http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: COMMISSIONER OF INCOME TAX MADRAS

       Vs.

RESPONDENT: SOUTHERN ROADWAYS (P) LTD.

DATE OF JUDGMENT28/11/1974

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. KHANNA, HANS RAJ

CITATION:  1975 AIR  481            1975 SCR  (2) 881  1975 SCC  (3) 435

ACT: Income-tax  Act 1922-Section 10(2)(vi-b) Proviso-Income  Tax Act 1961, Section 33(1)(a)-Development rebate-Diesel Engines after  they  are  fitted  to  trucks  whether  retain  their character as machinery.

HEADNOTE: The  respondent is engaged in transport business and owns  a fleet  of lorries and buses.  The respondent  purchased  new diesel engines and fitted them in the vehicles.  He  claimed development  rebate  on  the price  of  the  diesel  engines purchased  in  respect of the assessment years  1961-62  and 1962-63.   For  the accounting year relevant  to  assessment year 1961-62 the Income Tax Act, 1922 was applicable and for the accounting year relevant to 1962-63 the Income Tax  Act, 1961  was applicable.  The Income Tax Officer  rejected  the claim  for development rebate in respect of both the  years. The Appellate Asstt.  Commissioner confirmed the decision of the  Income Tax Officer.  In respect of the assessment  year 1961-62. the Tribunal allowed the claim of the assessee  for development  rebate.   The Tribunal, however,  rejected  the claim  made  by the asses-see in respect of  the  assessment year 1962-63.  The High Court decided both the references in favour  of  the assessee, on the ground that  the  case  was covered  by  the judgment of this Court in the case  of  Mir Mohammad. HELD  : Section 10(2) as in force in the year 1950 when  the case of Mir Mohammad was decided has undergone change and at the  relevant  time  the section clearly  provided  that  no allowance will be made in respect of any machinery or  plant which  consists  of  office  appliances  or  road  transport vehicles. [883D-E; 884C-D] FURTHER HELD: The contention of the assessee that the diesel engines  retained their character as machinery  though  they were  fitted to the transport vehicles was negatived on  the ground that development rebate is allowed on machinery  used for  the purpose of business carried on by the assessee  and in  he present case the diesel engines were not used by  the assessee  for his business.  It is the vehicles  which  were used for the purposes of the business.  In section 33 of the 1961  Act, road transport vehicles are expressly taken  away from  the  operation  of the section.  The  High  Court  was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

therefore,  in error in answering the question in favour  of the assessee. [884D-F]

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  211  and 212 of    1970. Appeal by Special Leave from the Judgment & Order dated the 4th  September, 1967 of the Madras High Court in  Tax  Cases Nos. 155 and 156 of 1965. T.   A. Ramachandran and S. P. Nayar, for the appellant. S.   Swaminathan and S. Gopalakrishnan, for the respondent. The Judgment of the Court was delivered by GUPTA,  J.  These two appeals by special leave arise out  of two references, one under sec. 66(1) of the Income-Tax  Act, 1922, and the other under sec. 256(1) of the Income-Tax Act, 1961.   The  two appeals relate respectively  to  assessment years 1961-62 and 1962-63.  The assesses in both cases is  a private  limited company, engaged in transport business  and owns  a  fleet of lorries and buses.  In  both  appeals  the appellant  is  the  Commissioner  of  Income-Tax  (Central), Madras.  In 882 respect of the assessment year 1961-62, the Tribunal allowed the claim of the assessee for development rebate on the  new diesel  engines installed by the assessee in  its  vehicles. The  Tribunal however dismissed a similar claim made by  the assessee in the assessment year 1962-63 when the  Income-Tax Act, 1961 had come into force.  Two questions were  referred to  the  High Court, one in each of these  two  cases;  both questions  involve  similar query though  they-  are  framed somewhat  differently because of the contrary decisions  out of  which the references arise.  In Civil Appeal No. 211  of 1970  which  relates  to the  assessment  year  1961-62  the question referred under sec. 66(1) is               "Whether on the facts and in the circumstances               of the case, the Tribunal was right in law  in               holding  that  the assessee  was  entitled  to               claim development rebate on new diesel engines               fitted to vehicles." The question in Civil Appeal No. 212 of 1970 referred  under sec.  256  (1) of the Income-Tax Act, 1961, relates  to  the assessment year 1962-63 and reads :               "Whether on the facts and in the circumstances               of the case, the Tribunal was right in holding               that  development rebate was not allowable  on               the  new  diesel  engines  installed  on  road               transport vehicles." During  the  accounting period ending with March  31,  1961, relevant to the assessment year 1961-62, the assessee fitted 11   new  diesel  engines  to  its  vehicles   and   claimed development  rebate  of  Rs. 23,740/- on  the  cost  of  the engines.  The Income-Tax Officer disallowed the claim and on appeal by the assessee the Appellate Assistant  Commissioner affirmed  the order of the Income-tax Officer.   On  further appeal to the Tribunal by the assessee, the Tribunal allowed the claim for development rebate on the view that new diesel engines fitted to vehicles were "machinery installed" within the  meaning of sec.. 10 (2) (vi-b) of the  Income-Tax  Act, 1922. The  assessee  fitted  new  diesel engines  to  two  of  its transport  vehicles during the accounting year  ending  with March 31, 1952, relevant to the assessment year 1962-63, and claimed  development  rebate of Rs. 3,144/ on  the  cost  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

these engines.  The Income-tax Officer disallowed this claim and  his  order  was affirmed  by  the  Appellate  Assistant Commissioner on appeal.  The Tribunal in this case held that a  diesel  engine  by itself might be  machinery  but,  when fitted  to a road transport vehicle, it became part  of  the vehicle  and  the question of development rebate had  to  be considered  in  such a case in regard to  the  larger  unit, namely,  the road transport vehicle on which no  development rebate  was admissible under see. 33 of the Income-Tax  Act, 1961.   On  this  view  the  Tribunal  affirmed  the   order disallowing the claim. The High Court answered the question referred to it in  each case  in  favour  of the assessee and disposed  of  the  two references in identical language.  The Judgment of the  High Court in both cases reads as follows 883               "This reference is covered by the Judgment  of               the  Supreme Court in Commissioner of  Income-               Tax  v.  Mir Mohammad (53 1. T. R.  165).   In               view  of  this the reference  is  answered  in               favour of the assessee.  No costs." In  Mir  Mohammad’s case on which the High Court  based  its decisions the assessee, a bus-owner and transport  operator, replaced  the petrol engines in two of his  buses  incurring expenditure  in that connection during the year  of  account ending with March 31, 1950, relevant to the assessment  year 1950-51.   This  Court  by a majority  held  that  the  same meaning ought to be given to the word "machinery" in all the clauses, namely, clauses (iv), (v), (vi) and (vi-a) of  sec. 10(2)  of the Income-Tax Act, 1922 as then in force, that  a diesel engine was clearly machinery, and that when an engine was  fixed in a vehicle it was installed within the  meaning of  the expression in clauses (vi) and (vi-a) of sec.  10(2) as  it  then stood.  This Court accordingly  held  that  the assessee  was entitled to the extra depreciation  allowances under the second paragraph of clause (vi) and clause  (vi-a) of sec. 10(2) as in force at the relevant time. Sec.  10(2) as in force on April 1, 1950 which governed  Mir Mohammad’s  case is not quite the same as the section as  it stood on April 1, 1961 which is the law to be considered  in Civil Appeal No. 211 of 1970 which relates to the assessment year 1961-62.  The section has undergone several changes  in the  meantime.  Clause (vi-b) which governs the case of  the assessee as regards the assessment year 1961-62 was inserted in sec. 10(2) with effect from April 1, 1955 and that clause as originally introduced was again substituted by a new  one in 1958.  The provisions of sec. 10 of Income-Tax Act,  1922 applicable  to the assessee’s claim in the  assessment  bear 1961-62 are as, follows               "10.   BUSINESS.-(1) The tax shall be  payable               by  an  assessee under the head  "Profits  and               gains of business, profession or vocation"  in               respect  of  the  profits  or  gains  of   any               business, profession or vocation carried on by               him.               (2)   Such profits or gains shall be  computed               after making the following allowances, namely               (vi-b)  in respect of a new ship acquired  or               new  machinery  or plant installed  after  the               31st day of March, 1954, which is wholly  used               for the purposes of the business carried on by               the  assessee,  a sum by  way  of  development               rebate  in respect of the year of  acquisition               of  the  ship or of the  installation  of  the               machinery or plant, equivalent to,-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

             (i)  xx          xx           xx               (ii)  in  the  case  of  machinery  or   plant               installed  before the 1st day of April,  1961,               twenty-five  per  cent,  and in  the  case  of               machinery  or plant installed after  the  31st               day  of  March, 1961, twenty per cent  of  the               actual  cost of the machinery or plant to  the               assessee:               884  Explanation 1. x    xx  Explanation 2. x    xx               Provided  that no allowance under this  clause               shall be. made unless-               (a)x x x x x (b) x x x x x               Provided further that no allowance under  this               clause  shall  be  made  in  respect  of   any               machinery  or plant which consists  of  office               appliances or road transport vehicles.               x x x x x". Clause  (vi-b) allowing development rebate on the cost of  a new ship acquired or new machinery or plant installed  after March 31,  1954, as already stated, was not in sec. 10(2) as applied to Mir Mohammad’s case.  It is of course possible to argue  on  the  authority of Mir Mohammad’s  case  that  the diesel  engines fitted by the assessee to its vehicles  were machinery  "installed" within the meaning of  clause  (vi-b) but the second proviso to the clause says that "no allowance under this clause shall be made in respect of any  machinery or  plant  which  consists  of  office  appliances  or  road transport  vehicles".   In view  of this proviso  which  was inserted  in  the clause with effect from April 1,  1960  no development  rebate  could  be claimed in  respect  of  road transport vehicles in the assessment year 1961-62.   Counsel for the assessee contended that the diesel engines in regard to which development rebate had been claimed retained  their character  as  machinery  though they  were  fitted  to  the transport vehicles and accordingly, the argument  proceeded, the  proviso taking away the right to development rebate  in respect  of road transport vehicles had no application.   We do  not consider the argument sound.  Clause  (vi-b)  allows development  rebate  in respect of new  machinery  or  plant which was used for the purpose of the business carried on by the  assessee.   In  this case it is not  claimed  that  the diesel  engines  as such were used by the assessee  for  its business; admittedly the vehicles in which the engines  were fixed  were  what the assessee used for the purpose  of  its business.  Clearly therefore the proviso is attracted to bar the  claim  for development rebate in  the  assessment  year 1961-62. As  regards  the  assessment  year  1962-63  the  claim  for development rebate was made under sec. 33 of the  Income-Tax Act,  1961.  This section so far as it is relevant  for  the present purpose is as follows               "33.  (1) (a) In respect of a new ship or  new               machinery   or   plant  (other   than   office               appliances  or road transport vehicles)  which               is  owned by the assessee and is  wholly  used               for the purposes of the business carried on by               him,  there  shall,  in  accordance  with  and               subject to the provisions of this section  and               of  section  34,  be allowed  a  deduction  in               respect of the previous year in which the ship               was  acquired  or the machinery or  plant  was               installed or, if the ship, machinery or plant-               is  first  put  to  use  in  the  immediately,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

             succeeding previous year, than, in respect  of               that   previous   year,  a  sum  by   way   of               development rebate as specified in clause (b). 885 Here,  the  provision  allowing  development  rebate  itself leaves  out  office appliances and road  transport  vehicles from  its  scope.  Sec. 33 of the lncome-Tax  Act,  1961  is materially different from the provision of law on which  the decision  in Mir Mohammad’s case was based.  The High  Court was  therefore in error in answering the questions  referred to it in these cases in favour of the assessee. In the result both these appeals are allowed and the answers given by the High Court to the questions referred to it  are discharged.  In Civil Appeal No. 211 of 1970 the question is answered  in the negative and in favour of the Revenue.   In Civil Appeal No. 212 of 1970 the question is answered in the affirmative  and  in favour of the Revenue.   The  appellant will be entitled to his costs in this Court and in the  High Court; one hearing free. Appeals allowed.. P.H.P. 886