Commissioner of Income Tax vs Tirupattur Co-op. Sugar Mills Ltd.

N.V. Balasubramanian, J.—This is a petition filed by the Revenue u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as ""the

Act"") to direct the Appellate Tribunal to state a case and refer the following"" question of law for the opinion of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the grant of depreciation at 15

per cent, on the plant and machinery which do not come into contact with corrosive chemicals in a sugar factory is not a mistake apparent from

records and that the issue being a debatable one cannot be rectified u/s 154 ?

The assessee is a company engaged in the manufacture of sugar and allied products. In the original assessment for the assessment year 1983-

84, the Assessing Officer granted depreciation on the machinery which is put into use in the sugar factory, at a higher rate of 15 per cent., while

those machinery which do not come into contact with corrosive chemicals were eligible for depreciation at the rate of 10 per cent. only. The

Assessing Officer initiated proceedings u/s 154 of the Act for rectification of the order of assessment on the ground that the machinery did not

come into contact with corrosive chemicals as contemplated under the relevant Income Tax Rules and passed an order of rectification restricting

the rate of depreciation to 10 per cent.

The assessee preferred an appeal to the Commissioner of Income Tax (Appeals) against the order of rectification. The Commissioner of Income

Tax (Appeals) held that the question whether the machinery and plant came into contact with corrosive chemicals or not is a controversial issue

and, hence, the Assessing Officer was not justified in passing an order of rectification u/s 154 of the Act and allowed the appeal.

Thereupon the Revenue preferred an appeal before the Income Tax Appellate Tribunal and the Appellate Tribunal found that the question

whether a particular item of plant and machinery is entitled to depreciation at the rate of 10 per cent, or 15 per cent, cannot be treated as a mistake

apparent from the record as the same involves the ascertainment of the part the plant or machinery plays in the process of manufacture of sugar

from sugarcane. The Appellate Tribunal, therefore, held that the issue involved is a controversial issue and debatable issues are involved in the

process and, hence, the Income Tax Officer was not justified in invoking the provisions of Section 154 of the Act to rectify the order of

assessment.

Aggrieved by the order of the Income Tax Appellate Tribunal, the Department filed a reference application u/s 256(1) of the Act, requiring the

Tribunal to state a case and refer the question of law set out in paragraph 1 above. The Appellate Tribunal rejected the said application on the

ground that the question raised is not a referable question of law. Hence, the present tax case petition.

Mr. C. V. Rajan, learned counsel appearing for the Department, strenuously argued that the question whether a particular machinery is entitled

to depreciation at 15 per cent, or 10 per cent, can be regarded as an apparent mistake and it is open to the Income Tax Officer to rectify the

mistake. According to him, if a particular machinery falls under the particular item in the depreciation Schedule, the grant of depreciation by the

Income Tax Officer as if it falls under another item in the same Schedule should be regarded as a mistake apparent from the record and it is open

to the Income Tax Officer to rectify the same in the rectification proceedings. Learned counsel for the Revenue strongly relied on the decisions in

Gwalior Sugar Co. (P.) Ltd. Vs. Commissioner of Income Tax, and Commissioner of Income Tax Vs. Saraswati Industrial Syndicate Ltd., and

submitted that both the Madhya Pradesh High Court as well as the Punjab and Haryana High Court have considered the matter on the merits and

held that the machineries used in the manufacture of sugar do not come into contact with corrosive chemicals and hence the said machineries are

not entitled to higher depreciation.

Mr. P. P. S. Janarthana Raja, learned counsel appearing for the assessee, on the other hand, submitted that on the facts of the case, it is seen

that in the process of manufacture of sugar, sugarcane juice was mixed with lime and acid and the question whether the composition would have a

corrosive effect on the machinery is a debatable issue and it is not a mistake apparent from the record.

We have carefully considered the rival contentions of the parties. It is seen that in the process of manufacture of sugar, the sugarcane juice is

mixed with sulphuric acid and lime for the purpose of filtration and once chemical reaction has set on, the question whether the resultant product,

after filtration would have a corrosive effect on the machinery is a debatable issue. The Appellate Tribunal has found that the issue involved is a

controversial issue and once it is found that the issue is a controversial one, it is not open to the Income Tax Officer to invoke the provisions of

Section 154 of the Act for rectification. It is well settled that for rectification of mistake u/s 154 of the Act there must be a mistake apparent from

the record, and where the question is a debatable issue, it cannot be regarded as a mistake apparent from the record. As a matter of fact, in T.C.

Nos. 688 and 689 of 1984 by order dated June 17, 1996 Commissioner of Income Tax Vs. E.I.D. Parry Ltd., , this court has remitted the matter

to the Appellate Tribunal to consider the question whether the machinery engaged in the manufacture of sugar came into contact with the corrosive

chemicals or not. The fact that the matter was remitted for fresh consideration shows that more than one view is possible on the question involved.

Therefore, we are of the view that there is a debatable point involved in the question whether the assessee would be entitled to depreciation at the

rate of 15 per cent, or 10 per cent. We, therefore, hold that the Appellate Tribunal has come to the correct conclusion on the question that there is

a controversial issue involved in the rectification proceedings initiated by the Income Tax Officer and we are, therefore, of the opinion that the

question of law sought to be referred by the Revenue is not a referable question.

Accordingly we dismiss the tax case petition. There will be no order as to costs.