Case: Commissioner of Income Tax, Madras Vs. M/s. Southern Roadways Private Limited

1. These two appeals by special leave arise out of two references, one under Section 66 (1) of theAct, 1922, and the other under Section 256 (1) ofx Act, 1961. The two appeals relate respectively to assessment years,3. The assessee in both cases is a private limited company, engaged in transport business and owns a fleet of lorries and buses. In both appeals the appellant is the Commissioner of(Central), Madras. In respect of the assessment yearthe Tribunal allowed the claim of the assessee for development rebate on the new diesel engines installed by the assessee in its vehicles. The Tribunal however dismissed a similar claim made by the assessee in the assessment year 196263 when the Income Tax Act, 1961 had come into force. Two questions were referred to the High Court, one in each of these two cases, both questions involve similar query though they are framed somewhat differently because of the contrary decisions out of which the references arise. In Civil Appeal No. 211 of 1970 which relates to the assessment yearthe question referred underer on the facts and in the circumstances of the case, the Tribunal was right in law in holding that tine assessee was entitled to claim development rebate on new diesel engines fitted toquestion Civil Appeal No. 212 of 1970 referred under Section 256 (1) of the Income Tax Act, 1961, relates to the assessment yearer on the facts and in the circumstances of the case, the Tribunal was right in holding that development rebate was not allowable on the new diesel engines installed on road transportthe accounting period ending with March 31, 1961, relevant to the assessment yearthe assessee fitted 11 new diesel engines to its vehicles and claimed development rebate of RS. 23,740/on the cost of the engines. TheOfficer disallowed the claim and on appeal by the assessee the Appellate Assistant Commissioner affirmed the order of theOfficer. On further appeal to the Tribunal by the assessee, the Tribunal allowed the claim for development rebate on the view that new diesel engines fitted to vehicles were "machinery installed" within the meaning of Sec. 10 (2)Tax Act, 1922.2. The assessee fitted new diesel engines to two of its transport vehicles during the accounting year ending with March 31, 1962, relevant to the assessment yearand claimed development rebate of Rupees 3,144/on the cost of these engines. TheOfficer disallowed this claim and, his order was affirmed by the Appellate Assistant Commissioner on appeal. The Tribunal in this case held that a diesel engine by itself might be machinery but, when fitted to a road transport vehicle, it became part of the vehicle and the question of development rebate had to be considered in such a case in regard to the larger unit, namely, the road transport vehicle on which no development rebate was admissible under Section 33 of theAct, 1961. On this view the Tribunal affirmed the order disallowing the claim.3. The High Court answered the question referred to it in each case in favour of the assessee and disposed of the two references in identical language. The Judgment of the High Court in both cases reads asreference is covered by the Judgment of the Supreme Court in Commr. ofv. Mir Mohammad (53 I. T. R. 165) c (AIR 1964 SC 1693 ). In view of this the reference is answered in favour of the assessee No costs."

Reasoning: In Mir Mohammads case on which the High Court based its decisions, the assessee, aand transport operator, replaced the petrol engine in two of his buses incurring expenditure in that connection during the year of account ending with March 31, 1950, relevant to the assessment yearThis Court by a majority held that the same meaning ought to be given to the word "machinery" in all the clauses, namely, clauses (iv), (v), (vi) andof Section 10 (2) of theAct, 1922 as then in force, that a diesel engine was clearly machinery, and that when an engine was fixed in a vehicle it was installed within the meaning of the expression in clauses (vi) andof Section 10 (2) as it then stood.This Court accordingly held that the assessee was entitled to the extra depreciation allowances under the second paragraph of cl.. (vi) and clauseof Section 10 (2) as in force at the relevant time.4. Section 10 (2) as in force on April 1, 1950 which governed Mir Mohammads case is not quite the same as the section as it stood on April 1, 1961 which is the law to be considered in Civil Appeal No. 211 of 1970 which relates to the assessment YearThe section had undergone several changes in the meantime. Clausewhich governs the case of the assessee as regards the assessment yearwas inserted in Sec. 10 (2) with effect from April 1,1955 and that clause as originally introduced was again substituted by a new one in) allowing development rebate on the cost of a new ship acquired or new machinery or plant installed after March 31, 1954, as already stated, was not in S. 10 (2) as applied to Mir Mohammads case. It is of course possible to argue on the authority of Mir Mohammads case that the diesel engines fitted by the assessee to its vehicles were machinery " installed" within the meaning of clause.but the second proviso to the clause says that "no allowance under this clause shall be made in respect of any machinery or plant which consists of office appliances or road transport vehicles." In view of this proviso which was inserted in the clause with effect from April. 1960, no development rebate could be claimed in respect of road transport vehicles in the assessment yearCounsel for the assessee contended that the diesel engines in regard to which development rebate had been claimed retained their character as machinery though they were fitted to the transport vehicles and accordingly, the argument proceeded, the proviso taking away the right to development rebate in respect of road transport vehicles had no application. We do not consider the argument sound.ClauseHere the provision allowing development rebate itself leaves out office appliances and road transport vehicles from its scope. Sec. 33 of theAct, 1961 is materially different from the provision of law on which the decision in Mir Mohammads case was based. The High Court was therefore in error in answering the questions referred to it in these cases in favour of the assessee.