COMMISSIONER OF INCOME TAX TAMIL NADU IV V M S SAHADEVAN COMMISSIONER OF INCOME TAX MADRAS V P S ARUMUGASWAMY ADDITIONAL COMMISSIONER OF INCOME TAX MADRAS Vs. NEO LITHO PRESS

JUDGEMENT

(1.) IN all these cases, the common question is whether the offset press is "other electrical machinery" within the meaning of the relevant entry in the Schedule to the I. T. Act under which separate rates of depreciation are set out for distinct categories of machinery. We shall first take T. C. No. 189 of 1976. The assessee is carrying on the business of running a calendar press, printing press, offset printing press, etc. He claimed depreciation at the rate of 10% for the assessment year 1966-67. The ITO was of the view that the correct depreciation allowable under the rules was only 7%. He, therefore, worked out the depreciation accordingly and granted it. On appeal, the AAC accepted the assessee's contention that the entire machinery was run under electric power and that it should be considered as electrical machinery within the scope of r. 5 of the i. T. Rules read with App. I to the Rules. The ITO appealed to the Tribunal, which found that the machines were offset printing machines used in litho works and that the proper rate of depreciation would be 10 per cent. The question referred as arising out of this order of the Tribunal runs as follows : "whether, on the facts and in the circumstances of the case, the'new machinery'and'offset press'used by the assessee in the litho works would constitute'other electrical machinery including electrical generators and motors (other than tramway motors)'under Rule 5 of the income-tax Rules and that, therefore, depreciation should be granted thereon at 10% instead of the general rate of 7 per cent.""

(2.) WE may briefly refer to the broad features of the others two cases which are also before us, before proceeding further to discuss the legal position. In T. C. Nos. 314 & 315 of 1976, the assessee is engaged in the manufacture and sale of calendars, marriage invitation cards, etc. The ITO granted depreciation to the assessee on offset machine, D. C. Size Polygraph offset machine, cutting machine, Polygraph (Planeta) offset machine and four colour airline offset printing machine at 7 per cent. as against the claim of 10 per cent. made by the assessee. The AAC, on appeal, accepted the assessee's claim on the ground that the machinery was electrically operated. The matter was taken in appeal to the Tribunal by the ITO and the Tribunal confirmed the aac's order. The questions referred as arising out of this order of the tribunal are : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the litho offset machinery and another machinery which is embedded with electrical equipments would constitute'other electrical machinery'found under Entry III (iii) E - 3 (b) of column I of Part I of Appendix I to the Income-tax Rules, 1962, and that, therefore, the assessee was entitled to depreciation in respect of these machinery at 10 per cent. " (2) Whether the Tribunal's view that any machinery which runs on electricity would constitute'other electrical machinery'under Entry iii (iii) E-3 (b) of the Income-tax Rules, 1962, is sustainable in law "" * In T. C. No. 1237 of 1979, the assessee claimed depreciation at 10 per cent. on the offset printing machinery. Without giving any reasons the ITO allowed depreciation only at 7 per cent. The AAC, on appeal, held that these items were all fully embedded with highly sophisticated electrical devices and they were also operated by electric power and that being so, they fell within the category covered by the entry mentioned above. The department appealed to the Tribunal which confirmed the order of the AAC more or less for the same reasons as those given by him and also following its earlier order in one of these cases. The question referred in this case runs as follows : "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the machinery used by the assessee in offset printing would constitute'other electrical machinery including the electrical generators and meters (other than meter)'under Rule 5 of the Income-tax Rules, 1962, and, therefore, depreciation should be granted thereon at 10 per cent. but not at the general rate of 7 per cent. "" * Section 32 of the I. T. Act, 1961, provides for the allowance of depreciation at such percentage on the actual cost thereof to the assessee as may in any case or class of cases be prescribed. Rule 5 of the I. T. Rules, 1962, provides that depreciation should be calculated at the percentages specified in the second column of the table in Pt. I of App. I to the I. T. Rules. During the relevant years the Schedule was slightly differently worded. The rates of depreciation are first distributed over certain categories, namely, (i) Building, (ii) Furniture and Fittings, and (iii) Machinery and plant. In the case of machinery an plant there are two types of provisions. There is the general rate of 7 per cent. and certain special rates are to be applied to the whole of the machinery and plant used in certain concerns, for instance, in aerating gas factories the special rate of depreciation is 9 per cent. , in the case aluminium factories it is 10 per cent. , and so on. Electrical engineering works is a special category for which 10 per cent. was prescribed. There is another category under the heading "special rates to be applied to other machinery and plant". In this category, the particular types of machines are brought under alphabetical headings. Under the alphabetical heading'e'the broad categories are as follows; (1) Earth moving machinery employed in heavy construction works such as dams, tunnels, canals, etc. (2) Electric supply undertakings. (3) Electrical machinery. (4) Electro-plating and electro-welding plant. (5) Embroidery machines.

(3.) WE find that in all these cases the ITO rejected the assessee's claim without practically giving the details of the nature of the machinery possessed by the assessee. The AAC accepted the assessee's claim and the Tribunal confirmed it. The result was that there has been practically no proper investigation of the nature of the machinery under consideration in respect of which higher rate of depreciation is claimed. In the circumstances, in the absence of proper details of the nature of the machinery, we are obliged to return the reference unanswered. The Tribunal may get the necessary materials from the assessee and then proceed to dispose of the question de novo in the light of what is indicated above.