1964 (4) TMI 116 - SC - Income Tax

Supreme Court Upholds Extra Depreciation for Diesel Engines in Buses

Commissioner of Income Tax, Madras Versus Mir Mohammad Ali

The Supreme Court, concurring with the High Court, allowed extra depreciation for diesel engines replacing petrol engines in buses, under section ... - Issues Involved:1. Whether extra depreciation is admissible under section 10(2)(vi) and section 10(2)(via) of the Indian Income Tax Act, 1922, for diesel engines fitted to motor vehicles in replacement of existing engines.Issue-wise Detailed Analysis:1. Admissibility of Extra Depreciation under Section 10(2)(vi) and Section 10(2)(via) for Diesel Engines Replacing Existing Engines:Background:The respondent, a bus owner and transport operator, replaced the petrol engines in two of his buses with new diesel engines, incurring an expenditure of Rs. 18,544. He claimed extra depreciation under section 10(2)(vi) and section 10(2)(via) of the Indian Income Tax Act, 1922. The Income Tax Officer allowed only 25% depreciation under the first paragraph of section 10(2)(vi). The Appellate Assistant Commissioner and the Appellate Tribunal upheld this decision, denying the extra depreciation on the grounds that the engines were part of the equipment and not standalone 'machinery.'High Court's Decision:The High Court amended the referred question to include both section 10(2)(vi) and section 10(2)(via) and answered in favor of the assessee, allowing extra depreciation.Supreme Court's Analysis:The Supreme Court examined the relevant provisions of the Income Tax Act, particularly focusing on the definition and scope of 'machinery' under section 10(2)(vi) and section 10(2)(via). The Court noted that the term 'machinery' should be given a consistent meaning across various clauses of section 10(2).Arguments and Reasoning:- The appellant (Commissioner of Income Tax) argued that the term 'machinery' in the context of extra depreciation should be restricted to self-contained units capable of being used independently in the business.- The respondent (assessee) contended that the diesel engines, being new machinery installed in place of old ones, should qualify for extra depreciation.Majority Opinion:The majority held that:- The term 'machinery' should have the same meaning across all relevant clauses of section 10(2).- A diesel engine qualifies as 'machinery' as per the definition provided by the Privy Council in the case of Corporation of Calcutta v. Chairman, Cossipore and Chitpore Municipality.- The diesel engines, when installed in the buses, met the criteria of being new machinery installed for the purpose of the business, thus qualifying for extra depreciation under section 10(2)(vi) and section 10(2)(via).- The term 'installed' includes placing an apparatus in position for service or use, and hence, fixing diesel engines in buses constitutes installation.Dissenting Opinion:The dissenting judge argued that:- The replacement of a petrol engine with a diesel engine in a vehicle does not constitute the installation of new machinery.- The term 'machinery' should refer to a self-contained unit used independently in the business, not merely a part of a larger machine.- Allowing extra depreciation for replacing parts could blur the distinction between repairs and new installations, contrary to the legislative intent.Conclusion:The Supreme Court, by majority opinion, upheld the High Court's decision, allowing extra depreciation for the diesel engines installed in place of the existing petrol engines. The appeal was dismissed with costs.Order:The appeal was dismissed in accordance with the majority opinion, confirming the entitlement of the assessee to extra depreciation under section 10(2)(vi) and section 10(2)(via) of the Indian Income Tax Act, 1922.