1964 (4) TMI 12 - SC - Income Tax

Diesel engine replacement qualifies for extra depreciation under Income-tax Act

Commissioner Of Income-Tax, Madras Versus Mir Mohamed Ali

The Supreme Court, concurring with the High Court, allowed the assessee to claim extra depreciation for replacing petrol engines with diesel engines in ... Whether extra depreciation is admissible under the provisions of section 10(2)(vi) and section 10(2)(via) of the Income-tax Act in respect of the diesel oil engines fitted to the motor vehicles in replacement of the existing engines ? Held that:- The High Court was correct in answering the question referred to it in the affirmative. The appeal, therefore, fails and is dismissed with costs. Issues Involved:1. Admissibility of extra depreciation 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:Background and Facts:The assessee, a bus owner and transport operator, replaced petrol engines in two buses with new diesel engines, incurring an expenditure of Rs. 18,544. The Income-tax Officer allowed only 25% depreciation under the first paragraph of clause (vi) of Section 10(2). The assessee's claims for extra depreciation under the second paragraph of clause (vi) and clause (via) were rejected by the Appellate Assistant Commissioner and the Appellate Tribunal. The High Court, however, ruled in favor of the assessee, prompting the Commissioner of Income-tax to appeal to the Supreme Court.Relevant Provisions:The relevant provisions of the Indian Income-tax Act, 1922, include:- Section 10(2)(vi): Depreciation of buildings, machinery, plant, or furniture.- Section 10(2)(via): Additional depreciation for new buildings, machinery, or plant installed after March 31, 1948.High Court's Reasoning:The High Court concluded that:- Machinery must have the same meaning in Section 10(2)(vi) and Section 10(2)(via).- A diesel engine qualifies as machinery.- Machinery does not lose its status because it is part of a larger system.- The statutory provision for depreciation applies to both plant and machinery.Supreme Court's Analysis (Majority Opinion):- Historical Context: The provisions for extra depreciation were introduced to encourage modernization and rehabilitation of industry post-World War II.- Definition of Machinery: The term 'machinery' should have a consistent meaning across clauses (iv), (v), (vi), and (via) of Section 10(2). The Privy Council's definition in Corporation of Calcutta v. Chairman, Cossipore and Chitpore Municipality was adopted, which describes machinery as mechanical contrivances generating power or directing natural forces to achieve specific results.- Diesel Engine as Machinery: According to this definition, a diesel engine qualifies as machinery. Rule 8 of the Income-tax Rules, which treats aero-engines separately from aircraft, supports this interpretation.- Installation of Diesel Engines: The term 'installed' includes placing an apparatus in position for use. Therefore, fixing a diesel engine in a vehicle qualifies as installation.Supreme Court's Conclusion (Majority Opinion):The High Court was correct in answering the question affirmatively, allowing the assessee to claim extra depreciation. The appeal was dismissed with costs.Separate Judgment (Shah J.):- Interpretation of Section 10(2)(vi): The second paragraph of clause (vi) was intended to encourage new installations, not replacements or additions to existing units. Shah J. argued that the replacement of a petrol engine with a diesel engine does not constitute the installation of new machinery within the meaning of the clause.- Self-contained Unit: For machinery to qualify for extra depreciation, it must be a self-contained unit used in the business. A diesel engine replacing a petrol engine does not meet this criterion.- Conclusion: Shah J. dissented, holding that the assessee is not entitled to the allowance under Section 10(2)(vi), paragraph 2, for the diesel engines.Order:In accordance with the majority opinion, the appeal was dismissed with costs.Appeal Dismissed.