Appeal No 145 of 1963
Appeal from the judgment and order dated November 16
1959 of the Madras High Court in Case Reference No 82 of 1956
section K Kapur and R N Sachthey for the appellant
section Swaminathan and R Gopalakrishnan for the respondent
847 section T Desai J B Dadachanji O C Mathur and Ravinder Narain for the intervenor
April 24 1964
The judgment Of SUBBA RAo and SIKRI In JJ was delivered by SIKRI J SHAH J delivered a dissenting Opinion
SIKRI J This is an appeal by the Commissioner of Income Tax Madras against the judgment of the High Court dated November 16 1959 on a certificate granted by the High Court under section 66A2 of the Indian Income Tax Act 1922
The respondent Mir Mohd Ali hereinafter referred to as the assessee is a bus owner and transport operator at Vel lore North Arcot District
He had a fleet of buses and during the year of account ending with March 31 1950 relevant to assessment year 1950 51 he replaced the petrol engines in two of his buses MDJ 583 and MDJ 723 by new Diesel engines incurring an expenditure of Rs 18544in this connection
Before the Income Tax Officer apart from claiming normal depreciation under the first Paragraph of cl
vi of section 102 he also claimed depreciation under the second paragraph of cl
vi and cl
via of the Indian Income Tax Act 1922
The Income Tax Officer only allowed 25 per cent depreciation under the first paragraph of cl
The assessee appealed unsuccessfully to the Appellate Assistant Commissioner on this point
There were other points involved in the appeal but as we are not concerned with them in this appeal they are not being mentioned
On further appeal the Appellate Tribunal held that the assessee is not entitled to extra depreciation under section 102 vi or section 102via because however important the engine might be for running of a motor it is after all part of an equipment and it cannot by itself become machinery for the purpose of claiming extra depreciation as envisaged in these sub sections
We have to hold that the installation of the new engines is only a capital addition for the above reasons the assessee was rightly refused the extra depreciation he claims
The Income Tax Appellate Tribunal on the application of the assessee referred the following question to the High Court Whether extra depreciation is admissible under the provisions of section 102via of the Income Tax Act in respect of a diesel oil engine fitted to a motor vehicle in replacement of the existing engine
 We may mention that another question regarding disallowance of interest had also been referred to the High Court but we are not concerned with that in the present appeal
848 As the High Court felt that there had been an accidental slip in framing the question it amended the question as and the amended question reads Whether extra depreciation is admissible under the provisions of section 102vi and section 102via of the Income Tax Act in respect of the diesel oil engines fitted to the motor vehicles in replacement of the existing engines
The High Court answered this question in the affirmative ie in favour of the assessee
The Commissioner of Income Tax on obtaining a certificate under section 66A2 of the Income Tax Act has filed this appeal
Before attempting to answer the question it is necessary to set out the relevant provisions of the Income Tax Act
The relevant provisions as in force at the relevant time were section 102 Such profits or gains shall be computed after making the following allowances namely ivin respect of insurance against risk of damage or destruction of buildings machinery plant furniture stocks or stores used for the purposes of the business profession or vocation the amount of any premium paid v in respect of current repairs to such buildings machinery plant or furniture the amount paid on account thereof viin respect of depreciation of such buildings machinery plant or furniture being the property of the assessee a sum equivalent where the assets are ships other than ships ordinarily plying on inland waters to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case to such percentage on the written down value thereof as may in any case or class of cases be prescribed and where the buildings have been newly erected or the machinery or plant being new has been installed after the 31st day of March 1945 a further sum which shall however not be deductible in determining the written down value for the purposes of this clause in respect of the year of erection or installation equivalent a in the case of buildings the erection of which is begun and completed between the 1st day 849 of April 1946 and the 31st day of March 1952 both dates inclusive to fifteen per cent of the cost thereof to the assessee b in the case of other buildings to ten per cent of the cost thereof to the assessee c in the case of machinery or plant to twenty per cent of the cost thereof to the assessee Provided that via in respect of depreciation of buildings newly erected or of machinery or plant being new which has been installed after the 31st day of March 1948 a further sum which shall be deductible in determining the written down value equal to the amount admissible under clause vi exclusive of the extra allowance for double or multiple shift working of the machinery or plant and the initial depreciation allowance admissible under that clause for the first year of erection of the building or the installation of the machinery or plant in the assessments for such of the five years commencing on the 1st day of April 1949 and ending with the 31st day of March 1954 Provided that where in respect of such machinery or plant the assessee establishes that the market value of similar machinery or plant on the 31st day of March 1953 is lower than the original cost then subject to the provisions of clause vi there shall be made in the assessment for the year commencing next after that date a further allowance which shall be deductible in determining the written down value of an amount by which the written down value of the machinery or plant as on that date without deduction of the initial depreciation admissible in the first year would have exceeded the corresponding written down value thereof as on the same date if the market price of the machinery or plant had been taken as the actual cost of the assessee viiin respect of any such building machinery or plant which has been sold or discarded or demolished or destroyed the amount by which the written down value thereof exceeds the amount 850 for which the building machinery or plant as the case may be is actually sold or its scrap value Provided that 5 In sub section 2   plant  includes vehicles books scientific apparatus and surgical equipment purchased for the purpose of the business profession or vocation  The point at issue before us has been considered by three High Courts
The Bombay and Andhra Pradesh High Courts have held against the assessee while in the judgment under appeal the Madras High Court has held in favour of the assessee
The High Court of Andhra Pradesh in the case of B Srikantiah vs Commissioner of Income Tax Andhra Pradesh1 followed the Bombay case and expressly dissented from the Madras case
In the judgment under appeal reported as Mr Mohd Ali vs Commissioner of Income Tax Madras2 the High Court arrived at the conclusion by the following steps aMachinery must be given the same meaning with reference to each of the statutory provisions in section 102vi and section 102via b A diesel engine is machinery by the test laid down in the case of Corporation of Calcutta vs Chairman Cossipore and Chitpore Municipality3 c Machinery does not cease to be machinery merely because it has to be used in conjunction with one or more machines
Nor does it cease to be machinery merely because it is for instance installed as part of a manufacturing or industrial plant d The statutory provision for depreciation is in the alternative
Whether it is plant or whether it is machinery without its being itself a plant the assessee is entitled to claim the statutory allowance for depreciation
The question then is Which is the correct view First the history of para two of cl
vi may be noticed
The object of the Income Tax Amendment Act 1946 VIII of 1946 which first inserted the provisions regarding extra depreciation was to encourage the modernisation and re habilitation of industry and trade
The Second World War 2 3 190 851 had ended recently and during the long war machinery and plant had not only not been replaced or modernised but had been subjected to excessive wear and tear and needed rehabilitation
During the War there had also been great advance in technology
It is then pertinent to point out that the word machinery  occurs in cls
iv v vi and via of section 102
Prima facie the same meaning must be given to the word machinery  in all these clauses
If a machine is machinery for purposes of giving an allowance in respect of insurance or for repairs or in respect of normal depreciation or for the purpose of para one of cl
vi it must also be machinery for the purpose of second para of cl
vi and cl
via
But it is said that the scheme of para two of cl
vi and cl
via is different from that of para one of cl
vi inasmuch as before it can qualify for extra depreciation the machinery must be new and must be installed and the rate of depreciation is provided in the Act itself
Keeping in view this scheme it is urged that the word machinery  must be given a restricted meaning in para two of cl
vi and cl
via and the meaning suggested is that it must be a self contained unit capable of being put to use in the business profession or vocation for the benefit of which it was installed
That this is the true meaning it is further said is evidenced by the definition of the word plant  in section 105
It is argued that this definition indicates that for purposes of para two of cl
vi and cl
via plant  including a vehicle should be viewed as a unit and component parts thereof are excluded from its purview and machinery  should also be considered in the same light
Let us now examine these contentions
First we do not think that there is anything in the scheme of the second para of cl
vi and cl
via that throws any light on the construction of the word machinery  in these clauses
It is true that the machinery must be new and it must be installed and the rate of allowance is prescribed in the Act itself
But the requirement that the machinery must be new does not tell us what is machinery 
Assuming for the present that a diesel engine is machinery if an assessee buys and instals a secondhand diesel engine he will not be given the extra allowance under the second para of cl
vi and the ground would be that the engine is not new and not that because it is second hand it is not machinery
Similarly if it is purchased but not installed the ground of refusal would be that it has not been installed and not that because it has not been installed it has ceased to be machinery
Suppose a new machinery is purchased but not installed it would not qualify for extra depreciation on the ground that it has not been 852 installed and not because it has ceased to be machinery due to its non installation
The fact that the rate of depreciation is provided for in the Act has also no bearing on the question of the construction of the word machinery 
This fact only indicates that the legislature had made up its mind as to the extent of encouragement to be given to industry and therefore it did not consider it necessary to delegate this to the rule making authority
The definition of the word plant  in section 105 equally does not throw any light on the meaning of the word machinery 
The word plant  is of wide import but even so it may be argued that vehicles books scientific apparatus and surgical equipment are not plant  in all businesses pro fessions and vocations
The legislature settled this possible controversy but without throwing any light on the true meaning of the word machinery 
What then is the test for determining whether a mechanical contrivance is machinery for the purposes of second para of cl
vi and cl
via The Privy Council in the case of Corporation of Calcutta vs Chairman Cossipore and Chitpore Municipality1 hazarded the following definition of machinery  The word machinery  when used in ordinary language prima facie means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances
by the combined movement and inter dependent operation of their respective parts generate power or evoke modify apply or direct natural forces with the object in each case of effecting so definite and specific a result
 They had already observed that the word machinery  must mean more than a collection of ordinary tools
The Privy Council case was not a tax case but prima facie the ordinary meaning of the word machinery  and the word machinery  is an ordinary and not a technical word must unless there is something in the context prevail in the Indian Income Tax Act also
According to the above definition a diesel engine is clearly machinery 
Indeed r 8 of the Income Tax Rules treats aero engines separately from aircraft
It is true that this rule cannot be used to interpret the clauses in the Act but it does show that components of an aircraft which are machinery can be treated separately
1 Cal
190 853 Further when the assessee purchased the diesel engines they were not plant  or part of a plant because they had not been installed in any vehicle
They were according to the definition given by the Privy Council machinery
They were not yet part of a plant and according to the Act 20  per cent of the cost thereof was allowable to the assessee
All the conditions required by the Act are satisfied
If we look at the point of time of purchase and installation what was purchased and installed was machinery
The learned counsel next contended that the assessee is not entitled to extra depreciation because a diesel engine cannot be said to be installed
He urges that the word installed  is wholly inappropriate to cover the fixing of a diesel engine in a motor vehicle
We are of the opinion that there is no force in this contention
As observed by the Bombay High Court in the case of Commissioner of Income Tax vs Saraspur Mills Ltd1 the expression installed  did not necessarily mean fixed in position  but was also used in the sense of inducted or introduced   or to use the language of the Madras High Court in the case of Commissioner of Income Tax Madras vs Sri Ram Vilas Services Pvt Ltd2 installed would certainly mean to place an apparatus in position for service or use 
We are of the opinion that when an engine is fixed in a vehicle it is installed within the meaning of the expression in cls
vi and via
Accordingly we hold that the High Court was correct in answering the question referred to it in the affirmative
The appeal therefore fails and is dismissed with costs
SHAH J I am unable to hold that the respondent is entitled to the allowance under section 102vi paragraph 2 in respect of the diesel engines claimed by him
Section 10 of the Indian Income tax Act provides that tax shall be payable on the profits and gains of an assessee under the head profits and gain of business profession or vocation
By sub section
2 in the computation of taxable pro fits certain allowances prescribed therein are permissible
We are primarily concerned in this appeal with the initial allowance permissible under the second paragraph of cl
vi of sub section
But cls
iv v vi via and vii are inter related and it may be necessary briefly to refer to those provisions By cl
iv allowance for premium paid in respect of insurance against risk of damage or destruction of buildings machinery plant furniture stocks or stores used for the purposes of the business profession or vocation is admissible
Under cl
v an amount paid on account of any current repairs to such buildings machinery plant or furniture is 1  2  854 an admissible allowance
Clause vi recognises by the first paragraph a right to normal depreciation of a percentage on the prescribed valuation of such buildings
machinery plant or furniture which are the property of the assessees
The second paragraph at the material time stood as follows and where the buildings have been newly erected or the machinery or plant being new has been installed after the 31st day of March 1945 a further sum which shall however not be deductible in determining the written down value for the purposes of this clause in respect of the year of erection or installation equivalent etc
 Clause via which was inserted by Act 67 of 1949 permit ted a further depreciation allowance In respect of buildings newly erected or of machinery or plant being new which had been erected or installed after March 31 1948 in not more than five successive assessments for the financial years next following the previous year in which such buildings were erected or machinery or plant installed
Clause vii permitted as an allowance the difference between the written down value and the sale price or scrap value of such buildings machinery or plant which had been sold discarded demolished or destroyed
All these clauses dealt with allowances in respect of assets of the specified description and used for the purpose of business profession or vocation
The depreciation allow ance permitted under the first paragraph of cl
vi which may be called the normal allowance is in respect of all buildings machinery plant and furniture of the assessee used for the purpose of his business
By the second paragraph of cl
vi an initial allowance in the year in which buildings have been newly erected or the machinery or plant being new has been installed after March 31 1945 is allowable
Use of the definite article the in the second paragraph indicates that the buildings machinery or plant referred to in that paragraph must also be used for the purpose of the business profession or vocation of the assessee
However to qualify for the initial allowance under paragraph two the buildings must be newly erected or the machinery or plant being new must have been installed after March 31 1945
Two rival views are pressed upon us in support of the respective cases of the Commissioner and the assessee as to the meaning of the second paragraph
The Commissioner contends that the buildings machinery or plant for which the initial allowance is admissible must be a self contained unit capable of being put to use in the business profession or vocation for the benefit of which it is erected or installed
It is submitted that the second paragraph of cl
vi was en 855 acted with the object of giving a fillip to industry which had been starved during the war years of new machinery and building activity
But the buildings machinery or plant to qualify for the initial allowances were not intended to be in the nature of replacement addition or repair to existing units they had to be buildings newly erected or machinery or plant being new installed
On behalf of the assessee it was contended that the Legislature has not put any restriction of the nature suggested on behalf of the Commissioner and therefore any building or a part thereof newly erected or any new machinery or plant or a part thereof installed
qualified for the benefit of the initial allowance
The question to be decided is one about the intention of the Legislature
Can it be said that when to an existing building a room even a floor is added that the additional construction is a building newly erected In my view that does not appear to be the intention
Such an addition to an existing structure becomes a part of the structure and cannot be said to be a building newly erected
If every alteration or addition in an existing building is covered by the second paragraph of cl
vi mere repairs falling within the words of cl
vi may also qualify for initial allowance
If a mere addition to a building cannot be regarded as such an erection as is contemplated by the second paragraph of cf
vi it would be difficult to hold that the machinery or plant would include part of machinery or plant
Counsel for the assessee concedes that replacement of a petrol engine by a diesel engine in a motor transport vehi cle is not installation of plant
The question is whether it is installation of machine
In my view replacement of a petrol engine by a new diesel engine in a motor car cannot be said to be installation of machinery within the meaning of the relevant clause
To be installed the machinery being new must for the purpose of the business be brought into service as a self contained unit
If the argument of the assessee is sound every bolt nut rod or flywheel which constitute a part of machinery would qualify for the initial allowance and the difference between the allowance for repairs and initial allowance may be obliterated
Counsel for the assessee also did not as I understood him contend that replacement of a mere part of machinery was installation of machinery within the meaning of the second paragraph of cl
The Legislature has not given any definition for that expression and the expression machinery is otherwise somewhat difficult to define
The Judicial Committee in Corporation of Calcutta vs Cossipore and Chitpore Municipality1 when it was called upon to consider whether a tank supported on 1 L R 48 IA 435
856 columns and which could be filled by pumping from a re servoir belonging to the Corporation could be regarded as machinery within the meaning of the Bengal Municipal Act 1884 observed at p 445 If their Lordships were obliged to run the hazard of the attempt to define machinery they would be inclined to say that the word machinery  when used in ordinary language prima facie means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivance by the combined movement and inter dependent operation of their respective parts generate power or evoke modify apply or direct natural forces with the object in each case of effecting so definite and specific a result
 But we are not called upon in this case to decide whether a diesel engine is in the abstract machinery the question is whether a diesel engine which is used for replacing a pet rol engine in a vehicle used by a transport operator for the purpose of his business is machinery installed within the meaning of section 102vi paragraph 2
Whether machinery is some contrivance for supplying motive power to another contrivance which directly produces an article or is a mechanical contrivance which produces or assists in the production of an article it would be difficult to regard introduction of a mere part which has no independent use in the business conducted by the assessee as machinery installed for the purpose of the second paragraph of cl
The Legislature has provided for the normal depreciation by paragraph 1 of cl
vi and in respect of newly installed machinery it has provided for the initial allowance the object being to induce industrialists to start new industries or to extend their existing industries by erecting new buildings or installing new machinery or plant
A diesel engine by itself may undoubtedly be used in a business other than that of a transport operator for instance for working a pump to draw underground water and may for that purpose be regarded as a self contained unit
But that is not decisive of the question whether in the business of a transport operator a diesel engine used to replace a petrol engine may be regarded as machinery installed
Machinery installed within the meaning of paragraph 2 of section 102vi is qualified by the expression used for the purposes of the business and therefore unless as a self contained unit the machinery is used for the purposes of the business initial depreciation would not be admissible in respect thereof
That it may be capable of being used in another 857 business by the same or another assessee as a self contained unit is irrelevant in considering its admissibility for initial allowance in the business in which it is actually used
It would be fruitless to refer to the schedule under rule 8 of the Income tax Rules for computing the allowance in res pect of the depreciation under section 102vi
The schedule catalogues different items in respect of which depreciation is admissible at the rates prescribed
But whether a particular item is admissible for initial allowance in the second paragraph must depend upon two factors i that it is in respect of the year of erection or installation that the initial allowance is permissible and ii the building or the machinery is used for the purposes of the business
If it is a predicate of admissibility to initial allowance that the machinery must be new and a self contained unit in the particular business in the carrying on of which the initial allowance is claimed the fact that in certain conditions that machinery may be regarded as self contained for the purpose of another business in which it is used would furnish no guide in ascertaining whether initial allowance is permissible as a deduction in the assessment of taxable income of the business in which it is actually used
In my view the appeal should be allowed and the question referred for opinion should be answered in the negative
ORDER In accordance with the opinion of the majority the appeal is dismissed with costs
Appeal dismissed


Summary:
The assessee who was the owner of a fleet of buses rep laced the petrol engines in two of his buses by new Diesel engines incurring an expenditure of Rs 18544 in this connection during the year of account ending with March 31 1950
For the relevant assessment year he claimed deprecia tion allowance under the second para of cl
vi and cl
via of section 102 of the Indian Income tax Act 1922 apart from the normal depreciation under the first para of cl
vi but he was allowed only 25 per cent depreciation under the first para of cl
vi on the ground that he was not entitled to extra depreciation under section 102vi
or section 102via because the engine was only part of an equipment and could not by itself become machinery and that when an engine was fixed in a motor vehicle it could not be said to be installed within the meaning of those sub sections
Held per Subba Rao and Sikri JJ i The assessee was entitled to extra depreciation under sections 102vi
and 102 via of the Indian Income tax Act 1922 in respect of the diesel oil engine fitted to the motor vehicles in replacement of the existing engines
iiThe definition of machinery given by the Privy Council in the case of Corporation of Calcutta vs Chairman Cossipore and Chitpore Municipality 1922 LR 48 IA 435 is applicable and according to that definition a diesel engine is clearly machinery
And when an engine is fixed in a vehicle it is installed within the meaning of the expression in cls
vi and via
Per Shah J dissenting Replacement of a petrol engine by a new diesel engine in a motor car cannot be said to be installation of machinery
To be installed the machinery must for the purpose of the business be brought into service as a self contained unit and it would be difficult to regard the introduction of a mere part which has no independent use in the business conducted by the assesses as machinery installed for the purpose of the second para of cl
vi of section 10 2