SARASWATI INDUSTRIAL SYNDICATE LTD. VS COMMISSIONER OF INCOME-TAX
1999 P T D 3804
[237 I T R 1]
[Supreme Court of India]
Present: S. P. Bharucha, S. S. Mohammed Quadri and R. C. Lahoti, JJ
SARASWATI INDUSTRIAL SYNDICATE LTD.
Versus
COMMISSIONER OF INCOME-TAX
C. A's: Nos. 1804 to 1806 of 1981 with C. As. Nos.4975 to 4978 of 1993 and 5671 of 1985, decided on 10/03/1999.
(Civil Appeals Nos. 1804 to 1806 of 1981 were from the judgment and order, dated April 21, 1981 of the Punjab and Haryana High Court in I.T.Rs. Nos. 130, 98 and 100 of 1976).
(Civil Appeals Nos.4975 to 4978 of 1993 were from the judgments and orders, dated November 17, 1988 and September 19, 1989 of the Punjab and Haryana High Court in I.T.Rs. Nos. 114 and 157 of 1979 and 23 and 24 of 1984).
(Civil Appeal No.5671 of 1985 was from the judgment and order, dated March 4, 1985 of the Punjab and Haryana High Court in I.T.R. No.96 of 1984).
(a) Income-tax---
----Depreciation---Rate of depreciation---Higher rate in case of machinery coming into contact with corrosive chemicals---Effect of Item III0i)B(7) of Para. III of Part I of Appendix I to Income Tax Rules---Sufficient if what passes through machinery contains corrosive chemicals---Sugar manufacture---Mixing of cane juice with chemicals---Matter reminded to find out if such a mixture could be regarded as corrosive---Indian Income Tax Act, 1961, S.32---Indian Income Tax Rules, 1962, Appendix I, Part I. Para. III, Item III(ii)B(7).
(b) Income-tax---
----Reference---Powers of High Court---High Court not entitled to make statements on technical matters for which there is no material on record-- Indian Income Tax Act, 1961, S.256.
(c) Income-tax---
----Income-tax Officer---Powers of I.T.O.---Income-tax Officer not entitled to make statements on technical matters for which there is no material on record---Indian Income Tax Act, 1961.
(d) Income-tax---
----Appeal to Supreme Court---Intervention application---Intervention is only for addressing arguments---Order cannot be passed in favour of intervenor-- Indian Income Tax Act, 1961---[CIT v. Saraswati Industrial Syndicate Ltd. (1982) 136 ITR 758; CIT v. Saraswati Industrial Syndicate Ltd. (No.1) (1989) 178 ITR 171; CIT v. Saraswati Industrial Syndicate Ltd. (No.3) (1989) 178 ITR 419 and Saraswati Industrial Syndicate Ltd. v. CIT (1990) 183 ITR 120 reversed].
The assessee claimed depreciation at the higher rate of 15, per cent on machinery it used in the manufacture of sugar. The Income-tax Officer rejected the claim. He declined to consider the expert opinion on the ground that the assessee was unable to produce the expert for cross-examination. He referred to the meaning of the word "chemical" and concluded that cane juice was not something which was obtained through a chemical process nor was it used for chemical effect. He held that the contention of the assessee that, during the manufacture of sugar, the juice was treated with corrosive chemical like sulphuric and phosphoric acid, which had corrosive effect on the sugar machinery, could not be given any importance as the quantity used was small and it was not those acids which came into contact with the machinery. They formed a very small part and their use was confined to a particular stage. It was the cane juice which was the main substance that came into contact with the machinery. The Appellate Assistant Commissioner dismissed the assessee's appeal. The Tribunal held, that the corrosive chemicals contemplated in the said entry were not only free chemicals but also .non-free chemicals provided they were corrosive in effect so far as metals are concerned. It allowed the assessee's' appeal. The High Court disagreed with the Tribunal for the reason that, according to it, lime and sulphuric acid were mixed with the sugarcane juice to filter and purify the juice but, by their mixture, the juice itself was not converted into a chemical. On appeal:
Held, that neither the Income-tax Officer nor the High Court were entitled to make statements on technical matters for which no basis had been laid on the record by either the Revenue or the assessee. If the High Court was of the view that further material was required, the appropriate course .was to require the Tribunal to take further evidence and draw up a supplementary statement of case. This apart, there appeared to be some misunderstanding of what the said entry is intended to convey. Depreciation at a higher rate is allowed to machinery that comes into contact with corrosive chemicals. Corrosive chemicals corrode the machinery. They erode and, by reason of such erosion, the life of the machinery is truncated. To compensate, depreciation is allowed at a higher rate. It is not intended that the machinery must come into contact with a pure corrosive chemical. It is enough that what passes through the machinery contains chemicals which are corrosive and which, therefore, have the effect of wearing it down. In the instant case, with this understanding of the said entry. in mind, the Tribunal should take further evidence, giving both the assessee and the Revenue the opportunity of producing it, and, based thereon, should decide whether the machinery for which the assessee claimed depreciation at the higher rate was entitled to it. It should then draw up a supplemental statement of case and the matter should be reheard by the High Court having regard to what was found by the Tribunal and to this judgment.
By the Court: "The only purpose of granting an intervention application is to entitle the intervenor to address arguments in support of one or the other side. Having heard the arguments, we have decided in the assessee's favour. The intervenors may take advantage of that order".
CIT v. Saraswati Industrial Syndicate Ltd. (1982) 136 ITR 758; CIT v . Saraswati Industrial Syndicate Ltd. ( No.1) (1989) 178 ITR 171; CIT.Saraswati Industrial Syndicate Ltd. (No.3) (1989) 178 ITR 419; Saraswati Industrial Syndicate Ltd. . CIT (1990) 183 ITR 120 reversed.
G. C. Sharma Senior Advocate (R.K. Ragavan, S. Chaudhary. B. V Desai and S. K. Agarwal, Advocates with him) for Appellant.
Ranbir Chandra, Rajiv Nanda, C.V.S. Rao and B. K. Prasad, Advocates (S.K. Gambhir, Advocate (NP)) for Respondent.
JUDGMENT
S. P. BHARUCHA, J.---Under appeals are the judgments and orders of the Division Benches of the Punjab and Haryana High Court (see (1982) 136 ITR 758). The assessment years involved are the assessment years 1970-71 to 1977-78s The High Court answered in the negative and in favour of the Revenue the following question (page 760):
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the words 'corrosive chemicals' employed in entry (ii)B(7) of Para. III of Part I of Appendix I to the Income Tax Rules, 1962, contemplates not only free chemicals but also non-free chemicals of corrosive effect?"
The assesee is in appeal.
The assessee manufactures, among other things, sugar. It claimed depreciation at the higher rate of 15 per cent on machinery it used in the manufacture of sugar, which was detailed in a statement placed before the Income-tax Officer. It did so having regard to item III(ii)B(7) of Para. III of Parts I of Appendix I to the Income Tax Rules, 1962, which reads thus:
| "Machinery and plant coming into rate of depreciation contact with corrosive chemicals.15 per cent." |
The assessee filed in support of its case the opinion of an expert. The Income-tax Officer rejected the assessee's claim of higher depreciation at the rate of 15 per cent. on such machinery. He declined to consider the expert opinion on the ground that the assessee was unable to produce the expert for cross-examination. He referred to the meaning of the word "chemical" and concluded that cane juice was not something which was obtained through a chemical process nor was it used for chemical effect. The contention of the assessee that during the manufacture of sugar, the juice was treated with corrosive chemicals like sulphuric and phosphoric acid, which had corrosive effect on the sugar machinery, could not be given any importance as the quantity used was quite small and it was not those acids which came into contact with the machinery . They formed a very small part and their use was confined to a particular stage. It was the cane juice which was the main substance that came into contact with the machinery. The Appellate Assistant Commissioner dismissed the assessee's appeal. His view was that depreciation was allowable at the higher rate on such plant and machinery in which chemicals with high corrosive potential were used for manufacturing purposes and the manufacture of sugar did not fall in such category.
The Income-tax Appellate Tribunal disagreed. It noted that the only criticism directed against the statement which had been tendered by the assessee before the Income-tax Officer was that it included machinery the came in contact, not with corrosive chemicals, but with cane juice and molasses, which were not corrosive chemicals but, at best, corrosive materials. The Tribunal found no force in this criticism for the reason that the corrosive chemicals contemplated in the said entry were not only free chemicals but also non-free chemicals provided they were corrosive in effect so far as metals are concerned.
Out of the order of the Tribunal the, question, quoted above, was referred to the High Court. The High Court disagreed with the Tribunal for the reason that, according to it, lime and sulphuric acid were mixed with the sugarcane juice to filter and purify the juice but, by their mixture, the juice itself was not converted into a chemical. Reference was made to the dictionary meaning of the word "chemical" and it was said that it was obvious therefrom that sugarcane juice could not be covered by the term simply because some acid has been mixed with it for its filtration. The acid and the lime were mixed in the sugarcane juice for the purpose of its filtration and once the chemical reaction had been caused, most of its effect. was lost. Whatever remained settled down alongwith the sediments, at the bottom. Thereafter, the filtered sugarcane juice which came into contact with the machinery before it was converted into crystallised sugar could not be said to be a corrosive chemical.
We can understand that the authorities, declined to rely upon the expert's opinion because he was not produced for cross-examination. But neither the Income-tax Officer nor, indeed, the High Court were entitled to make statements on technical matters for which no basis had been laid on the record by either the Revenue or the assessee. If the High Court was of the view that further material was required, the appropriate course was to require the Tribunal to take further evidence and draw up a supplemental statement of case.
This apart, there appears to be some misunderstanding of what the said entry is intended to convey. Depreciation at a higher rate is allowed to machinery that comes into contact with corrosive chemicals. Corrosive chemicals corrode the machinery. They erode and, by reason of such erosion, the life of the machinery is truncated. To compensate, depreciation is allowed at a higher rate. It is not intended that the machinery must come into contact with a pure corrosive chemical. It is enough that what passes through the machinery contains chemicals which are corrosive and which, therefore, have the effect of wearing it down.
In the instant case, with this understanding of the said entry in mind, the Tribunal shall take further evidence, giving both the assessee and the Revenue the opportunity of producing it, and, based thereon shall decide whether the machinery for which the assessee claims depreciation at the higher rate is entitled to it. It shall then draw up a supplemental statement of case and the matter shall be reheard by the High Court, having regard to what is found by the Tribunal and to this judgment.
The appeals are allowed. The judgments and orders under appeal are set aside. The matters are remanded to the Tribunal to be proceeded with as set out hereinabove.
This order shall also govern Appeal No.5671 of 1985 where reference of the question of law aforementioned was declined. Even in this matter the Tribunal shall conduct a further enquiry as indicated above and draw up a supplemental statement of case and it shall then refer, the question aforementioned to the High Court.
No order as to costs
Learned counsel for the intervenors submits that he is entitled to the same order as we have just passed. We cannot pass such an order in an intervention application. The only purpose of granting an intervention application is to entitle the intervenor to address arguments in support of one or the other side. Having heard the arguments, we have decided in the assessee's favour. The intervenors may take advantage of that order.
Order on the intervention application accordingly.
M.B.A./4187/FC Order accordingly