1988 (10) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Whether the machineries employed in the manufacture of beer come in contact with corrosive chemicals so as to be entitled to a higher rate of depreciation.

Detailed Analysis:

Issue 1: Entitlement to Higher Rate of Depreciation for Machineries in Contact with Corrosive Chemicals

Background and Claims:
The assessee, a limited company engaged in the manufacture and sale of beer, claimed a depreciation rate of 15% on machinery that comes into contact with beer, asserting that beer is corrosive. The Income-tax Officer restricted the allowance to 10% due to lack of evidence. The Commissioner of Income-tax (Appeals) held that for a higher rate of depreciation, the chemicals used should be corrosive ingredients in the manufacturing process, not the product itself, citing the Punjab and Haryana High Court decision in CIT v. Saraswati Industrial Syndicate Ltd. [1982] 136 ITR 758.

Assessee's Argument:
The assessee's counsel argued that various stages of beer manufacturing involve corrosive substances. The raw material, an extract of barley malt, undergoes several stages involving corrosive chemicals like lactic acid, calcium chloride, sodium chloride, and gypsum. The counsel distinguished the present case from the Punjab and Haryana High Court decision by emphasizing that the raw material itself is corrosive and passes through multiple machineries, acquiring more corrosive traits before becoming consumable beer.

Department's Argument:
The Senior Departmental Representative relied on the Punjab and Haryana High Court decision, arguing that "corrosive chemicals" in the Income-tax Rules refer to free chemicals introduced as separate ingredients, not to the product itself. Since beer is meant for human consumption, it cannot retain its corrosive character.

Tribunal's Inspection and Findings:
The Tribunal arranged an on-the-spot inspection of the factory premises. Statements were recorded from the production-in-charge, and cross-examination was conducted by the departmental representative. The inspection revealed that the raw material (barley malt extract) and several chemicals added during the manufacturing process have corrosive properties. Key findings included:
- The raw material contains organic acids with a PH value of approximately 5.
- Various stages involve the addition of chemicals like lactic acid, calcium chloride, and sodium chloride, which contribute to the corrosive nature.
- Specific machineries such as the Malt Extraction Dilution Tank, Boiling Copper, Hops Strainer, and others come into contact with these corrosive substances.

Conclusion:
The Tribunal concluded that except for certain machineries (Pasteuriser, CO2 Receiver, Compressor, Washing Machine, Labelling Machine, and Packing Machine), other machineries come into contact with corrosive chemicals either in the form of raw material or during the manufacturing process. Thus, the assessee is entitled to a higher rate of depreciation (15%) for these machineries.

Rejection of Additional Evidence:
The revenue's application for additional evidence in the form of an opinion by the Government Chemical Examiner was declined as it was received after the final hearing and the Examiner did not provide evidence during the inspection.

Final Decision:
The Tribunal directed the Income-tax Officer to allow a depreciation rate of 15% on the machineries that come into contact with corrosive chemicals, as indicated, while the normal rate of depreciation applies to the other specified machineries. The appeals were partly allowed.