Commissioner of Income Tax vs Tamil Murasu Publishers (P) Ltd.

Ramanujam, J.—At the instance of the Revenue, the following two questions have been referred to this court for its opinion by the Income

Tax Appellate Tribunal :

""Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the entire sum of Rs. 79,261 being the cost of types

should be allowed as deduction ?

""Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessee had a right of appeal against the levy of

interest under s. 217 of the Act, 1961 ?

The assessee in this case carries on the business of publication of newspapers. In the course of that business, types are purchased by the

assessee and after composing, the printing of newspapers is done by another outside agency. The assessee had incurred an expenditure of Rs.

79,261 being the cost of types used by it for composing the newspaper published by it. The assessee claimed before the ITO that the expenditure

of Rs. 79,261 incurred for the purchase of types should be allowed as a deduction. However, the ITO treating the types as constituting part of the

machinery only allowed depreciating at 10%. Aggrieved by the order of the ITO not allowing the entire expenditure as deduction the assessee

went in appeal before the AAC, but without success.

Thereafter the assessee went before the Tribunal contending that the types purchased and used in the printing of newspaper by the assessee will be

about 7-1/2 kgs. per page, that for four pages which the newspaper will normally have, about 30 kgms. of types will be used and that as the value

of 30 kgms. of types is less than Rs. 750, the actual cost of such daily purchases should be allowed as a deduction under the proviso to s. 32(1)(ii)

of the IT Act, 1961, (hereinafter referred to as the Act.) The Revenue, on the other hand, contended that whatever be the quantity of the types

purchased per day, the limit of Rs. 750 contemplated by the first proviso to s. 32(1)(ii) of the Act should be with reference to the purchases for the

whole year and not with reference to the purchases on a single day. The Tribunal, after considering the rival contentions, held that since the actual

cost of machinery, that is, the types used for the purpose of business did not exceed Rs. 750 per day, the actual cost thereof should be allowed as

deduction under the first proviso to s. 32(1)(ii) of the Act. The Tribunal also held that though the cost may exceed Rs. 750 if the assessee

purchased its requirements in bulk, there is no reason to deprive the assessee the benefit of deduction, so long as a single day''s requirement of

types for carrying on the business of the assessee does not cost more than Rs. 750. As an alternative, the Tribunal held that the life of type is very

short and as a consumable material used for the purpose of business, the entire cost is allowable as a revenue expenditure. The Tribunal also dealt

with the question of levy of interest under s. 217 of the Act and held that an appeal lies against the order levying interest under s. 217 and that the

AAC was in error in rejecting the appeal on the ground that an appeal against the order levying interest under s. 217 is not maintainable.

Thus the first question referred to us involves the determination of the true scope and ambit of the first proviso to s. 32(1)(ii) of the Act. In this

case there is no dispute as regards the facts. The assessee is found to have purchased 30 kgms. of printing types per day and has used the same in

connection with the publication of newspaper. There is also no dispute between the parties that the types purchased and used by the assessee can

be taken to be machinery so as to attract the provisions of s. 32(1)(ii) of the Act. The substantial controversy between the parties is as to whether

the purchase and use of machinery in a day can be taken as the basis for the purpose of the first proviso to s. 32(1)(ii) of the Act or whether the

purchase of the machinery for the whole year should be taken into account for the purchase of the limit prescribed under the said provision.

According to the Revenue, the object of the first proviso to s. 32(1)(ii) is to see that in respect of small items of machinery purchased not

exceeding the value of Rs. 750, full deduction is allowed and for purchase of machiner of higher value, depreciation alone is allowed. In other

words, the object of the first proviso to s. 32(1)(ii) is to allow deduction in respect of purchase of small machinery, not exceeding the value of Rs.

750 and to allow depreciation in respect of purchase of other machinery. But according to the learned counsel for the assessee, the first proviso to

s. 32(1)(ii) does not concern itself with any time factor and once the purchase of machinery is found to have been made for less than Rs. 750, the

value of all such purchases throughout the year should be allowed as a deduction. The question is, whether in respect of all purchases of machinery

of a value not exceeding Rs. 750 the cost should be allowed as a deduction irrespective of the number of such purchases during the year.

As already stated, the Tribunal in this case has found that for composing the matter for the publication of newspaper, the assessee purchased 30

kgms. of types per day at a cost of less than Rs. 750 and since the actual cost of the machinery purchased and used each day does not exceed Rs.

750, the actual cost of such purchases should be allowed as a deduction under the first proviso to s. 32(1)(ii) of the Act, though a bulk purchase

has been made, the cost of such purchase would have exceeded Rs. 750. According to the Tribunal, that is no ground for depriving the benefit of

deduction to the assessee, so long as a single day''s requirement of types for carrying on the business of publication by the assessee does not cost

more than Rs. 750 and more over, the life of types is very short and as a consumable materials used for the purpose of business, their entire cost is

allowable as revenue expenditure. Thus, the Tribunal has given two reasons for allowing the assessee''s claim for deduction of the entirety of Rs.

79,261 being the cost of purchase of types, throughout the year. One is that since the each day''s purchase had not exceeded Rs. 750 per day, it

would come within the first proviso to s. 32(1)(ii) of the Act. The second is that even if does not come within the said provisions, since the life of

types is short, the entire cost has to be allowed as a revenue expenditure.

On a due consideration of the matter, we are not in a position to agree with the second reason given by the Tribunal. Even assuming that the life

of types is short, the question is whether the types could be considered as consumable materials and the cost thereof could be treated as revenue

expenditure and allowed as a deduction. It must be borne in mind that the claim made by the assessee was under the first proviso to s. 32(1)(ii) of

the Act and the same was not on the basis that it is a revenue or business expenditure. Once the types are treated as coming within the expression,

''machinery'', the cost of purchase of machinery can normally be taken as capital expenditure. The assessee''s claim based on the first proviso to s.

32(1)(ii) is also on the basis that the cost of machinery is a capital expenditure. Therefore, when the claim is based on the first proviso to s. 32(1)

(ii) it is not possible to treat the cost of purchase of machinery as a revenue expenditure merely because the machinery can be used only for a short

duration. Therefore, the Tribunal is not correct inholding that the purchase of machinery, that is, printing types will fall within the ''revenue

expenditure'' as so to enable the assessee to claim deduction of the entire cost on that basis. The first proviso to s. 32(1)(ii) of the Act is as follows

:

32(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or

profession, the following deductions shall, subject to the provisions of section 34, be allowed -

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(ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on that written down value thereof

as may in any case or class of cases be prescribed :

Provided that where the actual cost of any machinery or plant does not exceed seven hundred and fifty rupees, the actual cost thereof shall be

allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his

business or profession.

As per the above provision, where the actual cost of any machinery or plant does not exceed Rs. 750. The actual cost thereof shall be allowed as

a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purpose of his business or

profession. As already referred to, the Tribunal itself concedes that if there is bulk purchase costs more than Rs. 750 on any one occasion, the

assessee may not be on any one occasion, the assessee may not be entitled to the benefit of this provision. Merely because the assessee has

purchased his requirements based on his daily consumption, can it said that the assessee could claim the benefit of this provision,. Accordingly to

the ld. counsel for the assessee, as the first proviso does not specifically say that the purchase of machinery for the whole year should be taken as

the basis, the proviso should be understood as relating to each and every purchase of machinery and therefore the limitation of Rs. 750 provided

therein should be taken to apply for each purchase. It is no doubt true that the proviso does not introduce any time limit during which purchases

have to be made. It appears to refer only to purchase of a machinery for a value not exceeding Rs. 750, in respect of which the actual cost has to

be allowed as a deduction. It is not the assessee''s case that it made purchases of each types independently or treated each type as a separate

machinery. What the assessee has done in this case is to treat the purchase of types on each day and to claim deduction in respect of such

purchase, as such purchases were for less than Rs. 750. If the contention of the ld. counsel for the assessee is accepted, then the said proviso will

operate differently with different assessee. An assessee may purchase machinery, as in this case, daily and another similar assessee who is engaged

in the publication of newspaper may effect purchases having regard to his monthly requirement and yet another publisher of a newspaper may

make purchase, having regard to his annual requirement. If the proviso is interpreted in the manner suggested by the learned counsel for the

assessee, it will operate differently with reference to the above three clauses of cases. Normally a provision in a taxing statute cannot be construed

in such a manner as to have a different operation on different individuals, and, on the other hand, it should be construed as having a uniform effect

on all individuals. The periodicity of purchase of machinery by a particular assessee cannot affect the effect of the said proviso. As already stated,

on each occasion when a particular machinery is purchased and its value does not exceed Rs. 750, the cost of the same may be allowed as a

deduction and it is not open to the Revenue to say that depreciation alone can be allowed in such cases. But we are not able to see how the

assessee in this case could say that its daily purchase of machinery should be taken as the basis and the limitation of Rs. 750 provided in the first

proviso to s. 32(1)(ii) should be applied to it. Even though we are not inclined to take the view that all the purchases of machinery in a year should

be taken as the basis for applying the proviso, still we are not in a position to accept the case of the assessee that the daily requirement should be

taken as the basis. In this view of the matter, we hold that the Tribunal has not properly construed the provision of the first proviso to s. 32(1)(ii) of

the Act. Accordingly we answer the first question in the negative and against the assessee.

On the second question as to whether the assessee can maintain an appeal against the order levying interest u/s 217 of the Act, it is no doubt

true that this court in South India Flour Mills Private Ltd. Vs. Central Board of Direct Taxes, New Delhi, and Others, while dealing with the

provisions of the 1922 Act, held that an appeal under s. 30 was not maintainable against the order charging interest under s. 18-A (6) of the said

Act, which corresponds to s. 246(c) of the Act. However, this court has taken a different view in Rajyam Pictures Vs. Addl. Commissioner of

Income Tax, while dealing with the provisions of the Act. In that case this court has categorically held that even though no appeal would lie under s.

246(c) of the Act against the imposition of penal interest alone, as it was not an order of assessment, the levy of penal interest could also be

challenged by the assessee in appeal filed against the assessment. This view has been again reiterated by this court in Commissioner of Income Tax

Vs. City Palayacot Co., . In that case the earlier decision of this court in South India Flour Mills Private Ltd. Vs. Central Board of Direct Taxes,

New Delhi, and Others, and also the subsequent decision of this court in Rajyam Pictures v. Addl. CIT, Madras-1 (supra), have been considered

and this court preferred to accept the view in Rajyam Pictures v. Addl. CIT, Madras (supra) as the correct one.

In this case, admittedly the appeal has been filed against the relevant assessment and in that appeal the assessee has challenged the levy of

interest u/s 217 of the Act. Having regard to the view expressed by this court in Rajyam Pictures v. Addl. CIT, Madras-1 (supra), and in

Commissioner of Income Tax Vs. City Palayacot Co., we have to hold that the assessee can challenge the levy of interest under s. 217 of the Act

in these proceedings. The second question is therefore answered in the affirmative and in favour of the assessee.

There will be no order as to costs.