Dewas Textiles Mills vs Commissioner of Income Tax

Sohani, J.—By this reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") the Income Tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to depreciation on the plant and machineries at 15% as per entry III-B(3) of Appendix I, Part I, of the Income Tax Rules ?"

The material facts giving rise to this reference, briefly, are as follows :

While framing assessment for the assessment year 1976-77, the Income Tax Officer disallowed the claim of the assessee for depreciation no plant and machinery used for manufacturing artificial silk at the rate of 15%, as provided by entry III-B(3) in Appendix I, Part I of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules"). On appeal, the Commissioner of Income Tax (Appeals) upheld the order passed by the Income Tax Officer. On further appeal before the Tribunal, the Tribunal held that entry III-B(3) of Part I of Appendix I of the Rules was applicable in cases of manufacture of machinery meant for manufacturing artificial silk and not in the case of manufacture of artificial silk or synthetics. The Tribunal, therefore, dismissed the appeal in that behalf. Aggrieved by the order passed by the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid question of law has been referred to this court for its opinion.

Having heard learned counsel for the parties, we have come to the conclusion that this reference has to be answered in the negative and in favour of the assessee. Section 32(2) of the Act provides for depreciation at such percentage as is prescribed by the Rules. Rule 5 of the Rules lays down that depreciation shall be calculated at the percentages specified in the second column of the table in Part I of Appendix I to the Rules, entry III-B(3) of that table provides for the special rate prescribed in the case of artificial silk manufacturing machinery and plant except wooden parts. That entry cannot be construed to mean that it is applicable in the case of manufacture of the machinery meant for manufacturing artificial silk. The Tribunal, therefore, was not right in holding that the assessee was not entitled to depreciation on the plant and machinery at 15%, vide entry, III-B(3) in Part I of Appendix I to the Rules.

Our answer to the question referred to this court is, therefore, in the negative and in favour of the assessee. No order as to costs.