JUDGMENT [ENTITY], J.
1. In this reference under [SECTION] of the [ACT], at the instance of both the Revenue as well as of the assessee several questions have been referred to us. At the instance of the Revenue, the following questions have been referred to us:
"1. Whether, on the facts found by the Tribunal or on record and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to relief Under [SECTION] of the [ACT], in respect of the new production units added to the existing production units of the assessee at Alupuram, Belur, [ENTITY] and [ENTITY] for the assessment years 1966-67 to 1969-70?
2. Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the agreement between the non-resident company and the Indian Aluminium Company Ltd., the Tribunal was correct in holding that there was no receipt of fees by the non-resident company in India for the assessment years 1967-68 to 1969-70 ?
3. Whether, on the facts and in the circumstances of the case and on a proper interpretation of the agreement between the non-resident company and Indian Aluminium Company Ltd., the Tribunal was correct in holding that no part of the services was rendered by the non-resident company in India and in that view holding that no income accrued or arose to the non-resident company in India for the assessment years 1967-68 to 1969-70?
4. Whether, on the facts and in the circumstances of the case and on a correct interpretation of the agreement between the non-resident company and Indian Aluminium Company Ltd., the Tribunal was correct in holding that there was no business connection in India between the said two companies within the meaning of [SECTION] of the [ACT], and in that view holding that no income could be deemed to accrue or arise to the non-resident company in India for the assessment years 1967-68 to 1969-70?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to depreciation on roads, fences and culverts within the factory compound at the rate applicable to first class factory building for the assessment years 1966-67 to 1969-70?"
2. While, at the instance of the assessee, four other following questions have been referred to us :
"6. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that in respect of the powder and paste plant at Kalwa, the applicant-company was not entitled to deduction under Section [SECTION] of the [ACT], for the assessment years 1966-67 to 1969-70?
7. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that development rebate at 35% is not allowable on the machinery installed at the applicant's company's powder and paste plant at Kalwa for the assessment years 1966-67 to 1969-70?
8. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in not holding that the company is entitled to depreciation on the storage tanks at 10% being the rate applicable to aluminium industries plant instead of at 7% for the assessment years 1966-67 to 1969-70 ?
9. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Rs. 55,546 is assessable as income for the assessment year 1968-69 ?"
3. So far as question No. 1 is concerned, the Tribunal in the statement of the case has observed, inter alia, as follows:
"3. One of the points at issue which arose for the consideration of the Tribunal in the departmental appeal relates to the relief given by the Appellate Assistant Commissioner under [SECTION] of the [ACT], in respect of the additions made to the assessee's production units at [ENTITY], Alupuram, Belur and [ENTITY]. The facts of the case, as both the parties pointed out, have already been set out in the orders of the lower authorities and are substantially similar to the case ([PRECEDENT]) which went to the Calcutta High Court . The departmental representative relied on the findings of the ITO, whereas the assessee pointed out that the facts of the case were stronger than those for the year in which the matter was taken up to the Calcutta High Court. In this connection, the assessee pointed out to certain facts relating to this claim which we shall set out below as contained in a separate statement filed by the assessee :
Units :
[ENTITY] No. II 6,74,307 Alupuram Extrusion No. II 3,30,841 Belur No. II 10,03,553 (4) [ENTITY] No. II 12,38,386 32,47,087 [ENTITY] ([ENTITY] II) :
Completed in 1961 Previous plant capacity 10,000 tons per annum new capacity additional 10,000 tons per annum. Unit housed in separate buildings ; cost for this new project was approximately Rs. 22 million. This new project for the first time had facilitated to produce wirebars with special grade metal for supplying to cable manufacturers under separate commitments to Government of India.
New Industrial Licence No. L/IB(1)/N-4/59 dated 10th November, 1959, received from the Government of India. Also confirmed that the new unit was formed not by splitting up or by reconstruction of the existing unit. Also submitted that the buildings or machinery used for the new unit were absolutely new and not used previously. Also confirmed that the new project was financed by additional capital.
Alupuram Extrusion (Alupuram) :
Completed in 1961 Previous plant capacity 1,500 tons per annum. New plant capacity 3,700 tons per annum.
Further land acquired and a new building constructed to house the new Extrusion Press. The project cost came to about Rs. 7.3 million and is capable of producing large and heavy extruded sections, which the old unit could not do.
New Industrial Licence No. L/IB(2)/N-44/59 dated November 10, 1959, was obtained from the Government of India for producing another 2,500 tonnes per annum of Extrusions.
Confirmed that the new unit was not formed by splitting up or by reconstruction of the existing unit. Also submitted that the building or machinery used for the new unit were absolutely new and not used previously. Also confirmed that the new project was financed by additional capital.
[ENTITY] Alumina Plant ([ENTITY] No. II) :
Completed in 1961 capacity of previous plant 18,000 tons per annum ; capacity of "new plant 36,000 tons per annum. Consequent upon the newly added smelter units at [ENTITY] a new section at the Alupuram Plant had to be added to meet the increased alumina requirements of the new smelter. Under this new project, new digestors, autoclaves, turbo alternators and boilers, etc., were further installed. This new section was to operate on double digestion process as against the single digestion process under the existing facilities. The entire project cost was about Rs. 28 million.
Confirmation that the new unit was not formed by splitting up or by reconstruction of the existing unit was filed. The buildings or machinery for the unit were all new. The new unit was financed by additional capital.
BEWR-II Industrial Licence No. L/IB(C)/H-44/50, dated 10th November, 1950, was received from the Gov't. of India for the production of another 1,500 tonnes per annum of fabricated products at Belur. For giving effect to this increased production a new 4 feet high mill was installed at a separate building. The cost of these facilities amounted to approximately Rs. 38 million.
Initial capacity was for 9,000 tonnes per annum. Also confirmed that the new unit was not formed by splitting up or by reconstruction of the existing unit. Also submitted that the buildings or machinery used for the new unit were absolutely new and not used previously. Also confirmed financed by additional capital.
4. From the above facts and in view of the Calcutta High Court decision in this very case ([PRECEDENT] , the Tribunal upheld the Appellate Assistant Commissioner's action in granting relief under [SECTION]"
4. In the aforesaid view of the matter and in view of the ratio of the decision of the Supreme Court in the case of CIT v. Indian Aluminium Co.
Ltd. , the question must be answered in the affirmative and in favour of the assessee.
5. So far as questions Nos, 2, 3 and 4 are concerned, it would be instructive to refer to the facts as found by the Tribunal. The Tribunal observed, inter alia, as follows :
"9. Since we have to consider the chargeability to tax, we have by necessity to see sections. [SECTION] brings to charge any income which is received or deemed to be received or which is accrued or arises or is deemed to accrue or arise in India or outside India. Taking up the question of receipt first on a consideration of the evidence before us it is not possible to hold that any income is received in India. The agreement with the non-resident company had provided for the payment of the fees at Canada. Clause 4(e) provides for such payments in Canada. Clause 4(d) also makes it clear that the payment would be made at Montreal. We have also enquired about the modus operandi of the payment. It appears that on the permission for transfer of the amounts being sanctioned by the Reserve Bank of India, the assessee purchases a demand draft from the bank and sends it by post to Montreal. In the absence of anything in the agreement to show that the Canadian company has asked for the payment to be sent by post, the post office cannot be treated as the agent of the non-resident company. We, therefore, come to the conclusion that there is no receipt of the fees in India.
10. The next point to be considered is whether anything has arisen or accrued to the non-resident in India. Now, the agreement makes it clear that the technical information and know-how would be provided to the Indian company on payment of the fees. The technical know-how and the information required are with the non-resident in Canada. The learned counsel for the assessee, in the course of the hearing, had given us a few examples of the type of services done by the non-resident. From the examples given, it would appear that whenever the assessee-company has some problems, the problems are stated in a concise manner and sent to Canada. The Canadian company finds out the solution to these problems. It would, therefore, appear that the service has actually been done by the non-resident company in Canada itself. They have not sent their expert to India. Neither is their know-how applied under their guidance when such service, are done. It has been held that the income arises only at the place where the service is done. The Bombay High Court in the case of [PRECEDENT], had considered the service done by a commission agent under similar circumstances and had held that since every item of the services were rendered in non-taxable territories (Saurashtra), the income accrued outside the taxable territories.
11. We also find that the agreement providing for the services were not entered into between the two companies at Montreal in Canada. Therefore, the ratio of the cases like [PRECEDENT] and [PRECEDENT], would not apply and no income accrues on the basis of the situs of the contract. There is also one other point to be considered before we finally decide about the accrual of income. The facts as given by the assessees show that the problems are sent to the Canadian company and the Canadian company pursuant to the agreement gives its solution. Now, unless the solution or the know-how is received by the Indian company in India, there is really no service at all rendered. Merely the solution of the problems in Canada does not help the assessee unless it is also duly conveyed to India and is received by the Indian company. If it is the outlook of the Indian company to receive the information from Canada then there is no difficulty. The services are really rendered outside India. But if it is the duty of the Canadian company to see that the information are received by the Indian company in India then perhaps further consideration would arise. Prima facie on a reading of Clause (1) of the agreement it would appear that it is the duty of the Canadian company in procuring and forwarding such information and advice as required by the Indian company. It may be that if the Canadian company has the duty of forwarding information to India it could be reasonably inferred that their part of the contract would be fulfilled only when the Indian company received the information in India. In such case again it may be possible that the post office would be acting as an agent of the Canadian company conveying the information to the Indian company. In a well-known case, [PRECEDENT], the Supreme Court considered the post office as an agent when moneys were being remitted by post. If sufficient materials are available it may be possible to stress the ratio to cover the cases of information being sent by post. However, we do not have any material on this point excepting Clause (1) of the agreement- It appears to us that this is hardly sufficient to give a finding on this point. We will, therefore, hold that there is no material that the services were rendered in India through the post office as an agent."
6. In view of the facts found by the Tribunal and the nature of the agreement, the place of receipt under the agreement, the nature of the transaction and the place of the transaction, we are of the opinion, that the Tribunal in the background of well-settled principles of law has arrived at the correct conclusion on these three questions, viz., questions Nos. 2, 3 & 4 and, therefore, we are of the opinion, that all these three questions must be answered in the affirmative and in favour of the assessee.
7. Next question, viz., question No. 5 challenges the rinding of fact as to whether the assessee was entitled to depreciation on roads, fences, and culverts within the factory compound at the rate applicable to first class factory building for the assessment years 1966-67 to 1969-70. In view of the decision of this court in the case of the present assessee, [PRECEDENT], this question must also be answered in the affirmative and in favour of the assessee.
8. So far as questions Nos. 6 & 7 are concerned, which have been referred at the instance of the assessee that they are inter-connected. In this connection reference may be made to the observations of the Tribunal at paras. 5 to 12 of the order of the Tribunal and in that background the Tribunal further observed, inter alia, as follows :
"16. We agree with the Appellate Assistant Commissioner's view in the matter that the several decisions relied upon by the assessee's counsel to prove that relief should be extended to various forms of aluminium sold in forms acceptable to different classes of customers cannot be further extended to the production of pigments made out of alumina. Here the assessee has resorted to a definite and sophisticated process of manufacturing pigments out of alumina and we cannot say that the pigment so made retains the essential character of aluminium in its primary form. We, therefore, agree with the Appellate Assistant Commissioner in the matter and hold that the assessee is not entitled to higher development rebate in respect of its machinery and plant at Kalwa or to relief under [SECTION] [SECTION] in respect of the production of pigments made out of alumina."
9. In view of the specific finding of the Tribunal that the assessee had resorted to a definite and sophisticated process of manufacturing pigment out of alumina and the finding that the pigment was made by the assessee had not retained its essential character of aluminium in its primary form and in the background of that finding as also in the light of the findings and observations of this court in the case of the assessee, viz. [PRECEDENT], where this was the specific question and which considered the previous decision of the court, viz., the decision in the case of [PRECEDENT], it is not possible to accept the contention of the assessee. On behalf of the assessee, however, learned advocate drew our attention to [SECTION] to the [ACT], and contended that in the background of the purpose for which [SECTION][SECTION] were intended, [SECTION] should be construed so as to entitle the assessee to grant relief. In our opinion, this argument cannot be accepted because [SECTION] being a residual item, if anything suggests to the contrary, where this is a specific item granting relief in respect of some of the items. Reliance was placed on certain observations of the Division Bench of the Gujarat High Court in the case of [PRECEDENT], where the Division Bench of the Gujarat High Court was construing "snuff" in connection with the expression "[ACT]" in respect of [SECTION] to the [ACT], in [SECTION], [SECTION] The context in which and the background in which the Division Bench of the Gujarat High Court had to construe the specific item, in our opinion, were different from the facts of the instant case. Furthermore, as we have mentioned before, the Division Bench of this court, as indicated before, was concerned with the identical question. Following the ratio of the said Division Bench decision of this court, we must answer both the questions, viz., questions Nos. 6 & 7, in the affirmative and in favour of the Revenue.
10. Next question that requires consideration is No. 8, that is to say, whether the assessee was entitled to depreciation on the storage tanks and, if so, at what rate. The Tribunal accepted the position that the assessee was entitled to depreciation on the storage tanks being part of the plant and machinery at the rate of 7 per cent. as provided in [SECTION] of the [ACT]. But the assessee was contending that the storage tanks being part of the aluminium factory it was entitled to a special rebate at 10 per cent. under the said Schedule. The Tribunal on this aspect observed as follows :
"In our opinion, the storage tanks can only be allowed depreciation at the rate applicable to general machinery and plant and not to the specialised plant and machinery on which 10% is given as they do not form part of specialised plant and machinery in the factory. We decide this point against the assessee. For the assessment years 1968-69 and 1969-70 also, our decision on this issue is the same as above."
11. It is true that normally a storage tank has nothing special about it and would be entitled to depreciation, as contended for by learned advocate for the Revenue, as plant and machinery at the rate of 7 per cent. But certain plant and machinery which are otherwise or normally treated as plant and machinery, if they are part of particular types of factories, as mentioned in the special rates which are dealt with in [SECTION] under Head-A : Aluminium factories are entitled to special rebate at 10 per cent. Learned advocate for the Revenue contended that the expressions, "machinery", "plant" and "factory", were different. That is true. But, at the same time, a machinery which is a plant and which forms an integral part of the factory would be entitled, in view of the scheme of the Pt. I, Appx. I, to the [ACT], to certain special rates. Indeed, the reference to the remarks column of the said Pt. I of Schedule I to the [ACT], does manifest that the special rate specified would be adopted at the option of the assessee for even electrical machinery, air conditioning machinery, locomotive, rolling stock, railways, railway weighing machines, calculating machines, type-writers, etc., if used in certain particular types of factories. It is indisputable that water storage tank was used in the aluminium factory. Therefore, if it is a plant in the aluminium factory then, in our opinion, when this has been treated separately, the assessee was right in contending that this storage tank was entitled to depreciation at the special rate at 10 per cent. Therefore, in that view of the matter, we are of the opinion that question No. 3 should be answered by saying that the Tribunal was not justified in limiting the depreciation on the storage tanks at 7 per cent. to which the assessee was entitled at 10 per cent. This question is accordingly answered in favour of the assessee.
12. Now remains the last question, that is to say, whether the Tribunal was justified in holding in law that the sum of Rs. 55,546 was assessable as income for the assessment year 1968-69. It appears that the assessee received insurance moneys for cargo loss during the 1965 hostilities between India and Pakistan. The cargo was insured. In this connection, the assessee received the insurance money which was offered for taxation as income by the assessee. The assessee, however, received a further additional sum of Rs. 55,546 on account of devaluation of the rupee. The question then arises whether this additional sum of Rs. 55,546 which the assessee received as a result of devaluation of currency in which the insurance claim was paid was assessable to tax. There is no dispute that the amount was received in respect of the stock-in-trade. The cargo was a stock-in-trade. Now, the nature of the receipt of the insurance money would be clear from the observations of the Court of Appeal in England in the case of [PRECEDENT], where dealing with this aspect, Lord [ENTITY] observed at pp. 378-379 of the decision as follows:
"Messrs. Gliksten & Son Ltd. were traders in timber ; it was their business to buy and sell timber, and it was a part of their business ancillary, perhaps to take steps to insure their trade from the mischances which can be insured against, such as perils of the sea and perils of the land. They had a certain amount of fixed capital in their business, and they had a certain amount of circulating capital employed in the purchase of stock, which is enhanced again when the stock is sold. A part of that circulating capital was invested in timber. That timber might have been sold in the ordinary course of market as a matter of fact, instead of being actually sold it was burnt. Under a contract of indemnity, properly entered into for the purpose of safeguarding the possibilities of business in relation to it, a sum has been received in respect of the timber. That is once more a restoration to the actual circulating capital of a sum which had previously been invested in specie in timber. We have got to take the actual sum received which has been received in the ordinary course of business, plus the ordinary safeguards of business in the events which have happened. As Mr. Justice [ENTITY] says :
'It seems to me that the respondents must account for this timber that has been destroyed by fire ; they have received the money from the insurance company in place of it the fact is that the respondents' business is to buy, hold and sell timber, and it is part of their business to insure timber while they have it, in order that if the timber is destroyed they may have the insurance money instead of the timber and, in my judgment, they must treat that money in the same way as they would have treated the timber, namely, as an item in their trading account.' Those are the words of Mr. Justice [ENTITY]. It appears to me that they are right and, therefore, that the appeal fails."
13. As a matter of fact, the receipt of insurance money has been treated in those circumstances as taxable income. See in this connection the observations of the Supreme Court in the case of [PRECEDENT]. On behalf of the asscssee reliance was, however, placed on the observations of the Supreme Court in the case of [PRECEDENT] . There the Supreme Court held that the appreciation of money did not arise in the course of any trading operation. There the amount being Rs. 3,97,221 was originally stock-in-trade, when it was blocked and sterilised and the bank was unable to deal with that amount and then the court found that it had ceased to be stock-in-trade and as such the increase in the value was capital receipt. But in the instant case the insurance money was paid as price of the cargo which was the stock-in-trade which was lost. The loss might be the act of a sovereign State or of any hostility. But the net effect was the deprivation of the stock-in-trade and in order to cover this danger of the deprivation of the stock-in-trade that the insurance policy was taken out and in settlement of those dues the payment of money was received. Indeed this principle would also receive support from the observations of the Supremo Court in the case of [PRECEDENT] . In this connection reliance may be placed on the observations of the Division Bench of the Madras High Court in the case of [PRECEDENT] . As it was contended by learned advocate for the assessee before us that the views of the Division Bench of the Madras High Court ran counter to the observations of the Supreme Court in the case of [PRECEDENT] , it would not be inappropriate to refer to the observations of Mr. Justice [ENTITY] at pp. 909, 910, of the report dealing with the identical contention as follows:
"However, the learned counsel for the assessee relies strongly on a decision of the Supreme Court in [PRECEDENT] . In that case, the assessee, a bank, opened a branch in Karachi. There was devaluation of the Indian rupee on September 18, 1949. The bank had a sum of Rs. 3,97,221 at the Karachi branch belonging to its head office. Pakistan did not devalue its currency. The bank did not also carry on any business in foreign currency even after it was so permitted to do. There was a finding by the Appellate Tribunal that the money had been lying idle in the Karachi branch and had not been utilised in any banking operation even within Pakistan. The State Bank of Pakistan, which corresponds to the Reserve Bank of India, granted permission for remittance on July 1, 1953, and two days later the bank remitted the amount to India. In view of the difference in values of the currencies, a sum of Rs. 1,73,817 was received in excess, and the attempt of the income-tax authorities was to tax this amount as profit. It was held that even assuming that the amount held in Pakistan was originally stock-in-trade, when it was blocked and sterilised and the bank was unable to deal with it, it ceased to be its stock-in-trade and the increase in its value owing to exchange fluctuation was a capital receipt. After discussing the facts and assigning reasons for coming to the conclusion, the Supreme Court noticed certain decisions cited before it and at the end of the judgment, observed (p. 333 of 63 ITR):
'The question of law arising in the present case must be decided on the particular facts and circumstances found by the Appellate Tribunal.' The facts found were, that the amount could not be dealt with by the assessee, that the assessee was not a dealer in exchange and that the amount had been blocked and sterilised. Further, in this case, there was no loss of the money. The same fund became available to the assessee after the restriction was removed. There is no such sterilisation or blocking here, to apply the same principle.
There is one particular aspect to be borne in mind in these days of increasing international trade. The devaluation was a rare event in earlier days after the [ACT]. But, in these days, devaluation or revaluation in currencies is a matter of every day event in many currencies of the world. Except with reference to absolutely capital payments or receipts, the surplus or the deficiency as a result of the devaluation or revaluation on trading transactions cannot b.ut be on revenue account. Any other conclusion would result in trading profits being left out of assessment."
14. We are in respectful agreement with the aforesaid view. In that view of the matter we are of the opinion that the Tribunal was right in coming to the conclusion that the sum in question was assessable as income. The question No. 9 is, therefore, answered in the affirmative and in favour of the Revenue.
15. In the facts and circumstances of the case the parties will pay and bear their own costs.
[ENTITY], J.
16. I agree.