposes and that, in our opinion, would make all the difference to the applicability of the decision in Punjab National Bank v. CIT [1983] 141 ITR 886 (Delhi). We are of the view that the decision in Punjab National Bank v. CIT [1983] 141 ITR 886 (Delhi) would not, in any manner, help the assessee to contend that the depreciation on cars should be allowed in toto. Applying, therefore, the principles laid down in CIT v. Sobharam Jokhiram [1960] 39 ITR 299 (Pat), Waterfall Estates Ltd. v. CIT [1981] 131 ITR 223 (Mad) and CIT v. K. L. Bhasin and Co. [1986] 158 ITR 623 (Pat), we hold that the Tribunal was in error in holding that the assessee would be entitled to full depreciation in respect of the cars used by it. We, therefore, answer the third question referred to us in the negative and in favour of the Revenue. In view of the partial success of the Revenue and the assessee in these references, we do not make any order as to costs. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
