COMMISSIONER OF INCOME TAX Vs. KHARAWALA J H

JUDGEMENT

(1.) AT the instance of the Revenue, the Income -tax Appellate Tribunal has referred the following question to this court under section 256(1) of the Income -tax Act, 1961 :

(2.) THIS reference relates to the assessment year 1976 -77. During the accounting period which ended on March 31, 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 per cent. of Rs. 3,42,248. On a scrutiny of the balance -sheet the Income -tax Officer 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 per cent. depreciation on the ground that it was a small scale industry. The Income -tax Officer rejected the contention raised on behalf of the assessee that the written down value of the machinery on the last day of the previous year was to be taken into consideration. The assessee preferred an appeal before the Appellate Assistant Commissioner. The appeal was allowed on the ground that the assessee -company was registered as a small scale industry with the State Small Scale Industries Department and that as the actual cost occurring in part (3) of the Explanation to clause (vi) of section 32(1) would mean in respect of the expenditure of the machinery installed in the earlier year as written down value 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 Appellate Assistant Commissioner. The Tribunal held that as the assessee's industrial undertaking is registered as a small scale industry with the State Small Scale Industries Department, there was no reason why the benefit of section 32(1)(vi) should not be given to it. Taking that view, it confirmed the order passed by the Appellate Assistant Commissioner and dismissed the appeal. The Revenue then moved the Tribunal to refer the above -stated question to this court.

(3.) IN order to appreciate the contentions, it is necessary to refer to the said Explanation. Section 32(1)(vi) as it stood at the relevant time read as under :