2001 (2) TMI 115 - HC - Income Tax

Summary

Issues:
1. Entitlement to depreciation under section 32(1)(vi) of the Income-tax Act, 1961 for a diesel generating set.
2. Allowance of depreciation under section 32(1)(vi) of the Income-tax Act, 1961 for machinery used in the manufacture of gears.

Analysis:

Issue 1: Entitlement to Depreciation for Diesel Generating Set
The dispute revolved around the claim for depreciation under section 32(1)(vi) of the Income-tax Act, 1961, for a diesel generating set costing Rs. 6,50,440 for the assessment year 1975-76. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim, stating that the set was not an admissible item for initial depreciation. However, the Tribunal found that since the diesel generating set was used for generating electricity, the claim was valid. The Tribunal's decision was based on the clear link between the generating set and the machinery used in the manufacturing process. The court upheld the Tribunal's decision, stating that the generating set was intricately connected to the manufacturing process and thus entitled to depreciation under section 32(1)(vi) of the Act.

Issue 2: Allowance of Depreciation for Machinery Used in Gear Manufacturing
The second issue involved the allowance of depreciation under section 32(1)(vi) of the Income-tax Act, 1961, for machinery used in the manufacture of gears. The assessee, a public limited company, claimed depreciation at the rate of 20% for plant and machinery installed during the relevant year. The machinery included items for gear manufacturing, with costs totaling Rs. 8,12,975. The Revenue contended that the machinery did not fall under the category of "machine tools" in the Ninth Schedule, and the mere generation of electricity was not sufficient for depreciation relief. However, the Tribunal, after considering the entries in the Ninth Schedule and a relevant notification, allowed the claim for depreciation. The court agreed with the Tribunal's decision, emphasizing the importance of the machinery in the manufacturing process and its classification under item No. 10, "machine tools," in the Ninth Schedule. The court concluded that the assessee was entitled to depreciation under section 32(1)(vi) of the Act for the machinery used in gear manufacturing.

In conclusion, the court ruled in favor of the assessee and against the Revenue on both issues, affirming the entitlement to depreciation for the diesel generating set and the machinery used in gear manufacturing under section 32(1)(vi) of the Income-tax Act, 1961.