Depreciation and disallowance rules applied to actual business activity and prior precedent, favouring the assessee on all issues.

Depreciation on moulds used in a separate rubber-container division was allowed at the rate applicable to rubber goods factories because the assessee was actually manufacturing rubber goods in that division. Borewells were treated as eligible for the higher depreciation rate on the basis of the court's earlier ruling that they were not confined to the lower rate applied by the tax authority. The disallowance of reimbursement of medical expenses and premia for personal accident insurance under sections 40(c) and 40A(5) was deleted, following precedent in the assessee's own earlier year. The governing approach was that depreciation and disallowance provisions must be applied according to the assessee's actual business activity and binding precedent.

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Issues: (i) Whether moulds used in a separate rubber-container division of a battery manufacturer were entitled to depreciation at 40% as for a rubber goods factory; (ii) whether borewells fell within the expression "hydraulic works" for depreciation purposes; (iii) whether the disallowance under sections 40(c) and 40A(5) in respect of reimbursement of medical expenses and premia for personal accident insurance policies was liable to be deleted.

Issue (i): Whether moulds used in a separate rubber-container division of a battery manufacturer were entitled to depreciation at 40% as for a rubber goods factory.

Analysis: The assessee maintained a separate division for manufacturing rubber containers used in the production of batteries. Those containers were not sold in the market, but were manufactured as part of the assessee's business operations. On that factual foundation, the relevant depreciation entry for moulds used in rubber and plastic goods factories was held applicable because the assessee's activity included manufacture of rubber goods in that division.

Conclusion: The assessee was entitled to depreciation at 40% on the moulds. The answer was in favour of the assessee and against the Revenue.

Issue (ii): Whether borewells fell within the expression "hydraulic works" for depreciation purposes.

Analysis: The issue was covered by an earlier decision of the same court holding that borewells were not to be restricted to the lower rate allowed by the Income-tax Officer and that the higher depreciation rate was permissible on that footing.

Conclusion: Depreciation at 10% was allowable on borewells. The answer was in favour of the assessee and against the Revenue.

Issue (iii): Whether the disallowance under sections 40(c) and 40A(5) in respect of reimbursement of medical expenses and premia for personal accident insurance policies was liable to be deleted.

Analysis: The question was covered by the court's earlier decision in the assessee's own case for an earlier year, where the same treatment of such payments had already been upheld in the assessee's favour.

Conclusion: The disallowance was correctly deleted. The answer was in favour of the assessee and against the Revenue.

Final Conclusion: All three reference questions were answered against the Revenue and in favour of the assessee, and the Tribunal's view was sustained on each issue.

Ratio Decidendi: Depreciation entries and disallowance provisions must be applied according to the nature of the assessee's actual business activity and the governing precedent on the same point, including prior decisions in the assessee's own case.

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