COMMISSIONER OF INCOME-TAX VS ABDULKARIM STONE CONTRACTOR, 1999 PTD-RAJASTHAN-HIGH-COURT-INDIA 298 (1996)

Income-tax---

----Depreciation---Dumpers---Assessee deriving income from owning mines, extracting stones and selling them---I.T.O. allowing depreciation at 40 per cent. on dumpers ---Commissioner under 5.263 allowing depreciation on dumpers at 30 per cent. as dumpers not road transport vehicles-- Commissioner also rejecting claim of assessee for extra depreciation on ground that claim put forward for first time before CIT---Item originally considered falling in a particular entry for purpose of depreciation-- Subsequently, Department coming to conclusion that item falls within a different entry---Consequential benefit, even if not claimed by assessee, has to be given by I.T.O.---Tribunal justified in directing I.T.O. to allow extra depreciation on dumpers---Indian Income Tax, Act, 1961, Ss.32(1) (ii-a), 32-A & 263.

The assessee derived income from owning of mines, extracting stones and selling them. The assessee claimed before the Income-tax Officer depreciation on the dumpers owned by it. The Income-tax Officer treated the dumpers as road transport vehicles and allowed depreciation at the rate of 40 per cent. The Commissioner of Income-tax, in exercise of the powers under section 263 of the Income Tax Act, 1961, held that dumpers were vehicular mechanism specially equipped with a tilting device for unloading, that for computing depreciation for dumpers, the relevant provision was item No.8 or 9 of Table III of Part I of Appendix I to the Income Tax Rules, 1962, that the assessee was not using the dumpers in the business of running them for hire and that, therefore, the assessee was entitled to depreciation only at 30 per cent on the dumpers. The assessee contended before the Commissioner of Income-tax that dumpers were used to remove the over-burden in the mining area from one point to another and, therefore, it was entitled to extra depreciation and investment allowance under sections 32(1)(ii-a) and 32-A, respectively of the Act. The Commissioner of Income-tax rejected the contention of the assessee on the ground that such a claim was never made before the Income-tax Officer. On appeal, the Tribunal found that dumpers could not be equated with road transport vehicles and the assessee was entitled to revise its claim before the Commissioner of Income-tax. The Tribunal directed the Income-tax Officer to consider the claim of the assessee for extra-depreciation and investment allowance. On a reference:

Held, that the relief of extra depreciation under section 32(1)(ii)(a) was not initially claimed as the contention of the assessee that dumpers are road transport vehicles was accepted by the Assessing Authority. Since in the revisional jurisdiction under section 263 it was conceded that the dumpers were not vehicles but were earth moving machinery, then the deductions which were available under the Act could be validly claimed by the assessee including the extra depreciation. If an item is considered for the purpose of depreciation, etc., falling in a particular entry by the Assessing Authority and subsequently, the Commissioner of Income-tax finds that the item did not fall in that entry but falls under a different entry then the consequential benefit, even if not claimed, had to be given by the Income-tax Officer. There was no occasion for the assesses to have claimed the deduction alternatively when his first contention was duly accepted. The claim of investment allowance had not been pressed and was not legally permissible because before claiming the deduction it was necessary for the assessee create a reserve of 75 per cent. in accordance with the provisions of section 32-A. Therefore, the Tribunal was justified in directing the Income tax Officer to allow extra depreciation on dumpers.

Bolani Ores Ltd. v. State of Orissa AIR 1975 SC 17; Central Coal Fields Ltd. v. State of Orissa AIR 1992 SC 1371; CIT v. Indian Rare Earth Ltd. (1990) 181 ITR 22 (Bom.); CIT v. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC); CIT v. Rangnath Bangur (1984) 149 ITR 487 (Raj.); CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC) and Union of India v. Chowgule & Co. (Pvt.) Ltd. AIR 1992 SC 1376 ref.

G.S. Bapna for the Commissioner. R.C. Jain for the Assessees.

JUDGMENT

V.K. SINGHAL, J.---The Income-tax Appellate Tribunal, has referred the following question of law arising out of its order, dated February 26, 1986, in respect of the assessment years 1982-83 and 1983-84 of Abdul Karim Stone Contractor and for 1982-83 in the case of Raj. Flooring Stone Co. and Agarwal Flooring Stone Co. Kota:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Income-tax Officer to allow extra depreciation and investment allowance for dumpers which claim had not been put up by the assesses before the Income-tax Officer but was for' the first time taken by them before the Commissioner of Income-tax in proceedings under section 263 of the Income Tax Act?"

All the three matters are being disposed of by this common order as the question involved is common.

The dispute in the present matter relates to the claim for depreciation on dumpers owned by the assessees. They derived income from owing of mines, extracting stones and selling them. The Income-tax Officer treated the dumpers as road vehicles and allowed depreciation at the rate of 40 percent. The Commissioner of Income-tax invoked the powers under section 263 as he was of the opinion that the dumpers are vehicular mechanism specially equipped, with a tilting device for unloading. For computing depreciation allowance in case of the assessee, the relevant provision was found under item No.8 or 9 of Table 11 of Part I of Appendix-I to the Income Tax Rules and 30 percent depreciation was applicable. It was contended by the assessee before the Commissioner of Income-tax that dumpers are used to remove the overburden in the mining area from one point to another and, therefore, they were entitled to initial depreciation and investment allowance under sections 32(l)(ii-a) and 32-A of the Income Tax Act. The contention of the assessee was rejected on the ground that such a claim was never made before the Income-tax Officer.

Against the order of the Commissioner of Income-tax, an appeal was preferred before the Income-tax Appellate Tribunal wherein it was pressed that the depreciation allowance should be given on new machinery under section 32(l)(ii-a). According to the Tribunal, since the Commissioner of Income-tax has found that dumpers cannot be equated with road transport vehicles, the assessee was entitled to revise the claim particularly when the matter was taken up before the Commissioner of Income-tax.

Before us learned counsel for the assessee could not satisfy so far as the clam for investment allowance is concerned. No benefit can be given for that. In the proceedings under section 263 before the Commissioner of Income-tax the assessee conceded that the dumpers are earthmoving machinery and, therefore, depreciation should be given as allowance to mining machinery under section 32(1)(ii-a) and section 32-A since they were new and purchased during the year. This request was turned down on the ground that the claim was not initially made and the Income-tax Officer was directed to allow depreciation allowance at the rate of 30 percent on dumpers as mining machinery. Before the Tribunal it was pleaded that the dumpers being mining machinery, the assessee should have been permitted to revise his claim. The Income-tax Officer was directed to consider the claim for extra-depreciation and investment allowance.

It is not in dispute that the dumpers were purchased during the year and were new. The question arises whether the extra-depreciation can be allowed when it was not claimed in the return submitted by the assessee. The matter hinges on the point whether the assessee is entitled to claim deduction in the proceedings under section 263 when it was not claimed in the return. Reliance has been placed on the decision of this Court in the case of CIT v. Rangnath Bangur (1984) 149 ITR 487, wherein it was observed that once a reassessment proceeding is initiated, the original order of assessment is set aside or ceases to be operative, the finality of such an assessment order is wiped out and a fresh order of assessment would take the place of and completely substitute the initial order of assessment. It is, therefore, clear that when reassessment proceedings are taken, the former assessment is completely wiped out and the entire assessment is reopened, and the total income of the assessee is determined afresh.

Reliance has also been placed on the case of CIT v. Indian Rare Earth Ltd. (1990) 181 ITR 22 (Bom. (FB), wherein it was observed that the assessing authority has jurisdiction to complete the entire assessment de novo and in reassessment proceedings assessee is entitled to make a claim for deduction even though such claim was not made during the course of the original assessment proceedings. Items Nos.8 and 9 of Table III-D of the Appendix I of the Income Tax Rules is as under:

"(8)Mines and quarries. ---Portable underground machinery and earthmoving machinery used in open cash mining (N.E.S.A.).

(9)Motor buses and motor lorries other than those used in a business of running them on hire (N.E.S.A.)"

The assessee claimed depreciation at 40 percent. under item No. l-A of Table 3-E which is as under:

"(1-A) Motor buses, motor lorries and motor taxis used in a business running them on hire (N. E. S. A)."

While interpreting the above entries it was found by the Commissioner of Income-tax that dumpers did not fall in the category of motor vehicles and the assessee was not using the dumpers in the business of running them for hire. The dumpers cannot be equated with road transport vehicles. It was on the basis of this finding given by the Commissioner of Income-tax that it was found that 40 percent. depreciation allowance was not allowable, but it was allowable only at 30 percent. It is also an admitted fact that in the original return filed by the assessee or even before the completion of assessment no claim at all was made for extra-depreciation. The Commissioner of Income-tax also found that besides not making the claim, the reserve of 75 percent was also not made and, therefore, the investment allowance in respect of the dumpers cannot be allowed.

In Bolani Ores Ltd. v. State of Orissa, AIR 1975 SC 17, the provisions of the Motor Vehicles Act, 1939, and subsequent amendments by the Motor Vehicles Amendment Act, 1956, were taken into consideration. It was considered that before the amendment a motor vehicle, though a motor vehicle within the meaning of the first part of the definition, is none the less not so because of the specific user, i.e., if it is used solely upon the premises of the owner. After amendment in 1956, though a motor vehicle may be adapted for use upon roads, none the less in order to be taken out of the category of the definition it had to be further adapted, namely, it should be a vehicle of a special type adapted for use only it a factory or in any other enclosed premises. The dumpers and rockers were held motor vehicles. Subsequently, in Central Coal Fields Ltd. v. State of Orissa, AIR 1992 SC 1371, it was observed that the mere fact that dumpers are required at places to run at a particular speed is not to detract from the position otherwise clear that they are adapted for use on roads. The very nature of these vehicles makes it clear that they are not manufactured or adapted for use only in factories or enclosed premises. The mere fact that the dumpers or rockers are heavy and cannot move on the roads without damaging them, is not to say that they are not suitable for use on roads. In Union of India v. Chowgule & Co. (Pvt.) Ltd., AIR 1992 SC 1376, it was observed that the mere fact that dumpers are used solely on the premises of the owner, or that they were in closed premises, or permission of the authorities was needed to move them from one place to another, or that they are not intended to be used or are incapable of being used for general purposes, or that they have an unladen and laden capacity depending on their weight and size, is of no consequence, when it was not pleaded that they are vehicles of a special type adapted for use only in a factory or in any other enclosed premises.

By the Motor Vehicles Act, 1988, the definition of "motor vehicle" has been changed from that provided under the Motor Vehicles Act, 1939, and the words " or a vehicle of a special type adapted for use only in a factory 'or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding thirty five cubic centimeters" were added in clause (28) of section 2 of the said Act. The question whether the dumpers fall within the category of motor vehicle or mining machinery is not in dispute and, therefore, the matter is not being further considered.

The question is that if an item is considered falling in a particular entry for the purpose of depreciation or investment allowance, etc., and subsequently, the Department comes to the conclusion that it falls within a different entry, in such a situation whether it can be said that the assessee has not initially claimed the depreciation or investment allowance while submitting the return and, therefore, he is disentitled to claim and the power under section 263 has been exercised by the Commissioner of Income-tax according to which the order passed by the Income-tax Officer was prejudicial to the interests of. the Revenue. For whatever reasons a direction; has been given that the assessee is entitled to claim depreciation: at the rate of 30 percent and not 40 percent. and the claim for depreciation and !Investment allowance could have been raised before the Commissioner of Income-tax who could have directed the assessing authority to take into consideration the claim so made on the basis of evidence on record. In the case of CIT v. Sun Engineering Works (Pvt.) Ltd. (1992) 198 ITR 297 (SC), in the matter of proceedings under section 147, it was held by the apex Court that the Income-tax Officer may bring to charge items of income which had escaped assessment other than or in addition to the item or items which led to the issuance of a notice under section 148 and where reassessment is made under section 147, in respect of income which had escaped tax, the Income-tax Officer's jurisdiction is confined only to such income which has escaped tax or has been under assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the under assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject-matter of, proceedings under section 147. An assessee cannot resist reassessment proceedings validly initiated under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2).

The provisions of section 263 confer power of revision on the Commissioner and the order could be passed subject to the condition that the Commissioner is satisfied that the order passed by the assessing authority is erroneous in so far as it is prejudicial to the interests of the Revenue arid such an order may be passed after giving the assessee an opportunity if being heard and after making or causing to be made such inquiry as he deems necessary. In the matter of CIT v. Mahaiakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC), the powers of the Tribunal were considered with reference to the words "as it thinks fit: used in section 33(4) of the Indian Income-tax Act, 1922, and it was observed by the apex Court that there is nothing to the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of facts, which relate to the assessment of the assessee may be raised before the Tribunal. If for reason recorded by the departmental Authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him.

In the present matter the relief of extra-depreciation under section 32(1)(ii)(a) was not initially claimed as the contention of the assessee that the dumpers are vehicles was accepted by the assessee authority. In the revisional jurisdiction under section 263 it was conceded that the dumpers are not vehicles and are machinery then the deductions which were available under the Act could be validly claimed by the assessee including the 0tfial depreciation. If an item is considered for the purpose of depreciation, etc., as falling in a particular entry by the assessing authority and subsequently the Commissioner Income-tax finds that the item does not fall in that entry but falls under a different entry then the consequential benefit even if not claimed, has to be given by the Income-tax Officer. There was no occasion for the assessee to have claimed the deduction alternatively when his first contention was duly accepted. The claim of investment allowance has not been pressed and was not legally permissible because before claiming the deduction it was necessary for the assessee to create a reserve of 75 percent. in accordance with the provisions of section 32-A. In our opinion, therefore, the Income-tax Appellate Tribunal was justified in directing the Income-tax Officer to allow extra-depreciation and investment allowance for dumpers which claim had not been put up by the assessee, before the Income-tax Officer but was for the first time taken by them before the Commissioner of Income-tax in proceedings under section 263 of the Income-tax Act.

Consequently, the reference is answered in favour of the assessee and against the Revenue. No order as to costs.

M.B.A./1798/FCReference answered.