COMMISSIONER OF INCOME TAX Vs. J H KHARAWALA

JUDGEMENT

(1.) AT the instance of the Revenue, the Tribunal has referred the following question to this Court under s. 256(1) of the IT Act, 1961 :

(2.) THIS reference relates to the asst. yr. 1976-77. During the accounting period which ended on 31st March, 1976, the assessee installed new machinery of the value of Rs. 3,42,248. During the assessment proceedings, the assessee claimed depreciation of Rs. 68,450 being 20% of Rs. 3,42,248. On scrutiny of the balance sheet, the ITO found that as a result of this new addition, the actual cost of machinery of the assessee was Rs. 9,84,244 and, therefore, it was not entitled to claim 20% depreciation on the ground that it was a small scale industry. The ITO rejected the contention raised on behalf of the assessee that the written down value (WDV) of the machinery on the last day of the previous year was to be taken into consideration. The assessee preferred an appeal before the AAC. The appeal was allowed on the ground that the assessee-company was registered as small scale industry with the State Small Scale Industries Department and that as the actual cost occurring in part (3) of the Expln. to cl. (vi) s. 32(1) would mean in respect of the expenditure of the machinery installed in the earlier year as WDV of that machinery, the aggregate value of the machinery and plant installed by the assessee-company did not exceed Rs. 7,50,000. The Revenue then preferred an appeal to the Tribunal challenging the order passed by the AAC. The Tribunal held that as the assessee's industrial undertaking is registered as small scale industry with the State Small Scale Industries Department, there was no reason why benefit of s. 32(1)(vi) should not be given to it. Taking that view, it confirmed the order passed by the AAC and dismissed the appeal. The Revenue then moved the Tribunal to refer the abovestated question to this Court.

(3.) SEC. 32 provides for depreciation. Sub-s. (1) provides for depreciation in respect of building, machinery, plant or furniture owned by the assessee and used for the purposes of his business or profession. Clause (vi) of sub-s. (1) provided for one time depreciation of 20% on the actual cost of ship, aircraft, machinery or plant. It gave an option to the assessee to claim depreciation either in the year in which the machinery or plant was installed or the year in which the assessee had put it to use. But this special depreciation was confined to small scale industrial undertakings. Thus, it was a special provision made for the benefit of small scale industrial undertaking. By the Explanation, `new ship' and `new machinery or plant' were defined. The legislature also provided by that Explanation as to which undertaking was to regarded as small scale industrial undertaking. By the said Explanation, it also provided how value of the machinery or plant was to be determined. Thus, it cannot be gainsaid that the legislature thought it fit to make a special provision in this behalf. If registration of an industrial undertaking with the respective State department was to be regarded as sufficient for making such undertaking a small scale industrial undertaking, then the legislature would not have made this special provision. Moreover, that would have resulted into discrimination, inasmuch as, the test laid down for treating an industrial undertaking as small scale industrial undertaking might have varied from State to State. Thus, the legislature, in order to see that there is uniformity, made this special provision and for that reason, it will have to be held that for the purpose of determining whether an industrial undertaking is a small scale undertaking or not, resort had to be taken to the Expln. to s. 32(1)(vi) and not to any other provision of law whereby an industrial undertaking was to be regarded as small scale industrial undertaking for other purposes. The Tribunal was, therefore, in error in proceeding on the basis that since the assessee was registered as small scale industrial undertaking with the small scale industries department, benefit of s. 32(1)(vi) was available to it irrespective of different provision made by that Explanation in that behalf.