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Judgment
Sethuraman, J.—In all these cases, the common question is whether the offset press is ""other electrical machinery"" within the meaning of the
relevant entry in the Schedule to the I.T. Act under which separate rates of depreciation are set out for distinct categories of machinery.
We shall first take T.C. No. 189 of 1976. The assessee is carrying on the business of running a calendar press, printing press, offset printing
press, etc. He claimed depreciation at the rate of 10% for the assessment year 1966-67. The ITO was of the view that the correct depreciation
allowable under the rules was only 7%. He, therefore, worked out the depreciation accordingly and granted it. On appeal, the AAC accepted the
assessee''s contention that the entire machinery was run under electric power and that it should be considered as electrical machinery within the
scope of r. 5 of the I.T. Rules read with App. I to the Rules. The ITO appealed to the Tribunal, which found that the machines were offset printing
machines used in litho works and that the proper rate of depreciation would be 10 per cent. The question referred as arising out of this order of the
Tribunal runs as follows :
Whether, on the facts and in the circumstances of the case, the ''new machinery'' and ''offset press'' used by the assessee in the litho works would
constitute ''other electrical machinery including electrical generators and motors (other than tramway motors)'' under Rule 5 of the Income Tax
Rules and that, therefore, depreciation should be granted thereon at 10% instead of the general rate of 7 per cent. ?
We may briefly refer to the broad features of the others two cases which are also before us, before proceeding further to discuss the legal
position. In T.C. Nos. 314 & 315 of 1976, the assessee is engaged in the manufacture and sale of calendars, marriage invitation cards, etc. The
ITO granted depreciation to the assessee on offset machine, D.C. Size Polygraph Offset machine, cutting machine, Polygraph (Planeta) offset
machine and four colour airline offset printing machine at 7 per cent. as against the claim of 10 per cent. made by the assessee. The AAC, on
appeal, accepted the assessee''s claim on the ground that the machinery was electrically operated. The matter was taken in appeal to the Tribunal
by the ITO and the Tribunal confirmed the AAC''s order. The questions referred as arising out of this order of the Tribunal are :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the litho offset machinery and another
machinery which is embedded with electrical equipments would constitute ''Other electrical machinery'' found under Entry III(iii) E - 3(b) of
Column I of Part I of Appendix I to the Income Tax Rules, 1962, and that, therefore, the assessee was entitled to depreciation in respect of these
machinery at 10 per cent. ?
(2) Whether the Tribunal''s view that any machinery which runs on electricity would constitute ''other electrical machinery'' under Entry III(iii) E-3
(b) of the Income Tax Rules, 1962, is sustainable in law ?
In T.C. No. 1237 of 1979, the assessee claimed depreciation at 10 per cent. on the offset printing machinery. Without giving any reasons the
ITO allowed depreciation only at 7 per cent. The AAC, on appeal, held that these items were all fully embedded with highly sophisticated
electrical devices and they were also operated by electric power and that being so, they fell within the category covered by the entry mentioned
above. The department appealed to the Tribunal which confirmed the order of the AAC more or less for the same reasons as those given by him
and also following its earlier order in one of these cases. The question referred in this case runs as follows :
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the machinery used by the assessee in
offset printing would constitute ''other electrical machinery including the electrical generators and meters (other than meter)'' under Rule 5 of the
Income Tax Rules, 1962, and, therefore, depreciation should be granted thereon at 10 per cent. but not at the general rate of 7 per cent. ?
Section 32 of the I.T. Act, 1961, provides for the allowance of depreciation at such percentage on the actual cost thereof to the assessee as
may in any case or class of cases be prescribed. Rule 5 of the I.T. Rules, 1962, provides that depreciation should be calculated at the percentages
specified in the second column of the table in Pt. I of App. I to the I.T. Rules. During the relevant years the Schedule was slightly differently
worded. The rates of depreciation are first distributed over certain categories, namely, (i) Building, (ii) Furniture and Fittings, and (iii) Machinery
and Plant. In the case of machinery an plant there are two types of provisions. There is the general rate of 7 per cent. and certain special rates are
to be applied to the whole of the machinery and plant used in certain concerns, for instance, in aerating gas factories the special rate of depreciation
is 9 per cent., in the case aluminium factories it is 10 per cent., and so on. Electrical engineering works is a special category for which 10 per cent.
was prescribed. There is another category under the heading ""Special rates to be applied to other machinery and plant"". In this category, the
particular types of machines are brought under alphabetical headings. Under the alphabetical heading ''E'' the broad categories are as follows;
(1) Earth moving machinery employed in heavy construction works such as dams, tunnels, canals, etc.
(2) Electric supply undertakings.
(3) Electrical machinery.
(4) Electro-plating and electro-welding plant.
(5) Embroidery machines.
We are now concerned with the special heading (3) dealing with electrical machinery. Under this heading, the following categories occur :
In the present case, the assessee claimed depreciation at 10 per cent. relying on the entry (b) quoted above. It refers to ""other electrical
machinery including electrical generators and motors"". It excludes ""tramway motors"" because tramways are separately dealt with under the
alphabetic heading ""L"" and depreciation at the rate of 10 per cent. is granted to them. The tramways are classified with ""Locomotives, rolling
stock, etc."".
The question now for our consideration is the meaning to be assigned to words ""electrical machinery"". The learned counsel for the
Commissioner contended that ""electrical machinery"" should only be taken to mean ""machinery producing, transmitting for storing electricity"". We
are unable to agree with this submission because electric supply undertakings have been separately dealt with under the main entry (2) under the
alphabetical head ""E"". No purpose is served by repeating the same machinery in another heading. Therefore, item (b) above referring to ""other
electrical machinery"" must necessarily be some other machinery than machinery used in electric supply undertakings.
The extreme contention urged on behalf of the assessee is that any machinery which is run by electricity could be ""other electrical machinery"".
We are unable to accept this submission either. The expression ""electricity machinery"" cannot be taken to mean ""machinery which is driven by
electricity or whose motive power is electricity"". There is some difference between ""electrical machinery"" and ""electrically operated machinery"".
The operation is one thing and the nature of the machinery is another. We would, therefore, not accept the extreme contention urged on behalf of
the assessee.
In our opinion, the correct way in which the entry is to be understood lies in between these two extremes. Wherever the machinery is such that
in-built into it is the electric motor, then it would be electrical machinery. For instance, taking a mono-bloc, it is possible to have a motor pump
separately and an electric motor separately. In such a case, it would not be electrical machinery. But the mono-bloc is worked electrically because
it cannot be operated except with the aid of electricity, as the electric motor is in-built into it. Other examples may also be though of. Therefore, the
nature of the enquiry in order to find out whether it is electrical machinery or not is to investigate whether the electric motor is in-built into the
machinery and whether it forms vital and inseparable part and parcel of the machinery. The fact that electrical devices are put into the machinery
would not by itself determine the character of the machinery. The electrical devices would only be for the purpose of allowing electricity to pass
through the particular item to produce the desired results. Such machinery cannot be taken to be electrical machinery. However, where the
machinery itself is a single unit with the electric motor forming a vital and inseparable part of it, then the machinery would be electrical machinery.
We find that in all these cases the ITO rejected the assessee''s claim without practically giving the details of the nature of the machinery
possessed by the assessee. The AAC accepted the assessee''s claim and the Tribunal confirmed it. The result was that there has been practically
no proper investigation of the nature of the machinery under consideration in respect of which higher rate of depreciation is claimed.
In the circumstances, in the absence of proper details of the nature of the machinery, we are obliged to return the reference unanswered. The
Tribunal may get the necessary materials from the assessee and then proceed to dispose of the question de novo in the light of what is indicated
above.