Commissioner of Income Tax vs Indian Textile Paper Tube Co. Ltd.

Abdul Hadi, J.—At the instance of the Revenue, the following questions of law have been referred to us by the Tribunal under s. 256(1) of

the IT Act, 1961 (hereinafter referred to as ''the Act'') :

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to initial depreciation as

claimed by it on the basis that it manufactures articles or things falling under item 8 of Ninth Schedule which reads ""Industrial and Agricultural

machinery""?

Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the subsidy received from SIPCOT by the

assessee does not go to reduce the cost of the assets under s. 43(1) of the Act for the purpose of depreciation

Insofar as the second of the abovesaid two questions is concerned, it is agreed by both the rival counsel that the said question is covered in

favour of the assessee by the decision in Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd., , and accordingly we answer the

said second question in the affirmative and in favour of the assessee.

Insofar as the first of the abovesaid two question is concerned, the issue involved in the said question is, whether the assessee-respondent,

which manufactures paper tubes and cones, (required as accessories for winding yarn) as part of textile machinery in the asst. yr. 1977-78, is

entitled to initial depreciation allowance to the extent of Rs. 14,348 under s. 32(1)(vi) of the Act in relation to the machinery installed by it for the

purpose of business of manufacture of the abovesaid paper tubes and cones.

Sec. 32(1)(vi) of the Act allows initial depreciation ""in the case of new machinery or plant.... installed after 31st May, 1974"" ""for the purpose

of.... manufacture or production of any one or more of the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth

Schedule...."". The contention of the assessee is that the abovesaid paper tubes and cones manufactured, comes under ""industrial machinery

spoken to in item 8 of the abovesaid Ninth Schedule. This contention was not accepted by the original assessing authority and so the allowance

was negatived. But, the first appellate authority and the Tribunal concurrently granted the said allowance, holding that the said paper cones and

tubes would come under the term ""industrial machinery"" used in the abovesaid item 8 of Ninth Schedule.

The reasoning of the Tribunal may be gathered from the following observations in its order :

In the absence of a definition of industrial machinery under the IT Act, a reference to Industries (Development Regulations) Act could not be

irrelevant. Textile machinery appears in the First Schedule to that Act under the broad heading ""Industrial machinery"". It is listed as ""Textile

machinery (such as Spinning Frames, Carding machines, Power looms and the likes including textile accessories)"". Now even the assessing

authority does not dispute that these are accessories, but he says that paper cones and tubes, delicate and inexpensive as they are, could not be

treated as industrial machinery as such. He would perhaps grant the allowance only if an entire production unit is manufactured and not otherwise.

We do not think that such a rigid interpretation is warranted. Since accessories are treated as textile machinery which is industrial machinery under

the Act intended to regulate industries in India, we would be justified in accepting assessee''s pleas both on the basis of the spirit and letter of the

law. We, therefore, agree with the first appellate authority on this issue.

Learned counsel for the Revenue submits that the Tribunal erred in referring to the description of ""industrial machinery"" found under the heading in

the First Schedule to Industries (Development Regulations) Act, 1951. He specifically points out that while in item 4 of the Fifth Schedule to the

Act in connection with development rebate allowance under s. 33(1)(b)(B)(1) of the Act, ""industrial machinery"" spoken to therein as specified in

the abovesaid heading 8 in the First Schedule to the abovesaid Industries (Development Regulations) Act, 1951, there is no such specification

when, in the abovesaid Ninth Schedule, item 8, the term ""industrial and agricultural machinery"" is used. In other words, according to him, the

meaning of industrial machinery so used in the abovementioned item 1 of Fifth Schedule, cannot be imported, when considering the initial

depreciation under s. 32(1)(vi) of the Act, with reference to which alone the abovesaid Ninth Schedule has come in. He also relies on India Leaf

Spring Mfg. Co. (P) Ltd. Vs. Commissioner of Income Tax, , which relies on the definition of the term ""machinery"" given in Corporation of

Calcutta vs. Chairman of the Cosspore & Chitpore Municipality AIR 1922 PC 27 and holds that leaf springs used in the manufacture of trucks

and other motor vehicles are not industrial machineries within the meaning of item 8 of the abovesaid Ninth Schedule and that the initial

depreciation under s. 32(1)(vi) of the Act cannot be allowed in the case of machinery employed for the manufacture of the said leaf springs.

On the other hand, learned counsel for the assessee reiterates the abovesaid reasoning of the Tribunal. He also points out that in the abovesaid

item 8 of the First Schedule to the Industries (Development Regulation) Act, 1951 under the abovesaid heading ""A. Major items of specialised

equipment used in specific industries"", the first item of machinery is textile machinery ""including textile accessories"". Thus, according to him, the

abovesaid paper tubes and cones are such accessories to the textile machinery since without them, the textile machinery cannot be run. He also

points out that the abovesaid Fifth Schedule, item 24 also refers to ""Component parts of the articles mentioned in item Nos. (4)....... that is to say,

such parts as are essential for the working of the machinery referred to in the items aforesaid....."" Therefore, according to him since the abovesaid

paper tubes and cones are essential in running the textile machinery, they are also textile machineries and as such are industrial machineries under

the abovesaid cl. 8 of Ninth Schedule also. He also points out, as indicated in the first appellate order also, that in one registration certificate issued

to the assessee by the Textile Commissioner against the heading ""items of textile machinery manufactured"", the assessee has been described as

manufacturing textile accessories and in another such certificate against the same heading, the words ""paper cones and tubes and ring tubes"" have

been entered. Learned counsel for the assessee also relied on Commissioner of Income Tax Vs. Chitram and Co. Pvt. Ltd., .

We have considered the rival submissions. First of all, it is clear to us that in considering the meaning of the word ""industrial machinery"" used in

item 8 of the abovesaid Ninth Schedule, the description of industrial machinery spoken to in item 4 of the abovesaid Fifth Schedule, cannot be

imported at all. The very fact that the legislature has chosen to use the expression ""industrial machinery"" in one way in one Schedule and in another

way in another Schedule, shows that the legislature itself intended to give different meanings to the same term in the said two Schedules. If really,

the legislature wanted to have the same meaning in both the Schedule, it would have accordingly worded the said expression in the same way in

both the Schedules. Therefore, it is clear to us that the Tribunal and the first Appellate Authority erred in proceeding on the footing that the meaning

of the term ""industrial machinery"" used in item 8 of Ninth Schedule could be the same as the meaning of the said term under item 4 of Fifth

Schedule.

Then, coming to the meaning to be given to the word ""industrial machinery"" used in item 8 of Ninth Schedule, no doubt, initially it must be stated

that there is no definition of the term ""industrial machinery"" under the Act. But, we find that the Supreme Court in COMMISSIONER OF Income

Tax, MADRAS Vs. MIR MOHAMMAD ALI. ARUNA MILLS LTD. : INTERVENER., has observed thus :-

The Privy Council in the case of ILR 49 Cal 190 : AIR 1922 PC 27 hazarded the following definition of ''machinery :

''The word ''machinery'' when used in ordinary language prima facie means some mechanical contrivances which, by themselves or in combination

with one or more other mechanical contrivances by the combined movement and inter-dependent operation of their respective parts generate

power, or evoke, modify apply or direct natural forces with the object in each case of effecting so definite and specific a result.

They had already observed that the word ''machinery'' must mean more than a collection of ordinary tools. The Privy Council case was not a tax

case but prima facie the ordinary meaning of the word ''machinery'' - and the word ''machinery'' is an ordinary and not a technical word - must,

unless there is something in the context, prevail in the Indian IT Act, also..... According to the above definition, a diesel engine is clearly

''machinery''.

Thus, the Supreme Court has also adopted the abovesaid definition given by the Privy Council.

Further, in India Leaf Spring Mfg. Co. (P) Ltd. Vs. Commissioner of Income Tax, also, the Andhra Pradesh High Court has given the same

meaning to the term ""machinery"" and held that leaf springs used in the manufacture of trucks and other motor vehicles do not constitute ""industrial

machinery"" within the meaning of the abovesaid item 8 of Ninth Schedule to the Act and hence the machinery employed for manufacturing the said

leaf springs is not entitled to initial depreciation provided by s. 32(1)(vi) of the Act. The relevant observation in the said decision is as follows :

The Tribunal has held that the ""leaf springs"" manufactured by the assessee cannot be called ""machinery"" for the reason that a leaf spring does not

generate power, nor is it capable of evoking, modifying, applying or directing natural forces - a test evolved by the Privy Council in Corporation of

Calcutta vs. Chairman of The Cossipore & Chitpore Municipality AIR 1922 PC 27.... It would be evident that all the decisions dealing with the

meaning of the expression ""machinery"" have drawn inspiration from the decision of the Privy Council, referred to supra. It has also been held that a

part of machinery is also machinery. But, what appears to be essential is that there must be some mechanical contrivances which by themselves or

in combination with one of more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts

generate power or evoke, modify, apply or direct natural forces..... The other basis upon which the question can be approached is, whether

leafsprings"" are contrivances. It is difficult to say that a leafspring can be called a contrivance, much less does it satisfy the various requirements

mentioned in the definition. A leafspring by itself does not generate power, nor is it capable of evoking, modifying, applying or directing natural

forces, within the meaning of the said definition. It is only meant to take the load and to cushion the bumps and shocks which a vehicle takes during

its movement.

If we apply the same reasoning to the abovesaid paper tubes and cones, it is not difficult to hold that they are not industrial machineries, coming

under the abovesaid item 8 of Ninth Schedule. They cannot also be taken as mechanical contrivances which by themselves or in combination with

one or more other mechanical contrivances, generate power or evoke, modify, apply or direct natural forces, even assuming that hey are necessary

or essential in running the textile machinery. We may also incidentally mention that the Tribunal has also noted that they have a short life and cost

less (little less than Rs. 2 per unit). The decision relied on by learned counsel for the assessee in Commissioner of Income Tax Vs. Chitram and

Co. Pvt. Ltd., has no application at all to the present case.

It is also relevant to notice that under entry No. 24, of the Fifth Schedule to the Act, an assessee manufacturing component parts of the

industrial machinery is eligible to claim the developmental rebate under the provisions of s. 33 of the Act. There is no corresponding entry in the

Ninth Schedule covering the component parts of the industrial machinery in the Ninth Schedule of the Act.

Therefore, we answer the abovesaid first question in the negative and in favour of the Revenue. No costs.