JUDGMENT [ENTITY], J.
1. In this reference under [SECTION] of the [ACT] (hereinafter referred to as the Act), the following question has been referred to us at the instance of the Commissioner :
"Whether, on the facts and in the circumstances of the case, was the assessee-company entitled to deduction of the development rebate and additional depreciation under [SECTION] for the assessment year 1957-58 and additional depreciation under [SECTION] for the assessment year 1958-59, in respect of the new machinery imported and installed by Messrs. [ENTITY] and Sons, which business was taken over by the assessee-company ?"
2. It is common ground before us that in the question which has been referred to us there is a slight omission as regards development rebate. Under the provisions of law, which were in force at the relevant time, development rebate could have been claimed only under [SECTION] of the act and not [SECTION] of the Act, which referred only to additional depreciation and not to development rebate. We, therefore, reframe the question as follows in order to bring out the real controversy between the parties :
"Whether, on the facts and in the circumstances of the case, was the assessee-company entitled to deduction of the development rebate under [SECTION] and additional depreciation under [SECTION] for the assessment year 1957-58, and additional depreciation under [SECTION] for the assessment year 1958-1959, in respect of the new machinery imported and installed by Messrs. [ENTITY] and Sons which business was taken over by the assessee-company ?"
3. The assessment year in question are 1957-58 and 1958-59, the relevant previous year being financial year 1956-57 and 1957-58 respectively. One [ENTITY] was the sole proprietor of the business carried on at Bombay in the name of Messrs. [ENTITY] and Sons. This concern imported new machinery from Japan for manufacturing wire-healds and the machinery was to be installed at Rajkot. The machinery arrived in Bombay by different shipments between June, 1955, and August, 1955. Thereafter, the machinery appears to have been transported to Rajkot and the machinery reached Rajkot during the period December, 1955, to March, 1956. The machinery seems to have consisted of six main machines and some additional machinery. According to the finding of the Appellate Assistant Commissioner, which finding has not been altered by the Tribunal, the first of the six machines was installed at Rajkot by the end of March, 1956, the remaining five machines were installed there by the middle of April, 1956, and the rest of the machinery was installed by the end of April, 1956. Experimental production of wire-healds was started in April, 1956, and regular production was started in the month of April, 1956. The assessee-company, which is a private limited company, was incorporated on February 27, 1956. The share capital of the company was 1000 share out of which [ENTITY] held 800 shares, his wife held 100 shares and their son and daughter and son held 50 shares each. On July, 1956, the assessee-company passed a resolution and took over the business of manufacturing wire-healds that was till then carried on by the proprietary concern of Messrs. [ENTITY] and Sons. This business was taken over as a going concern for the total price of Rs. 110766. In respect of the assessment year 1957-58, the assessee-company claimed development rebate and additional depreciation on the machinery, which was originally purchased and installed by [ENTITY]; and the assessee-company also claimed additional depreciation for the assessment year 1958-59. The Income-tax officer disallowed development rebate and also addition depreciation for the year 1957-58 and, additional depreciation for assessment year 1958-59 on the ground that the machinery which was new when installed by [ENTITY] was second-hand machinery in the hands of the assessee-company and some [ENTITY] and the assessee-company were separate and distinct legal entities, development rebate could not be granted to the assessee-company. The claim for additional depreciation allowance was also disallowed on the same ground. Against the assessment orders for the two years, the assessee-company filed appeals to the Appellate Assistant Commissioner and that officer upheld the disallowance of the assessee's claims in respect of the development rebate and depreciation allowance. Thereafter, the assessee went in appeal to the Appellate Tribunal and before and Tribunal sufficient material was placed by the assessee to show that Messrs. [ENTITY] and Sons had not used the machine prior to April, 1956; and further, that the machinery was new in the hands of the assessee-company and that the machines were installed in the year under consideration. Because these materials were available, the Tribunal directed that the matter should be restored to the file of the Appellate Assistant Commissioner and directed that the assessee's contention should be considered afresh and the matters should be disposed of. After the appeals went back to him after the remand, the Appellate Assistant Commissioner admitted the evidence and considered the new evidence, but ultimately upheld the disallowance of the two claims for development rebate and additional depreciation. Against the orders passed by the Appellate Assistant Commissioner after remand, again appeals were filed by the assessee before the Tribunal and the Tribunal allowed those appeals and allowed the claims of the assessee for development rebate and additional depreciation. Thereafter, the Tribunal has referred the above question at the instance of the Commissioner.
4. The relevant sections which are required to be considered in the course of this judgment are as follows :
[SECTION] of the Act provides that the tax shall be payable by an assessee under the head "profits or gains of any business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him. Under [SECTION], the profits and gains referred to in sub-section (1) are to be computed after making certain allowances. [SECTION] provides for what may be called normal depreciation and initial depreciation. Under the first para. of clause (vi), normal depreciation has been provided for in respect of buildings, machinery, plant or furniture, being the property of the assessee and such depreciation allowance has to be computed on the basis of certain percentage on the original cost of the buildings, machinery, plant or furniture to the assessee according to the prescribed scale. As regards the initial depreciation under the second para. of clause (vi), where the buildings have been newly erected, or the machinery or the plant being new has been installed after the 31st day of March, 1955, and before the 1st day of April, 1956 a further sum in respect of the year of erection or installation can be allowed by way of what may be called initial depreciation. It has to be borne in mind that such initial depreciation is not deductible in determining the written down value for the purposes of clause (vi). It is not necessary to set out at this stage the clauses of the proviso to [SECTION].
[SECTION] is in these terms : "(via) in respect of depreciation of buildings newly erected, or of machinery or plant being new which has 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 not more than five successive assessments for the financial years next following and plant installed and falling within the period commencing on the 1st day of April, 1949, and ending on the 31st day of March, 1959."
[SECTION] is in these terms :
"(vib) in respect of machinery or plant being new, which has been installed after the 31st day of March, 1954, and which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of the year of installation equivalent to twenty-five per cent. of the actual cost of such machinery or plant to the assessee :
Provided that no allowance under this clause shall be made unless the particulars prescribed for the purpose of clause (vi) have been furnished by the assessee in respect of such machinery or plant."
5. As regards the additional depreciation allowance under [SECTION], there is the decision of the Bombay High Court in [PRECEDENT]. What happened in that case was that in 1949-50 Parle Bottling Co., a firm, installed certain new machineries and plants for its business. For the years 1950-51 to 1952-53, it was allowed normal and initial depreciation under [SECTION] and additional depreciation under [SECTION]. The assessee took over the business of the firm and claimed in the year 1953-54 normal depreciation under [SECTION] and additional depreciation under [SECTION]. The Income-tax Officer rejected the claim for additional depreciation holding that it was only allowable if the assessee itself had installed the machinery. The Tribunal negatived the contention of the department and granted additional depreciation. Thereafter, on a reference made by the Commissioner, it was held by the Bombay High court that the assessee, which was a successor of the original firm, was entitled to benefits of additional depreciation under [SECTION]. [ENTITY] observed in the course of the judgment after setting out the provisions of [SECTION] :
"In other words, the assessee, if he constructs a new building or erects or installs new machinery or plant after the 31st March, 1948, can claim this additional depreciation along with the ordinary depreciation under [SECTION] for five years. That obviously is an incentive given by the legislature to industries to expand their business and erect new buildings or install new machinery or plant. Now, the very extraordinary contention that is put forward before us is that, although the machinery in question was installed after the 31st March, 1948, and although the original company got this benefit only for three years, and admittedly that company would have been entitled to this benefit for two years more, because that company sold its business as a going concern to the assessee-company, the assessee-company has lost that benefit. What is urged is that this particular benefit was only intended to be conferred upon the assessee who erected or installed the machinery or plant. It was not intended for the benefit of his successor. There is neither warrant for this construction in the language used by the legislature nor on principle. It is difficult to understand why the Advocate-General relied on the language of the second part of [SECTION] where the words used are "such percentage on the original cost thereof to the assessee". Even these words do not find a place in [SECTION] and it must be borne in mind that the claim is not made by the assessee on the footing that the machinery is newly erected in the year when the assessee company acquired the machinery. The claim is made on the footing of the written down value. The additional depreciation under [SECTION] is no way different from the ordinary depreciation permitted under [SECTION]. In respect of certain buildings, machinery and plant the ordinary depreciation is doubled and that doubled depreciation is permissible for five years. It is not disputed that the assessee-company is entitled to the ordinary depreciation under [SECTION]; if that is so, there is no reason whatever why he is not entitled to the additional depreciation under [SECTION] for the period laid down by the legislature."
6. This decision of the Bombay High Court having been delivered prior to the bifurcation of the bilingual State of Bombay, on May 1, 1960, is binding on us and apart from the decision being binding on us, we respectfully agree with the principle laid down by [ENTITY] in that judgment.
7. This decision of the Bombay High Court in Parle Bottling Co. Ltd.'s case was followed by the Madras High Court in [ENTITY] Transports v. Commissioner of Income-tax. There what happened was that the assessee was a registered firm carrying on business of transport service. The partnership consisted of father, [ENTITY], and his four sons. The business was originally carried on by the father and the sons, who together constituted a Hindu undivided family. The family was disrupted and the members of the family entered into a partition arrangement by a deed, dated September 30, 1957. From the next day, i.e., October 1, 1957, the erstwhile members of the family formed a partnership firm and this firm took over the joint family transport business. Thus, the entire business of the Hindu undivided family was taken over by the newly formed partnership and that business of the family was continued without any break by the partnership firm. For the assessment year in question, the partnership firm claimed additional depreciation in regard to four motor vehicles which were purchased by the original Hindu undivided family and which had been transferred from the family to the partnership firm as a result of the partition and formation of the partnership firm. The Madras High Court held on these facts that, if the plant or machinery is new and would be eligible for allowance in terms of [SECTION], the fact that during the period of five years or the period prescribed under [SECTION] there is a transfer of the business as such together with the newly acquired plant or machinery to another, by act of parties or by operation of law, would not defeat the claim for additional depreciation allowance. At page 446 of the report, [ENTITY] J., who delivered the judgment of the Madras High Court, has observed :
"Now, looking at the section quite carefully and closely, we are unable to held that the assessee who taken over a business as a going concern would not be eligible for the additional depreciation allowance to which the building, plant or machinery became eligible in the hands of his predecessor. The scheme of depreciation allowance enacted under [SECTION] and [SECTION] of the [ACT] does not compel us to hold that an assessee who succeeds to a business should be deemed to have started the business afresh and should not be deemed to continue the existing business. In our opinion what is really important is the business which is certainly the income-yielding asset and which is the source from which the taxable income is determined and not the assessee who actually becomes subject to the payment of tax The claim for deduction by way of depreciation allowance is one that is primarily attached to the building, machinery or plant though the relief by way of allowance can only be claimed by the assessee who carried on the business during the accounting period."
8. In [PRECEDENT], the provisions of [SECTION] came up for consideration before the Calcutta High Court and at page 780, [ENTITY] J., delivering the judgment of the Calcutta High Court, observed :
"In our view, in constructing [SECTION], the following principles should be borne in mind for the purpose of the present reference :
(1) [SECTION] confers a relief on the assessee. If should, therefore, be strictly construed. The assessee must establish that his case falls within the terms of the clause.
(2) Both [SECTION] and [SECTION] grant depreciation allowance in respect of buildings, machinery or plant which are used for the purpose of the business, the profits whereof are taken into consideration for assessment under the [ACT].
(3) So far as [SECTION] is concerned, it must be established that the plant or machinery in respect whereof the allowance is claimed was installed as a new asset for the first time for that business the profits of which are assessed under the [ACT].
(4) It will not be sufficient if the plant or machinery be introduced as a new asset into another business the profits of which are not being assessed under the [ACT] and subsequently introduced into business the profits whereof are assessed under the said Act.
(5) Unless the plant or machinery satisfies the conditions of being new when introduced for the first time into the business the profits whereof are assessed under the [ACT], the benefit of [SECTION] cannot be granted at all.
(6) The period of five successive years will be allowed only if the conditions of [SECTION] are satisfied in the very first year in which the claim is made."
9. In that particular case, the Calcutta High Court was dealing with the case of an assessee, which was a non-resident shipping company with a branch at Calcutta for its Indian business and in connection with the additional depreciation allowance claimed by the assessee-company in respect of some of the ships which were newly purchased by the non-resident shipping company but which were not utilised for the purposes of its Indian trade company. The Calcutta High Court on these facts held that the assessee-company was not entitled to additional depreciation under [SECTION], because during the course of the years for which additional depreciation allowance was made all ships were not new but had become old and hence the additional depreciation allowance was not allowed. The ultimate decision of the Calcutta High Court turned upon the special facts of the case and not upon any particular interpretation of [SECTION]. At page 783 of the report, the decision of the Madras High Court and the learned judges of the Calcutta High Court have observed that they accept the principle enunciated by the Madras High Court in that case.
10. Against these three decisions - one of the Bombay High Court, the other of the Madras High Court and the third of the Calcutta High Court - there is a decision of the Kerala High Court in [PRECEDENT]. In that particular case, there was no transfer of a business together with the newly installed machinery as part of the business by the person installing the machinery. What happened in that case was that certain reconditioned machines which were purchased by the assessee-company were installed and additional depreciation allowance in respect of those reconditioned machines was claimed by the assessee-company. According to the Kerala High Court, since these machines were reconditioned machines and not altogether new machines, the benefit of the provisions of [SECTION] could not be given to the assessee-company. At page 313 of the report, the learned judges of the Kerala High Court have observed :
"It is true that the word 'new' has different meanings, but, when used with reference to a machine its meanings is, we should think, 'new-made or brought into existence for the first time' which is one of the meanings given in the Shorter Oxford Dictionary. We do not discover the meaning of the word 'new' by trying to find out what is meant by the word 'old'. Nor is it of any assistance to say that the word is relative and that in relation to something older a new thing like the New Testament might itself be centuries old. As pointed out by the Appellate Assistant Commissioner 'new' as used in the section cannot mean 'new to the assessee'. The machines themselves must be new machines, and if it were necessary to find out what is the opposite of a new machine we would say that with reference to a machine the word 'new' stands in antithesis to the word 'used'.
"Against this decision of the Kerala High Court, there was an appeal to the Supreme Court and the appeal was decided by the Supreme Court on March 14, 1967. The Supreme Court held that the word "new" in the context of [SECTION] and [SECTION] must be construed as meaning "not existing before, now made or brought into existence for the first time" in contradistinction and antithesis to the word "used". The Supreme Court sets aside the judgment of the Kerala High Court and remanded the case for decision after calling for the supplementary statement of the case. Accordingly to the Supreme Court, it was not possible to decide the question whether the machines were new within the meaning of [SECTION] of the Act. The Supreme Court held that the question was whether the reconditioning of the machines amounted to reconstruction or substitution of the entire machinery, meaning by "entirely" not necessarily the whole but substantially the whole subject-matter of the machinery.
These are the only decisions cited before us which throw some light on the subject of additional depreciation. There is no direct authority of the Supreme Court dealing with the question of additional depreciation claimed by the successor to the person who originally installed the machinery, the successor having taken over the business as a going concern along with the newly installed machinery as part of the business. We have already indicated above that we agree with the principle laid down by [ENTITY] in Parle Bottling Co.'s case and we also feel ourselves bound by that judgment. Under these circumstances, so far as the question referred to us as regards the additional depreciation for the two assessment years in question must be answered in favour of the assessee. We may also point out at this stage that the learned Advocate-General appearing on behalf of the Commissioner, has not argued this point, though he has not given up the point before us, in view of the aforesaid judgment of the Bombay High Court, which is binding on this High Court; and, therefore, the only question which was seriously urged before us was as regards the development rebate claimed under [SECTION] of the Act.
Under [SECTION] of the Act, which we have set out above, it is clear that, (1) the machinery or the plant should be new; (2) it must have been installed after 31st March, 1954; (3) it must have been wholly used for the purpose of the business carried on by the assessee; (4) the development rebate can only be allowed in respect of the year of installation; and (5) the development rebate can only be to the extent of 25% of the actual cost of machinery or plant to the assessee. Now, the real question that has to be considered is, firstly, the meaning of the words "machinery or plant being new which has been installed after 31st March, 1954" and, secondly, the words, "which is wholly used for the purpose of the business carried on by the assessee".
11. Before dealing with the construction of these two phrases, we will dispose of one argument which was advanced before us on behalf of the Commissioner by the learned Advocate-General on the facts of the case. It was urged in this connection on behalf of the department that out of the six machines, one machine, according to the finding arrived at by the Appellate Assistant Commissioner and accepted by the Appellate Tribunal, was installed in March, 1956, the remaining 5 machines were installed by the middle of April, 1956, the remaining machinery in connection with the manufacture of wire-healds having been installed also in the month of April, 1956. It was, therefore, contended by the learned Advocate-General that, so far as one machine at least was concerned, it was not installed even by M/s. [ENTITY] and Sons in the relevant previous year, viz., the financial year 1956-57 and, therefore, at least in respect of that one machine, development rebate could not be granted at all. Now this contention must be rejected because all the six machines were installed as part of one and the same unit of manufacture and the entire plant consisting of six machines and the remaining machinery was installed as part of one manufacturing unit by M/s. [ENTITY] and sons and this entire unit was installed completely in the month of April, 1956. The fact that one, out of the six machines which constituted part of the entire manufacturing unit, was installed in the month of March, 1956, does not mean that the machinery in question was not installed in the month of April, 1956, or during the financial year 1956-57. The test for finding out when the particular machinery was installed is the date when it was completed; and the complete installation of this particular plant for the manufacture of wire-healds was brought about in the middle to the word "installed" occurring in [SECTION], which is the only meaning applicable to the facts of the case, it is clear that the machinery was installed in the year for which development rebate is claimed and not prior to the commencement of the relevant previous year of the assessee.
12. So far as the words "machinery or plant being new which has been installed after 31st day of March, 1954" are concerned, those words of [SECTION] are common with the words occurring at the commencement of [SECTION]. It is true, as the learned Advocate-General, on behalf of the Commissioner, has pointed out, that the two concepts one of development rebate and the other of additional depreciation allowance, are different. The concept of depreciation allowance is that it is spread over a number of years and the depreciation allowance is computed on the basis of the written down value of the machinery or the plant; of course, the original cost to the assessee in question having always to be borne in mind. To that extent, the meaning which the words would convey in the context of [SECTION] would, to a certain extent, differ from the meaning of the words occurring in [SECTION], which deals with development rebate. The development rebate has to be paid once and for all, and that too in the year of installation. The development rebate is not to be spread over and cannot be spread over a number of years as in the case of additional depreciation under [SECTION]. The learned Advocate-General is, therefore, right when he contends that the decisions of the Bombay and the Madras High Court dealing with the question of additional depreciation under [SECTION] cannot help the court in interpreting the words of [SECTION]. He is also right when he contends that the court should interpret the words occurring in [SECTION] purely looking at the fact that that too in respect of the year of installation.
13. Bearing in mind this caution regarding the distinction between the additional depreciation under [SECTION] and development rebate under [SECTION], we have now to consider, firstly, as to what is the meaning of the word "new" occurring at the commencement of [SECTION]. The word "new" has been followed in that clause by the words "which has been installed after 31st March, 1954." Applying the principle of grammatical construction to these words, it is clear that the only meaning which can be attached to the word "new" in the context is that the plant or machinery must have been new when installed and, secondly, that the installation must have been made after 31st March, 1954. The words "which has been installed after 31st March, 1954" qualify machinery or plant and the words "being new" also qualify machinery or plant can be considered to be the subject-matter of development rebate under [SECTION], two conditions must be satisfied : (1) the plant must be new when installed, and (2) the installation must have been made after 31st day of March, 1954. The qualification clause "which has been installed after the 31st day of March, 1954" completes that particular quality which is required to be satisfied before development rebate can be claimed in respect of machinery or plant. Over and above this particular qualification, which is an objective qualification applying to machinery or plant, there is a further qualification which is required to be satisfied before development rebate can be allowed and that qualification is that it must have been wholly used for the purposes of the business carried on by the assessee. It was urged before us on behalf of the department that the words, "which is wholly used for the purposes of the business carried on by the assessee" impliedly carry with them the concept that the installation of the new machinery or plant must have been by the assessee claiming the development rebate. It was urged in this connection by the learned advocate-General that though the phrases, "which has been installed after the 31st day of March, 1954" and "which is wholly used for the purposes of the business carried on by the assessee" may be read as disjunctive phrases and as separate qualifications of machinery or plant, still by the words, "wholly used for purposes of the business carried on by the assessee" by necessary implication it is conveyed by the legislature that the assessee himself must have installed the machinery. We are unable to accept this contention urged before us on behalf of the revenue. The words, "which is which is wholly used for the purposes of the business carried on by the assessee" are required to be used because it is in respect of the business carried on by the assessee that the allowances under [SECTION], including the allowance of development rebate under [SECTION], can be claimed and the legislature has made it plain by using these words that development rebate can only be granted if the new plant or machinery has been wholly used for the purposes of the business carried on by the assessee. The concept of installation having been made by the assessee, cannot therefore be read by necessary implication in the words, "which is wholly used for purposes of the business carried on by the assessee".
14. The meaning which we have given to the words, "which is wholly used for the purposes of the business carried on by the assessee" gathers strength from the concluding words of [SECTION], viz. : "The actual cost of such machinery or plant to the assessee". The development rebate is not to be calculated on the basis of the original cost of the new plant or machinery but on the basis of the actual cost of such machinery or plant to the assessee. If the legislature intended that the benefit of development rebate should be given only to the person installing the new machinery or plant, then there was no necessity of using the words, "actually cost of such machinery or plant to the assessee". There was no necessity for the legislature to refer to the actual cost of machinery or plant to the assessee, if only the person installing the machinery or plant was in its contemplation at the time of providing for development rebate under [SECTION]. We may point out that in [SECTION] of the Act, which provides for depreciation, the basis which has been taken is the original cost thereof to the assessee and in [SECTION], dealing with the aggregate of all depreciation allowance under [SECTION] and [SECTION] it has been provided that the aggregate of all such allowance under [SECTION] and [SECTION] shall not exceed the original cost to the assessee of the building, machinery or plant, as the case may be. Therefore, in each case of depreciation under [SECTION] and [SECTION] what is to be borne in mind is the actual cost to the assessee and not what the plant or machinery might have cost when originally installed in the particular manufacturing concern or business. In the same way, while dealing with development rebate under [SECTION], the legislature has provided that the development rebate is to be allowed at the rate of 25% of the actual cost of such machinery or plant to the assessee. Looking at the phrases, "which has been installed after the 31st day of March, 1954", "which is wholly used for the purposes of the business carried on by the assessee" and "the actual cost of such machinery or plant to the assessee" occurring in [SECTION], on a plain grammatical construction it is clear that the development rebate can only be allowed to the person originally installing the new machinery and not to the successor-in-business of that person. The legislature has not stated "installed by the assessee" when it referred to the machinery or plant in [SECTION].
15. It was sought to be urged before us that with effect from April 1, 1958, the legislature has provided in [SECTION] of the Act as to what is to happen when development rebate has been allowed to an assessee in respect of the machinery or plant and within a period of 10 years from the end of the year in which the machinery or plant was installed that machinery or plant has been sold. Now, we are concerned as regards the development rebate with the assessment year 1957-58 and at that time the provisions of [SECTION] were not on the statute book. If we felt any doubt about the interpretation of [SECTION] we might have considered the provisions as throwing some light as to the legislative intent when enacting the provisions of [SECTION]. But, as indicated above, we have no difficulty in applying the principles of grammatical construction to [SECTION] and arriving at the conclusion that we have done and under these circumstances, it is not necessary to consider the provision of [SECTION], which came into. force from 1st April, 1958. Moreover, [SECTION] does not help us in the interpretation of [SECTION].
16. Under these circumstances, we hold that the conclusion reached by the Tribunal both regarding the depreciation allowance claimed as deductible allowance for the assessment years 1957-58 and 1958-59 and the development rebate claimed for the assessment year 1957-58 was correct. We, therefore answer the question as the follows :
The assessee-company was entitled to development rebate under [SECTION] and additional depreciation under [SECTION] for the assessment year 1957-58 and to additional depreciation under [SECTION] for the assessment year 1958-59. The question as referred by us is answered in the affirmative as to both parts of the question. The Commissioner will pay the costs of this reference to the assessee.