1981 (9) TMI 81 - HC - Income Tax

Court Upholds Depreciation Rate Decision

The High Court upheld the Tribunal's decision that there was no apparent mistake justifying a reduction in depreciation rate from 10% to 7% for the ... Depreciation Issues Involved:1. Whether the Tribunal was justified in holding that there was no mistake apparent from the record which could be rectified under section 154 of the Income-tax Act, 1961, so as to reduce the depreciation from 10% to 7% for the assessment years 1962-63 and 1963-64.Issue-wise Detailed Analysis:1. Justification of Tribunal's Decision on Apparent Mistake under Section 154:The core issue revolves around whether the Tribunal was correct in determining that there was no apparent mistake on the record that could be rectified under section 154 of the Income-tax Act, 1961, which would justify reducing the depreciation rate from 10% to 7% for the assessment years 1962-63 and 1963-64.The case pertains to the income-tax assessments of M/s. Distillers Trading Corporation, a limited company, which claimed depreciation at 10% on its machinery and boilers. This depreciation was initially allowed by the Income-tax Officer (ITO). However, the revenue audit later opined that the depreciation should have been granted at 7%, leading the ITO to issue notices under section 154 to rectify the assessments.The assessee contended that the 10% depreciation was appropriate as it was a 'mineral oil concern.' The Appellate Assistant Commissioner (AAC) supported this view, referencing the definition of 'petroleum' under the Petroleum Act, 1934, and the Inflammable Substances Act, 1952, concluding that ethyl alcohol fell within this definition.Difference of Opinion in Tribunal:The Tribunal had a split opinion. The Accountant Member believed ethyl alcohol was a by-product of sugar manufacture and not a mineral oil product, thus not qualifying for the 10% depreciation rate. Conversely, the Judicial Member argued that 'mineral oil' could include ethyl alcohol, as both are inflammable substances and the machinery used for storage is similar. He also cited the case of Harbans Lal Malhotra and Sons Private Ltd. v. ITO [1972] 83 ITR 848 (Cal), suggesting that section 154 could not be applied due to the debatable nature of the issue.The Vice-President of the Tribunal, while personally agreeing with the Accountant Member, acknowledged that the issue was debatable and not appropriate for rectification under section 154.Court's Conclusion:The High Court agreed with the Tribunal's majority view, emphasizing that section 154 is only applicable for correcting clear and patent mistakes apparent from the record. The Court noted that the issue involved substantial debate and interpretation, making it unsuitable for rectification under section 154. The Court referenced the Supreme Court's decision in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50, which outlines the scope of section 154.Arguments by Counsel:- Revenue's Argument: The counsel for the applicant argued that the entry for mineral oil concerns applies only to those manufacturing or producing mineral oil, not merely dealing in it. Additionally, they contended that ethyl alcohol, derived from molasses, cannot be considered a mineral oil.- Assessee's Argument: The counsel for the respondent argued that ethyl alcohol could be considered a mineral oil, referencing statutory definitions and expert opinions, including the Petroleum and Carbide Manual.Analysis of Definitions and Interpretations:The Court examined various statutory definitions and expert opinions. The definition of 'petroleum' under the Petroleum Act and the Inflammable Substances Act was considered, along with the Central Excises Act's definition of 'motor spirit.' The Court noted that these definitions and expert opinions suggested that ethyl alcohol could be considered a mineral oil.Final Judgment:The Court concluded that the question of whether ethyl alcohol is a mineral oil and whether the assessee qualifies for the higher depreciation rate is debatable. Therefore, the original grant of 10% depreciation could not be rectified under section 154. The Court answered the question in the negative, in favor of the assessee, and made no order as to costs due to the considerable difference of opinion at all levels.