COMMISSIONER OF INCOME TAX Vs. PENWALT INDIA LIMITED

JUDGEMENT

(1.) IN this departmental reference relating to the assessee's assessment for the assessment years 1971 -72, 1972 -73 and 1973 -74, the Income -tax Appellate Tribunal has referred to this court the following questions of law for opinion under section 256(1) of the Income -tax Act, 1961 : '1. Whether, on the facts and in the circumstances of the case, the assessee -company is entitled in the present years to the grant of depreciation allowance under section 32 in respect of the assets whose cost has been allowed to be deducted in full in the earlier years in terms of section 35(1)(iv)/section 35(2)(ia) of the Income -tax Act, 1961 ?

(2.) IF the answer to the above question is in the affirmative, whether such depreciation allowance should be computed on the basis of the actual cost of the assets without applying Explanation 1 to section 43(1) of the Income -tax Act, 1961 ?

(3.) WHETHER , on the facts and in the circumstances of the case, the assessee -company was entitled to the relief contemplated under section 80 -I of the Income -tax Act, 1961 ?' 2. It is common ground that the first two questions which pertain to the three assessment years under reference had come up for consideration before this court in the case of CIT v. Kelkar (S. H.) and Co. P. Ltd. : [1991]191ITR612(Bom) (Income -Tax Reference No. 25 of 1977) and that by its judgment dated March 26, 1991, our court had answered the questions in the affirmative and in favour of the assessee. The facts and rival contentions being identical, we answer the first two questions hereinabove in the affirmative and in favour of the assessee. 3. The facts as found by the Tribunal in relation to questions Nos. 3 and 4 are : 'The assessee canvasses orders for supplying, erecting and commissioning sugar and tea machinery. After canvassing the orders, it prepares necessary drawings and designs and places an order with Turner Hoare for manufacturing machinery as per the drawings and designs and specifications to be supplied by it. Turner Hoard manufacturers the machinery strictly in accordance with the drawings, designs and specifications furnished to it by the assessee -company. The manufacturing process is carried on under the direct supervision of the assessee -company, it does not in any way concern itself with the correctness of the drawings, designs, specifications and other details. It does not bind itself regarding the quality, standard and performance of the machines. The assessee -company binds itself regarding the proper functioning of the machines and giving guarantee for its proper performance for the stipulated period. If the machine is found defective or unserviceable for any reason, it is the assessee -company which has to bear the consequences.' 4. The Tribunal, observing that, in the absence of a factory or manufacturing facilities of its own, the assessee -company utilises the manufacturing facilities of Turner Hoare on payment, held that this fact by itself did not make any difference and the assessee was engaged in the manufacturing activity, that is, of manufacturing sugar and tea machinery. Accordingly, the Tribunal held that the assessee was entitled to relief as contemplated under section 80 -I of the Income -tax Act, 1961.