Commissioner of Income Tax vs Instrumentation Ltd.

V.K. Singhal, J.—The Income Tax Appellate Tribunal, Calcutta Bench-A, Camp at Jaipur, has referred the following three questions of law arising out of its order dated February 17, 1981, for the assessment year 1976-77 :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing that initial depreciation on tools and instruments amounting to Rs. 7,77,407 and Rs. 1,58,117, respectively, be allowed ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 29,886 incurred on fixation of R. C. C. jalies on the boundary wall is allowable as revenue expenditure ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the deduction u/s 80J is admissible in full as against proportionate deduction allowed for four months by the Inspecting Assistant Commissioner (Assessment)?".

The brief facts of the case are as under :

During the course of examination of the books of account of the company, it was found that tools of the value of Rs. 7,77,407 and instruments of Rs. 1,58,117 purchased by the assessee-company were claimed for initial depreciation. The claim for allowance of initial depreciation was rejected on the ground that the same could be allowed only when new machinery or plant is installed and, in the present case, they have not been installed and, therefore, deduction in respect thereof cannot be allowed. The Income Tax Appellate Tribunal has recorded a finding that most of these items are electrical equipment and although they are moved from place to place, they constitute machinery for the working of the factory. The decision of the Allahabad High Court in Commissioner of Income Tax Vs. Indian Turpentine and Rosin Co. Ltd., , was relied upon and the deduction was allowed. The Allahabad High Court, while deciding the above case, has taken into consideration the judgment of the Supreme Court in COMMISSIONER OF Income Tax, MADRAS Vs. MIR MOHAMMAD ALI. ARUNA MILLS LTD. : INTERVENER., , wherein the apex court has held that the expression "installed" did not necessarily mean fixed in position but was also used in the sense of " induct" or " introduce" or " placing an apparatus in position for service or use". The restricted meaning which was given by the assessing authority and the first appellate authority is contrary to the judgment of the Hon''ble Supreme Court referred to above and there being no other judgment on the point contrary to the view taken by the Income Tax Appellate Tribunal. We are of the view that the expression " installed " would include placing the apparatus in position for service or use.

The Calcutta High Court in Commissioner of Income Tax Vs. Steel Rolling Mills of Hindusthan (P.) Ltd., has held that, if the popular meaning of the word " installation" which envisages the setting up of a complicated piece of machinery or manufacturing unit for the purpose of production is given, then a number of items would have been excluded from the expression "plant". Following the Allahabad High Court decision (sic), it was held that if a gas cylinder is used for storing gas, it can be said to have been installed in the business. The view taken by the Income Tax Appellate Tribunal is upheld and it is held that the Income Tax Appellate Tribunal was justified in directing that initial depreciation of tools and instruments amounting to Rs. 7,77,407 and Rs. 1,58,117, respectively, was allowable.

A claim of Rs. 29,886 was made by the assessee in respect of R. C. C, jalies fixed on the boundary wall of the shopping centre in the year 1972-73, which was disallowed on the ground that the expenditure incurred in the year 1972-73 was of capital nature and now it cannot be allowed as revenue expenditure and the expenditure does not pertain to the year under dispute. The Commissioner of Income Tax (Appeals ) held that capital expenditure cannot become admissible revenue expenditure or admissible loss subsequently when assets get destroyed. This is subject to the exception, i.e., in the case of the depreciable asset there is a provision for allowance of terminal allowance u/s 32(1)(iii) of the Income Tax Act, 1961. However, no depreciation was claimed in respect of the assets in the earlier year obviously because the expenditure was considered to pertain to the development of land and it was actually debited to the land development account and hence the deduction of the claim was upheld. The Income Tax Appellate Tribunal has observed that the assessee claimed loss occurring on account of breakage of jalies to the extent of Rs. 29,886. These were fixed in the earlier years and, as and when they were broken, they were replaced. Since this expenditure was only on replacement of fences and does not result in any advantage of enduring benefit, the amount is to be allowed as a revenue expenditure. It would be evident that the Tribunal has proceeded On an altogether different ground, which was not before the Inspecting Assistant Commissioner (Assessment) or before the Commissioner of Income Tax (Appeals) and it was never the claim of the assessee that the amount pertains to replacement.

Mr. Ranka, appearing on behalf of the assessee, has relied on the judgment of the Supreme Court in Commissioner of Income Tax, West Bengal II, Calcutta Vs. Kalyanji Mavji and Company, , wherein the Hon''ble Supreme Court has held that, in respect of specific provision for allowance of " current repairs ", other repairs can be allowed under general deduction of business expenditure. It was further observed that neither has the assessee brought into existence a new asset nor was an advantage for the enduring benefit of the business acquired by the expenditure and that the expenditure was revenue in character.

Reliance has also been placed on Empire Jute Co. Ltd. Vs. Commissioner of Income Tax, , wherein a member of the association purchasing loom hours from another member was held entitled to deduction in respect of the price paid as revenue expenditure.

Had it been a matter of replacement, the position would have been different, but from the record it is evident that the claim of the assessee before the Inspecting Assistant Commissioner (Assessment) was that the jalies have become obsolete and have become of no use for the company and, therefore, the company is entitled to deduction against the business income. In the language of the question framed, it has nowhere been disputed by the assessee that the said expenditure does not relate to fixing of jalies on the boundary wall and pertains to replacement. In these circumstances, we are of the view that the judgments relied upon by Mr. Ranka are not applicable in the facts and circumstances of this case and the Income Tax Appellate Tribunal was not justified in allowing deduction without setting aside the finding of the Inspecting Assistant Commissioner (Assessment ) and the Commissioner of Income Tax (Appeals) that the said claim was made on account of jalies having become obsolete and of no use for the company and the question of replacement was not before the Inspecting Assistant Commissioner (Assessment) and the Commissioner of Income Tax (Appeals). In these circumstances, it would be in the fitness of things if the matter is sent back to the Income Tax Appellate Tribunal to give a finding on the question as to whether the amount pertains to jalies which have become obsolete or is in respect of replacement.

The Inspecting Assistant Commissioner (Assessment) has held that the Palghat unit started production from the month of December, 1975, and the deduction u/s 80J could be allowed for the period of four months. The Income Tax Appellate Tribunal has allowed deduction fully. Without discussing this matter in further detail, suffice it to say that this point is covered by the judgment of this court in COMMISSIONER OF Income Tax Vs. PLASTIC DELA FOOTWEAR., wherein this court has held that special deduction is allowable u/s 80J of the Income Tax Act, 1961, for the full year although the industrial unit ran only for a portion thereof. In view of the judgment of this court, we are of the view that the view taken by the Income Tax Appellate Tribunal is in accordance with law.

The reference is answered accordingly. It is held that the Income Tax Appellate Tribunal was justified in directing that initial depreciation on tools and instruments amounting to Rs. 7,77,407 and Rs. 1,58,117, respectively, be allowed and was further justified in holding that deduction u/s 80J is admissible in full as against proportionate deduction allowed for four months by the Inspecting Assistant Commissioner (Assessment). It is also held that the Income Tax Appellate Tribunal was not justified in holding that the expenditure of Rs. 29,886 incurred on fixation of R. C. C. jalies on the boundary wall is allowable as revenue expenditure. On this point, the Tribunal shall hear both the parties and decide the matter afresh in accordance with law.

No order as to costs.