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TMI Blog2001 (2) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Tribunal is correct in law in cancelling the order of the Commissioner of Income-tax passed under section 263 ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee-company was a small scale industrial undertaking ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the cost of installation was not to be taken into consideration for working out the cost of plant and machinery for the purposes of section 32(1)(vi) ?" The dispute relates to the assessment year 1976-77. The factual position, in a nutshell, is as follows : The assessee is a private limited company. During the relevant assessment year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was of the view that Explanation (3) to section 32(1)(vi) makes the position clear that, if the aggregate value of the machinery and plant installed is more than Rs. 7.5 lakhs, then initial depreciation is not allowable. It was observed that the actual cost of plant and machinery exceeded the figure of Rs. 7.5 lakhs, and accordingly, the assessee was not entitled to the benefit. For the purpose of arriving at the figure, the installation cost was taken into account. It was further noted that depreciation had been claimed and allowed on the aggregate value of machinery of Rs. 10,20,234, inclusive of the installation charges. The Commissioner, in essence, concluded that the assessee was not a small scale industrial undertaking. The assessee p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all scale industrial undertaking. On being moved for reference, the questions, as set out above, have been referred for opinion of this court. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessee in spite of service of notice. Learned counsel for the Revenue, with reference to the language used in section 32(1)(vi), submitted that the stress is on the installation of the machinery or plant, and in fact the language of the provision makes it clear that the plant and machinery become operative or functional after they are installed. Merely because there can be a variation in the cost of installation that cannot per se be a ground to exclude the installation charges from the computation of the actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (ii) : ... (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house, (b) any ship, aircraft, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33, and (c) any ship or aircraft acquired after the 31st day of March, 1976, or any machinery or plant installed after that date. Explanation.---For the purposes of this clause,--- (1) 'new ship' or 'new aircraft' includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India ; (2) 'n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew machinery or plant other than office appliances or road transport vehicles installed after the relevant date, i.e., May 31, 1974. In the provision itself, reference is in the case of new machinery and plant, other than road transport vehicles to those installed after that date in, a small scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things (underlined for emphasis). Therefore, the Legislature had intended that for the purpose of getting the benefit under section 32, there must have been installation of the plant or machinery for the purpose of business of manufacture or production. As has been rightly submitted by learned counsel for the Revenue, the plant and machinery d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehousing charges or insurance are to be added to the price. A distinction was made between two expressions "cost" and "price". It has also to be noticed that, one of the reasons, which weighed with the Tribunal, was the possibility of variation of installation cost at different places. That would not make any difference to the position in law. In fact in Challapalli Sugars Ltd.'s case [1975] 98 ITR 167, the Supreme Court considered the case of two assessees, i.e., one who installed machinery and plant with his own funds and the other with borrowed funds. Though it was argued that interest paid on the loan incurred for the purpose of acquisition and installing the machinery, if taken into account in considering the actual cost of the plant, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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