COMMISSIONER OF INCOME TAX MADRAS v. SOUTHERN ROADWAYS (P) LTD.

... j A B ## c D E F G H SSL· COMMISSIONER OF INCOME TAX MADRAS _v._ SOUTHERN ROADWAYS (P) LTD. - _November_ 28, 1974 [H. R. KHANNA AND A. C. <:JUPTA, JJ.J _Income.tax_ _Act_ _1922-Scctiim_ 10(2)(vi·b) _Proviso-Income_ _Tax_ _Act_ 1961, _Section_ 33(1) _(a )-Dei·e/opment_ _rebate-Diesel_ _Enginj;?s_ _after they are fitted_ _!O_ _trucks wherher_ _retai11_ _their characrer as rnacl1inery,_ The respondent is er.gaged in transport business and owns a fleet of lorries ;;nd buses. The respondent purchased new diesel .engines and fitted them in the vehicl~s. He claimed development rebate on the price of the die·;el engines pur~hased in respect of the assessment years 1961-62 and 1962-63. For the ac~ounting year relevant to assessment year 1961-62 the Income Tax Act, 1922 was applkable and for the tlccounting year relevant to 1962-63 the Income Tax Act, 1961 was applicable. The Income Tax Officer rejected the claim for development rebate in respect of both the years, The Appellate Asstt. Commissioner confirmed the decision of the In:ome Tax Officer. In respect of the assessment year 1961·62, the Tribunal allowed the claim of the assessee for development rebate. The Tribunal, however, rejected the claim inade by the asses·¥e in respect of the asse.ssment year 1962-63. The High Court decided both the references in favour of the assessee on the ground that the case was covered by the judgment of this Court in the case of _Mir_ _Mohammad._ ·HELD : Section 10(2) as in force in the year 1950 when the cele of _Mir_ _Mohammad_ was decided bas underaone change and at the relevant time the section clearly provided that no allowance will be made in respect of any machinery or plant .which consists of office appliances or road transport vehicles. [883D·B: 884C-D] FURTHER HELD : The contention of the assessee ·that the diesel engines retained their character as maichinery though they were fitted to the transport vehl:les was negatived on the ground that development rebate i» allowed on machinery used for the purpose of business carried on by the assesse-~ and in the preser.t case the diesel engines were not used by the assessee for his business. It is .the vehicles which were used for the purposes of the business. In section 33 of the 1961 Act, road trnnsport vehicles are exprc>sly taken away from the operation of the section. The High Court was therefore, iii errur in answering the question in favour of the assessee.' [8840-F] 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. The Judgment of the Court was delivered by 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 882 SUPREME COURT REPORTS [1975] 2 S C.R. 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 installed 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 references 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 assessee 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 t96263 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 affiirined the order of the Income-tax Officer. On funher appeal to the Tribunal 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. A B ## c D E The assessee fitted new-.,diesel engines to two of its transport vehides F 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 disallowed this claim and his order was affirmed by the Appellate Assistant 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 G 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:velopment 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: - A B ## c ·D E F G ff ### c. I. T. v. SOUTHERN ROADWAYS (Gupta,/.) 883 "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_ _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 section. 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, profession 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 machinery 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 installation of the machinery or plant, equivalent to,(i) xx xx xx (ii) in the case of machinery or plant installed before the 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: _884_ SUPREME COURT REPORTS [1975] 2 s.c.a. 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 A B ### c D E F G H 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), . A **B** ### **c** C.I.T. _v._ SOUTHERN ROADWAYS _(Gupta,_ /.) 88 5 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 Civil Appeal No. 211 of 1970 the question is answered in the negative 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'.._ **P.H.P.**