Commissioner of Income Tax vs Pawan Kumar Garg

M.M. Kumar, J.—In pursuance to the directions issued by this Court, while deciding Income Tax Case No. 11 of 1981 on 22-8-1988, the Tribunal has referred the following question of law arising out of order dated 21-1-1992 passed by Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh in ITA No. 374/(Chd.)/1978-79 :

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that harvesting combines were entitled to 30 per cent depreciation even before amendment entry of 24-7-1978.

According to the facts as disclosed in the statement of the case the assessing officer has passed an assessment order granting depreciation on harvesting machine at the rate of 30 per cent. Thereafter, a statutory A. notice u/s 154 of Income Tax Act, 1961 was issued to the assessee who replied the same on 10-5-1976. The assessee raised the arguments that the issue is debatable and cannot be re-opened by invoking the provisions of Section 154. The assessee placed reliance on the instructions dated 4-12-1974 issued by the Central Board of Direct Taxes (CBDT) and claimed that the controversy had already been set at rest. However, the assessing officer proceeded to rectify his mistake and allowed 10 per cent of depreciation instead of 30 per cent by adding a sum of Rs. 39,764 (Rs. Thirty nine thousand seven hundred sixty four only).

The order of the assessing officer was upheld by the Appellate Assistant Commissioner. When the assessee approached the Income Tax Appellate Tribunal, Chandigarh Bench in ITA No. 374/(Chd.)/1978-79 in respect of the assessment year 1975-76, the Tribunal posed the question as to whether harvesting combine was entitled to 30 per cent depreciation in respect of the assessment year 1975-76 or whether depreciation at the rate C of 30 per cent would be available only with effect from 24-7-1978 when entry of Item (9A) was added in Part-D sub-head (III) of Part-I of Appendix-I to the Income Tax Rules, 1962. The Tribunal placed reliance on its earlier order passed in Punjab Agro Industries Corpn. Ltd. v. ITO (IT Appeal Nos. 27/(Chd.) of 1978-79 and 97/(Chd.) of 1979 (Assessment year 1971-72), it placed reliance on the following portion of its earlier order which reads as under:

We however, have not been able to appreciate the similarity as sought to be drawn by the learned revenue''s representative. A human body certainly cannot become a motor vehicle or a motor tractor but thequestion before us is rather different and which is whether a harvestingcombine should be entitled to depreciation @ 30 per cent or not. We arenot inclined to accept the revenue''s case that harvesting combine cannotbe said to be covered by or anywhere near item (9) of part D of sub-head(HI) of part I of Appendix I to the Income Tax Rules, 1962. Item (9)provides 30 per cent depreciation on motor buses, motor lorries, motor taxies, motor tractors (NESA). Harvesting combine is of no use if attachment for harvesting and thrashing of wheat and rice are not attached with it and therefore, its work is by and large similar to the working of a tractor. The CBDT issued a notification No. 2435/F. (No. 14232) 77-IPL dated 24-7-1978 amending the entry at item (9) referred to above, to the following effect:

In part I of Appendix I to the Income Tax Rules, 1962 in the table of ratesPat which depreciation is admissible in the heading HI Machinery and plant (not being a ship), in sub-heading (ii) in group D for item (9) the following items shall be substituted and shall be deemed to have been substituted with effect from 1-4-1978 namely (9) Motor buses, Motor-lorries, motor taxies (NESA) (9A) Motor tractor, Harvesting combines(NESA). There could be an argument from the revenue that since entry at item (9) came to be amended on 24-7-1978 it follows that earlier harvesting combine was not be allowed depreciation @ 30 per cent. But such argument would suffer from fallacy and misconception of the back ground of amendment of entry at item (9) supra. It does not involve much a mental exercise to understand that when the Income Tax Rules, 1962 were framed the use of harvesting combine was not prevalent in Indian (India) and therefore, it appears and seems reasonable that as soon as it was brought to the notice of the Rule-making authorities that some assessing officers were restricting depreciation on harvesting combines to 10 per cent necessary amendment was taken at hand and harvesting combine inserted in item (9) supra. Therefore, to our mind, terming harvesting combine as general machinery entitled to only 10 per cent g depreciation before amendment of 24-7-1978 would be closing eyes to the reality as hai-vesting combine could never be termed something less than a motor tractor or a motor vehicle.

One much (must) bear in mind that utility of harvesting combine is similar to a motor tractor and being entirely meant for agricultural land operations its life-supra would normally be shorter than a motor tractor, and, in any case, not longer than that. Therefore, harvesting combine would not be said to be outside the category C of motor vehicle and motor tractors, even before 24-7-1978.

We are, therefore, of the considered view that harvesting combines were entitled to 30 per cent depreciation even before the amendment entry of 24-7-1978 {supra). Such being the case, the addition of Rs. 84,694 made in the assessment is vacated.

On the basis of the aforementioned observation made in the order, the Tribunal concluded that the harvesting combine was entitled to 30 per cent depreciation even before the amendment entry of 24-7-1978 and, there was no justification for the assessing officer to withdraw the depreciation of Rs. 39,764 (Rs. Thirty nine thousand seven hundred sixty-four only) by invoking Section 154 of the Act and upholding of the same by the Appellate Assistant Commissioner.

We have heard the learned counsel at some length and find that the reasoning adopted by the Tribunal does not suffer from any legal infirmity. It is not disputed that earlier order of the Tribunal in Punjab Agro Industries Corporation''s case (supra), as was relied upon to take a view in favour of the assessee was accepted by the department. The addition of combine with the tractor would not change the nature of the vehicle and it will continue to be the vehicle as has rightly been made by the Tribunal. Even otherwise, the amount involved is very meagre. Therefore, the question is answered against the revenue upholding the order of the Tribunal.