2004 (11) TMI 84 - HC - Income Tax

Depreciation on machinery used in an ice factory rate of depreciation - Item No. III of Appendix I, Part I prescribing the rate of depreciation - Whether Tribunal was justified to hold that depreciation on machinery used in an ice factory is admissible at the rate of 15 per cent.? - Higher depreciation at the rate of 15 per cent. is allowable only in respect of the plant and machineries specified in the rates of depreciation . It has not been held by the Punjab and Haryana High Court in the case of CIT v. Gurinder Singh Karion that the ice factory machinery falls in the ambit of any of the machinery or plant enumerated under Item No. III of the aforesaid list Thus, we are of the opinion that the depreciation at the rate of 10 per cent. is allowable to the ice factory machinery and the Tribunal was wrong in granting depreciation at the rate of 15 per cent.

Summary

Issues:
Rate of depreciation allowable on ice manufacturing machinery.

Analysis:
The judgment in question pertains to a reference made by the Income-tax Appellate Tribunal regarding the admissibility of depreciation on machinery used in an ice factory at the rate of 15 per cent. The dispute revolves around the assessment year 1977-78 and concerns the appropriate rate of depreciation for the ice manufacturing machinery. Initially, the Income-tax Officer allowed depreciation at 5 per cent, citing that the machinery mainly consisted of condensers. However, this decision was modified by the Commissioner of Income-tax (Appeals), who approved depreciation at the rate of 10 per cent for general machinery. The Tribunal, in contrast, ruled in favor of the assessee, granting depreciation at the rate of 15 per cent for the ice factory machinery.

The Tribunal's decision was influenced by a precedent set by the Punjab and Haryana High Court in a similar case, where it was established that depreciation on ice plant machinery could be claimed at the rate of 15 per cent. The High Court relied on a reference from Encyclopaedia Britannica, emphasizing the technological advancements in refrigeration and its industrial applications. However, the Revenue's counsel argued that the higher rate of depreciation should only be applicable to machinery specifically listed under the relevant depreciation schedule. The counsel contended that unless the ice factory machinery was explicitly mentioned in the prescribed categories, the 15 per cent depreciation rate should not be granted.

Ultimately, the High Court disagreed with the Punjab and Haryana High Court's interpretation and ruled in favor of the Revenue. The court concluded that the appropriate rate of depreciation for the ice factory machinery should be 10 per cent, not 15 per cent as determined by the Tribunal. The judgment emphasized that the higher rate of depreciation at 15 per cent could only be applied to machinery explicitly specified in the depreciation schedule. As a result, the court answered the referred question in the negative, supporting the Department's stance against the assessee.