Income-tax---

----Depreciation---Condition precedent---User of machinery----Assessee purchasing on 31-3-1990 structural for body building of trucks---Some welding work done on 30-3-1990---No evidence produced for purchase of diesel oil for trucks to show vehicles actually used---Construction of body building of trucks not completed and trucks not ready for use before 31-3-1990---Assessee not entitled to depreciation on trucks in accounting year---Indian Income Tax Act, 1961, S.32.

The assessee claimed depreciation under section, 32 of the Income Tax Act, 1961, in respect of two new trucks. The Income-tax Officer found, on an examination of the accounts, that the assessee purchased on March 31, 1990, structurals which were used for body building of the trucks. The Assessing Officer further found that the assessee had-got some welding work done on March 30, 1990. The Assessing Officer came to the conclusion that the assessee would not have got the trucks in complete form after body building and the same could not be put to use that the assessee failed to produce any evidence for the purchase of diesel for the trucks to show that the vehicles were actually used and that, therefore, the trucks were not in use and were not ready for use before March 31,1990. The Assessing Officer, therefore, disallowed the claim of the assessee for depreciation in respect of the trucks. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. But the Tribunal allowed the claim of the assessee for depreciation. On a reference:

Held, reversing the decision of the Tribunal, that the basic concept underlying the allowance of depreciation is that it should result, as a consequence of the machinery being actually used or employed, in the earning of income. Therefore, since both the trucks were not used in the accounting year or part thereof, the assessee was not entitled to depreciation on the trucks.

CIT v. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319 (MP) fol.

CIT v. Suhrid Geigy Ltd. (1982) 133 ITR 884 (Guj.); CIT v. Vayiihri Plantations Ltd.(1981) 128 ITR 675 (Mad.); Niranjan Lal Ram Chandra v. CIT (1963) 49 ITR 177 (All.) and Liquidators of Pursa Ltd. v. CIT (1954) 25 ITR 265 (SC) ref.

V. K. Tankha for the Commissioner.

Nemo for the Assessee.

JUDGMENT

A. K. MATHUR, C. J.----This is a reference under section 256(1) of the, Income Tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer by this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee was entitled to depreciation under section 32 of the Income Tax Act, 1961?"

The assessee is a registered firm which continued to derive income from contract work with Bhilai Steel Plant. The return filed on October 31,1990, declaring an income of Rs.3,59,800 was revised on March 27,1991, declaring the same income of Rs.3,59,800. The reason for filing the revised return was claimed to include the filing of T.D.S. certificates which were left to be included in the original return. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed depreciation in respect of new trucks bearing Nos. N.P. 24-A-2154 and M.R. 24-A-2144. An examination of the accounts and other documents revealed that the assessee purchased propolated and structurals from Sun Flat Iron and Steel Co., Raipur, vide their Bill No.1263, dated March 31,1990, which were used for body building of the trucks in question. The Assessing Officer noticed that the assessee got some welding work done from Deep Welding Works, Raipur, vide their Bill No.126, dated March 30,1990. The Assessing Officer came to the conclusion that the assessee would not have got the trucks in complete form after body building and the same could not be put to use. It was also observed that the assessee failed to produce any evidence for the purchase of diesel for the trucks to show that the vehicles were actually used. The Assessing Officer concluded that the trucks were not in use and were not ready for use before March 31, 1990, and that the construction of body building of the trucks was not completed. The Assessing Officer after making assessment under section 143(3) of the Act on March 30, 1992, disallowed the assessee's claim to depreciation in respect of the above two trucks. Aggrieved by this finding of disallowance of depreciation, the assessee preferred an appeal and the appellate authority confirmed the order of the Assessing Officer and dismissed the appeal. The assessee then approached the Tribunal and the Tribunal by order, dated May 3, 1995, accepted the assessee's claim for depreciation and allowed the appeal. Hence, the Revenue approached the Tribunal for referring the aforesaid question of law for answer by this Court and, accordingly, the Tribunal has referred the same to this Court

Learned counsel for the Revenue submitted that though the Tribunal has relied on two decisions, one of the Allahabad High Court in the case of Niranjan Lal Ram Chandra v. CIT (1963) 49 ITR 177 and the other of the Madras High Court in the case of CIT v. Vayithri Plantations Ltd. (1981) 128 ITR 675, but there is a direct decision of this Court to the case of CIT v. Jiwali Rao Sugar Co. Ltd. (1969) 71 ITR 319 wherein a view has been taken by this Court that if any machinery has not actually been put to use, then the depreciation will not be available. It may be relevant to mention here that the basic decision of the Supreme Court is in the case of Liquidators of Pursa Ltd. v. CIT (1954) 25 IR 265. This question came up for consideration before the Allahabad High Court, Madras High Court and the Bombay High Court as well as before this Court. The Allahabad, Madras and Bombay High Courts distinguished this case and observed that their Lordships had not explained what is the meaning of the words "used for the purposes of the business". As against this, the High Court of Madhya Pradesh in the case of CIT v. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319, has considered the ratio of this judgment and concluded that if the machinery remained ready for use but has not been actually used, then the depreciation would not be available. In the case of Liquidators of Pursa Ltd. (1954) 25 ITR 265 (SC), their Lordships observed as under (headnote):

"The words 'used ' for the purposes of the business' in section 10(2)(vi) of the Indian Income-tax Act, 1922, mean used for the purpose of enabling the owner to carry on the business and earn profits in the business. In other words the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under section 10(1).

In order to attract the operation of clauses (v), (vi) and (vii) of section 10(2) the machinery and plant must be such as were used, in whatever sense that word is taken, 'at least for a part of theate accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under clause (vii) in respect of them and the second proviso to that clause also does not come into operation."

Thus, their Lordships have taken the view that machinery and plant should be actually put to use in the course of. business activity for profits and gains in any accounting year, or at least for a part of the accounting year. This has been interpreted by the Allahabad High Court in the case of Niranjan Lal Ram Chandra (1963) 49 ITR 177, that the Supreme Court has left the question as to what is meant by the word "used'. Incidentally, it may be relevant to mention here that section 10(2) of the Indian Income-tax.4%:t, 1922, is almost in pari materia to section'32 of the Income Tax Act, 1961.Their Lordships of the Allahabad High Court took the view that the machinery in that case was not used at all during the accounting year and, therefore, section 10(2) was held .to be inapplicable. It was pointed out that there must have been many occasions for working the machinery. and plant for the purposes of the business during the accounting year and if still they were not worked they could be said not to have been used during the year. It was also pointed out that intervals between the Government of the accounting year and their sale was so short that it is quiet likely that they were not required during it to be driven on hire and if there had been ho occasion for their being driven on hire and consequently they were not driven on hire, though they were available for the purpose, it cannot be said that they were not used for the purposes of the business. Their Lordships decided the matter more on the question of fact and distinguished the decision of the Supreme Court. With great respect, the view taken is not good law.

In the case of CIT v. Vayithri Plantations Ltd. (1981) 128 ITR 675 (Mad.) their Lordships had occasion to consider the Supreme Court case of Liquidators of Pursa Ltd. (1954) 25 ITR 265 and after noticing that case, their Lordships observed that the Word "used" has been read in some of the pool cases in a wide sense so as to include a passive as well as active user. It was observed by their Lordships that the Supreme' Court did not express any opinion on the correctness or otherwise of the decision in what are called the "pool cases". It was observed that it would be necessary, however, to bear in mind that the statutory expression cannot vary in its meaning and content' with the cases belonging to the pooling category and with others. The expression would have to be construed in a uniform sense so as to be applicable to all cases. Their Lordships considered the decision given by this Court is the case of CIT v. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319. This Court in the case of CIT v. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319 considered the Supreme Court case and observed as under.

"In our opinion, the basic concept underlying this allowance is that depreciation should result as a consequence of the machinery being actually used .or employed in the earning of income. That being so, it is not material whether or not the machinery is kept ready for use so long as it is not actually used in the earning of income. That being our view, we are unable to accept that wider interpretation of the word 'used' as given in the Bombay and Patna cases."

Their Lordships followed the decision given in the case of Liquidators of Pursa Ltd. (1954) 25 ITR 265 (SC) and observed that the words "used for the purposes of the business" obviously mean to carry on the business and earn profits in the business. It was observed that in other words, the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under section 10(1) of the Act.

Our attention was also invited to the decision of the Gujarat High Court in the case of CIT v. Suhrid Geigy Ltd. (1982) 133 ITR 884 wherein it was observed that merely because the machinery had already been installed, it could not be said that the building was used by the assessee for the purpose of its business at a point of time when the machines had not become functional. It was held that the Tribunal was not justified in holding that the building was used for the purpose of business for more than 30 days in the accounting year relevant to the assessment year 1965-66 and was not entitled to depreciation in the said assessment year and thereby depreciation was declined.

A survey of the above cases goes to show that there had been different opinions of the High Court of Madras, Allahabad and Bombay on the one hand and the High Courts of Madhya Pradesh and Gujarat on the other, on the same basic case of Liquidators of Pursa Ltd. (1954) 25 ITR 265 (SC). Since this Court has taken one view in the matter and that view has remained in force since 1966 and appears to be more in consonance with the scheme of the Act, therefore, we are of the opinion that the view taken by this Court should be upheld and the finding of the Tribunal is not correct. We hold that since both the trucks in question were not used in the accounting year or part therefore, no depreciation allowance would be applicable to the assessee in the present case.

Hence, the question is answered in favour of the Revenue and against the assessee.

M.B.A./3206/FCReference answered.