Case ID: 1817

Judgment:
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 66A(2) 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. 18	544/in this connection. Before the Income Tax Officer	 apart from claiming normal depreciation under the first Paragraph of cl. (vi) of section 10(2)	 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 10(2) (vi) or section 10(2)(via) 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 10(2)(via) 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 10(2)(vi) and section 10(2)(via) 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 i.e.	 in favour of the assessee. The Commissioner of Income Tax	 on obtaining a certificate under section 66A(2) 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 10(2) Such profits or gains shall be computed after making the following allowances	 namely (iv)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	 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; (vi)in 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; (vii)in 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 Pradesh(1)	 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	 Madras(2)	 the High Court arrived at the conclusion by the following steps: (a)Machinery must be given the same meaning with reference to each of the statutory provisions	 in section 10(2)(vi) and section 10(2)(via); (b) A diesel engine is machinery by the test laid down in the case of Corporation of Calcutta vs Chairman	 Cossipore and Chitpore Municipality(3); (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 10(2). 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 10(5). 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 10(5) 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 Municipality(1) 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 Ltd.(1) 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) Ltd.(2)	 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 10(2)(vi) 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)	 (vi)(a) 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 (vi)(a) 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 Municipality(1) when it was called upon to consider whether a tank supported on (1) L. R. 48 I.A. 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 10(2)(vi) 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 10(2)(vi) 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 10(2)(vi). 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. 18	544/ 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 10(2) 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 10(2)(vi). or section 10(2)(via) 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 10(2)(vi). and 10(2) (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. (ii)The definition of "machinery" given by the Privy Council in the case of Corporation of Calcutta vs Chairman	 Cossipore and Chitpore Municipality (1922) L.R. 48 I.A. 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).