Kothari Sugars and Chemicals Ltd. vs Commissioner of Income Tax

N.V. Balasubramanian, J.

At the instance of the assessee, the Tribunal has stated a case and referred the following question of law in relation to the assessment years 1982-

83 and 1983-84 of the assessee :

Whether, on the facts and in the circumstances of the case, the assessee is entitled to depreciation at the rate of 15 per cent on the plant and

machinery used by it in the production of sugar, on the ground that it comes into contact with corrosive chemicals ?

The assessee is a public limited company, manufacturing sugar and claimed depreciation on the plant and machinery used by it for purposes of

manufacture of sugar at the rate of 15 per cent on the ground that they came into contact with corrosive chemicals. The Income Tax Officer

rejected the assessee''s claim for allowance of depreciation at the higher rate of 15 per cent and allowed depreciation at the general rate of 10 per

cent. The assessee preferred an appeal before the Commissioner (Appeals) who confirmed the order passed by the assessing authority. The

assessee preferred a further appeal to the Tribunal. The Tribunal following the decision of the Punjab and Haryana High Court in the case of

Commissioner of Income Tax Vs. Saraswati Industrial Syndicate Ltd., held that the assessee was not entitled to claim higher rate of depreciation at

15 per cent. It is against this order, the present reference has been made.

Mr. P.P.S. Janarathana Raja, the learned counsel appearing for the assessee, submitted that the decision of the Punjab and Haryana High Court

in Saraswati Industrial Syndicate Ltd.''s case (supra), which was relied on by the Tribunal to hold the case against the assessee, was reversed by

the Supreme Court in (1998) 64 ITD 93 and further, the Supreme Court remanded the matter back to the Tribunal for fresh consideration after

laying down the law.

Mr. T.C.A. Ramanujam, the learned standing counsel for the department, has no objection upon the matter being remanded to the Tribunal.

We heard the learned counsel for the assessee and the learned counsel for the revenue. There is no dispute that the Tribunal had followed the

decision of the Punjab and Haryana High Court in Saraswati Industrial Syndicate Ltd.''s case (supra) and the judgment of the Punjab and Haryana

High Court was reversed by the Supreme Court on appeal in Saraswati Industrial Syndicate Ltd.''s case (supra), and the Apex Court laid down

the law and remitted the matter to the Tribunal for fresh consideration to be decided in the light of the law laid down by it. The Supreme Court held

as follows :

..... that neither the Income Tax Officer nor the High Court were entitled to make statements on technical matters for which no basis had been laid

on the record by either the revenue or the assessee. If the High Court was of the view that further material was required, the appropriate course

was to require the Tribunal to take further evidence and draw up a supplementary statement of case. This apart, there appeared to be some

misunderstanding of what the said entry is intended to convey. Depreciation at a higher rate is allowed to machinery that comes into contact with

corrosive chemicals. Corrosive chemicals corrode the machinery. They erode and, by reason of such erosion, the life of the machinery is truncated.

To compensate, depreciation is allowed at a higher rate. It is not intended that the machinery must come into contact with a pure corrosive

chemical. It is enough that what passes through the machinery contains chemicals which are corrosive and which, therefore, have the effect of

wearing it down. In the instant case, with this understanding of the said entry in mind, the Tribunal should take further evidence, giving both the

assessee and the revenue the opportunity of producing it, and, based thereon, should decide whether the machinery for which the assessee claimed

depreciation at the higher rate was entitled to it....

In the light of the law laid down by the Supreme Court, we are of the opinion that the Tribunal''s order, rendered on the basis of the decision of the

Punjab and Haryana High Court in Saraswati Industrial Syndicate Ltd.''s case (supra), is not sustainable in law. We are of the view that the

Tribunal should hear and decide the matter in the light of the decision of the Supreme Court in Saraswati Industrial Syndicate Ltd.''s case (supra).

Hence, the reference is returned back without answering the questions of law for the Tribunal to consider the appeal de novo. We make it clear

that it is open to the Tribunal to remit the matter to the assessing authority for fresh consideration, if need be. It is also open to the parties to

adduce fresh evidence to decide the question whether the assessee is entitled to higher rate of depreciation or not. Hence, the reference is returned

without answering the questions of law. The tax cases are disposed of accordingly. No costs.