1979 (7) TMI 37 - HC - Income Tax

Summary

Issues:
Interpretation of the entry for higher depreciation rate for rubber and plastic goods factories in the context of a company manufacturing insulated cables and wires.
Applicability of the higher depreciation rate of 15% under the specific entry in the tax law.
Determining whether the company qualifies as a factory engaged in the manufacture of plastic goods for the purpose of claiming higher depreciation.

Analysis:
The High Court of Madras, in a reference under section 256(1) of the Income Tax Act, considered whether an assessee company manufacturing insulated cables and wires could be classified as a factory engaged in the manufacture of plastic goods to claim a higher depreciation rate of 15% under the relevant entry. The assessee claimed depreciation at 15% for the assessment year 1972-73, but the Income Tax Officer (ITO) applied a rate of 10%. The Appellate Tribunal upheld the assessee's claim based on the interpretation that the machinery and plant used in the manufacturing process qualified for the higher rate of depreciation.

The Appellate Tribunal's decision was based on a broad interpretation of the entry in the tax law that allowed for a higher depreciation rate for general machinery and plant used in rubber and plastic goods factories. However, the High Court disagreed with this interpretation, emphasizing that the manufactured goods were insulated wires, not rubber or plastic goods. The Court highlighted that the mere use of rubber or plastic materials for insulation did not categorize the company as manufacturing rubber and plastic goods. The Court held that if an industry does not fall within the specific entry for higher depreciation, it cannot be justified through a broad construction.

The Court also addressed the argument that the goods manufactured by the assessee fell under a different entry allowing for a specific depreciation rate, but since the ITO had already allowed depreciation at the general rate of 10%, the Court did not find it necessary to delve into this aspect. Ultimately, the Court answered the question in the negative, ruling in favor of the revenue authority. The revenue was awarded costs, including counsel's fee.

In conclusion, the judgment clarifies the scope of entitlement to higher depreciation rates under specific entries in tax laws, emphasizing the importance of a precise interpretation of such provisions to determine the eligibility of companies for favorable tax treatment based on their manufacturing activities.