G.N.A. Enterprises (P.) Ltd. vs Commissioner of Income Tax

Ashok Bhan, J.—This judgment shall dispose of two IT Case Nos. 35 and 49 of 1987 filed u/s 256(2) of the income tax Act, 1961 (''the Act''). Assessee in both the cases is the same. In IT Case No. 35 of 1987, mandamus sought is for issuance of a direction to the Tribunal, Amritsar, to refer the following two questions of law stated to be arising out of the order of the Tribunal:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that machinery in the form of diesel engine, transformer, electric switchgears and air circuit breaker valuing Rs. 3,04,748 was not machine tool automatic, semi-automatic entitled to depreciation at the rate of 15 percent within the meanings of item No. III(B)(8) of Appendix I to rule 5 of the income tax Rules but was General Machinery entitled to 10 percent?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in sustaining the view that extra shift allowance on transformer, electric switchgears and air circuit breaker valuing Rs. 1,87,374 was not allowable in view of sub-part 3 (Special-rates) of Annexure I to rule 5 as Electric Machinery as mentioned in Sr. No. 1 and not special machinery as per Part III(B)(8) and C(4) of Appendix I to rule 5 of the income tax Rules?

In IT Case No. 49 of 1987, only one question, i.e., question No. 1 is sought to be referred to this Court for its opinion. Facts in both the cases are common. Counsel for the parties referred to the facts in IT Case No. 35 of 1987. Assessee is a private limited company. It derives income from the manufacture and sale of axles, joint cross and share of firms. Previous year relevant to the assessment year 1981-82 ended on 31-3-1981. Return for the assessment year 1981-82 declaring income of Rs. 19,32,870 on the turnover of Rs. 3,89,01,958 was filed by the assessee. During the year under reference, the assessee-company made addition in machinery valuing Rs. 14,70,132. Assessee claimed depreciation at the rate of 15 percent on the entire machinery (old as well as new) treating it as automatic and semi-automatic under the head ''Machine Tools'' as provided under rule 5 read with Appendix I Entry III(B)(8) of the income tax Rules, 1962.

IAC (Assessment) allowed depreciation at the rate of 15 percent on the entire machinery including new additions except machinery worth Rs. 3,04,748.96 which was not considered as machine tools. This part of the machinery was treated as general machinery and allowed depreciation at the rate of 10 percent. Further extra shift allowance was not allowed by treating the alleged general machinery as electric machine.

Being aggrieved by the order of IAC (Assessment), assessee filed an appeal before the Commissioner (Appeals) Jalandhar who upheld the finding of the IAC (Assessment) treating the new machinery worth Rs. 3,04,748.96 as general machinery and allowed depreciation as the rate of 10 percent. Commissioner (Appeals) sustained the disallowance of extra shift allowance treating the same as electric machinery. Contention of the assessee that the said machinery was integral part of the machinery and extra shift allowance should be allowed to the concern as a whole was rejected. Commissioner (Appeals) allowed the investment allowance by treating the said machinery as integral part of the whole machinery.

Being aggrieved by the aforesaid order of Commissioner (Appeal), the assessee filed an appeal before the Tribunal Amritsar Bench, Amritsar, which was dismissed thereby confirming the order of Commissioner (Appeal). Assessee did not accept the order of the Tribunal and filed an application u/s 256(1) of the Act raising three questions of law. Question No. 2 was given up during the course of arguments, therefore, no reference is being made to the said question. Assessee has claimed the two questions of law reproduced in the earlier part of the judgment. Tribunal rejected the application u/s 256(1) by observing that on the reading of the relevant entries the answer to the question was self-evident and no purpose would be served by referring the same to this Court for its opinion. Aggrieved against the aforesaid order, assessee has filed the present petition u/s 256(2) of the Act seeking a mandamus to the Tribunal for making a reference of the aforesaid question of law for the opinion of this Court.

There is no authority of this Court or of the Supreme Court interpreting the relevant entries. Question as to whether certain goods fall within a particular entry or not is a question of law. The prayer for reference could not be declined by the Tribunal on the ground that Tribunal had correctly interpreted the law unless the matter was directly covered by some decision of this Court or of the Supreme Court. We, therefore, direct the Tribunal to refer the following two questions of law along with the statement of case in IT Case No. 35 of 1987:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that machinery in the form of diesel engine, transformer, electric switchgears and air circuit breaker valuing Rs. 3,04,748 was not machine tool automatic, semi-automatic entitled to Depreciation (a) 15 percent within the meanings of item No. III(B)(8) of Appendix I to rule 5 of income tax Rules but was General Machinery entitled to 10 percent?

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in sustaining the view that extra shift allowance on transformer, electric switchgears and air circuit breaker valuing Rs. 1,87,374 was not allowable in view of sub-part 3 (Special rates) of Annexure I to rule 5 as Electric Machinery as mentioned in Sr. No. 1 and not special machinery as per part III(B)(8) and C(4) of Appendix I to rule 5 of the income tax Rules?

and the following question of law in IT Case No. 49 of 1987 for the opinion of this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that machinery in the form of Diesel Engine, Transformer and Generator, etc., valuing Rs. 10,42,634 was not machine tools Automatic, Semi-automatic, entitled to depreciation at the rate of 15 percent within the meaning of item III(B)(8) of Appendix I to rule 5 of income tax Rules but was electric machinery entitled to depreciation at the rate of 10 percent?