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PETITIONER: M/S.SARASWATI INDUSTRIAL SYNDICATE LTD.,YAMUNANAGAR,HARYANA

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME TAX, HARYANA, ROHTAK

DATE OF JUDGMENT:       10/03/1999

BENCH: R C Lahoti, S P Bharucha, Syed Shah Mohammed Quadri

JUDGMENT:

Bharucha, J.

     Under  appeal are the judgments and orders of Division Benches  of  the  Punjab  and   Haryana  High  Court.    The assessment  years  involved are Assessment Years 1970-71  to 1977-78.   The  High Court answered in the negative  and  in favour of the Revenue the following question :

     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   assessee   is   in    appeal.    The    assessee manufacturers,  among  other  things,   sugar.   It  claimed depreciation  at the higher rate of 15% 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 3(ii)B(7) of Para III of Part  I  of Appendix I to the Income Tax Rules, 1962, which reads thus : Machinery  and  plant coming rate of depreciation 15%  into contact with corrosive chemicals.

     The  assessee filed in support of its case the opinion of  an  expert.   The  Income   Tax  Officer  rejected   the assessees  claim of higher depreciation at the rate of  15% 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 assessees appeal.  His view  was that depreciation was allowable at the higher rate

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on  such  plant and machinery in which chemicals  with  high corrosive  potentials  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 that 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  along  with 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 experts 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 re-heard by the High Court, having regard to  what

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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.5671/85  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 assessees favour.  The intervenors may take advantage of that order.

     Order on the intervention application accordingly.