1981 (2) TMI 113 - AT - Income Tax

Summary

Issues:
Claim of initial depreciation on additions made to machinery disallowed by CIT (Appeals) - eligibility criteria for initial depreciation u/s 32 (1) (vi) of the IT Act, 1961 - whether retreading of motor vehicle tyres constitutes production of things for initial depreciation claim.

Analysis:
The assessee, a registered firm, filed a return claiming initial depreciation on machinery additions for the accounting period ending on 30th June 1976. The Income Tax Officer (ITO) disallowed the claim, stating the assessee was not engaged in manufacturing or production of tires and tubes as per the Ninth Schedule. The CIT (Appeals) upheld the disallowance, emphasizing that initial depreciation is only applicable if engaged in manufacturing specified articles. The assessee contended that being a small scale industry certified by the Director of Industries, they were entitled to initial depreciation. The Tribunal considered whether retreading motor vehicle tires constituted production for initial depreciation under section 32(1)(vi) of the Act.

The assessee argued that retreading tires amounted to production, citing legal precedents and dictionaries. The Departmental Representative contended that retreading was merely repair, not production. The Tribunal analyzed the definitions of production and manufacture from legal sources. It noted that production involves bringing forth a new product from raw materials, which was not the case in retreading tires. The Tribunal referenced legal dictionaries to support its interpretation that production requires creating a new product from raw materials or elements.

The Tribunal distinguished between production and repair, emphasizing that retreading tires did not involve creating a new product but rather restoring an existing one. It rejected the assessee's claim, stating that retreading did not meet the criteria for initial depreciation under section 32(1)(vi) as it was not listed in the Ninth Schedule. The Tribunal concluded that retreading tires did not constitute production of things, affirming the lower authorities' decision to disallow the initial depreciation claim. The appeal was dismissed.