Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1975-76, the following questions of law have been referred to this court :
(1) Whether, on the facts and in the circumstances of the case and having regard to the provisions of the Income-tax Act and Rules and the Indian Electricity Act, 1910, the assessee was entitled to triple shift depreciation allowance on its plant and machinery ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee-company is entitled to depreciation at 10 per cent. in respect of its overhead cables and wires
2. Shortly stated, the facts are that the assessee is engaged in the business of supply of electrical energy to the consumers of Hooghly, Chinsurahand Bansberia. The assessee-company purchased high voltage electrical energy from the West Bengal State Electricity Board and distributed the same by reducing the voltage and transmitting the same by the use of transformers, switchgear and overhead wiring. The assessee claimed depreciation on its plant at 10%. The assessee worked triple shift and, consequently, claimed extra-shift depreciation at 100% of the normal depreciation. Such claim of the assessee was allowed in the past. The Income-tax Officer referred to item III(i) of Part I of Appendix I and came to the conclusion that the assessee was not entitled to extra-shift depreciation. The Income-tax Officer indicated that it had been specifically provided that no extra-shift depreciation allowance is admissible in item (1) of item III(iv) of Part I of Appendix I in respect of the following :
'Electrical machinery--switchgear and instruments, transformers and other stationary plant and wiring and fittings of electric light and fan installation.'
3. He further did not agree that the assessee was entitled to depreciation at the rate of 10% on overhead cables and wires. He also did not allow extra-shift depreciation on these items.
4. The assessee came in appeal before the Commissioner of Income-tax (Appeals) and contended that the assessee should be allowed extra-shift depreciation and the assessee should also be allowed depreciation at the rate of 10% on overhead cables and wires. The Commissioner of Income-tax (Appeals) again discussed the points in detail but, however, agreed with the view of the Income-tax Officer and, therefore, his orders on both the points were maintained.
5. The assessee then went on appeal to the Tribunal. The Tribunal quoted Section 32, Section 43(3) item III (i) Part I of Appendix I, item III(iv) and item I of item III(iv) and the observation of the Supreme Court in : [1964]53ITR165(SC) and came to the conclusion that the assessee was entitled to extra shift allowance on its plant.
6. The Tribunal also held that the claim of the assessee for depreciation at 10% on the overhead cables and wires should be allowed but since the assessee has not claimed depreciation separately on its machinery, although the claim of the assessee was accepted, the matter was set aside and remanded to the Income-tax Officer for determining the amount of extra shift allowance which could be available to the assessee and to allow the additional depreciation of 5% on overhead cables and wires.
7. It has been contended by the Revenue that the view taken by the Tribunal on the construction of the relevant provisions is erroneous. The Income-tax Officer in fact correctly decided the points regarding extra shift allowance and depreciation.
8. It is the contention of the Revenue that, in deciding the controversy, the schedule of assets as given under the Indian Electricity Rules, 1956, should only be considered. Statement of capital expenditure of the year is to be shown in Form No. II which comes under different heads, namely, intangible assets, Hydraulic Power Plant, Steam Power Plant, Transmission Plant, Distribution Plant and Public Lighting. Statement of capital expenditure comes under different heads. Details are given in Form II relating to statement of capital expenditure vide items in B, C, E, F. Statement No. 11-A requires the statement to show the written down cost of fixed assets retired on account of obsolescence, inadequacy, superfluity, etc. Statement IV relates to operating expenses of the year. Statement V gives the provision made for depreciation for the year. Statement VII is about the Development Rebate Reserve Account for the year. Summary of the plant is given in Statements IV and V. According to the Revenue, the entirety of the said plant does not fall within the classification (2)(a) under the letter 'E' in Section (iii) of machinery and plant as appearing in Part I of Appendix I to the Income-tax Rules, 1962. Machinery and plant come under item No. III and Appendix ID(iii). The Income-tax (Sixth Amendment) Rules, 1969, were published on December 29, 1969, and the amendment came into force on April 1, 1970. Changes made in the amendment come under the following heads--changes relating to particular class of assets, (1) building, (2) furniture and fittings, machinery and plant, extra shift allowance under the category machinery and plant. Six classes are prescribed. The scheme of allowance for special rates for all plant and machinery has been given up.
9. Special rates are prescribed for particular kinds of machinery and plant. The machinery and plant are prescribed under different items. So far as extra shift allowance is concerned, it has been stated in the depreciation schedule of the Income-tax Rules that the extra shift allowance shall not be allowed in respect of any items of machinery and plant which have been specifically excepted by inscription of the letters N. E. S. A. against it in sub-item No. II and also in respect of items of plant to which the general rate of depreciation of 10% is allowed. Thus though different rates are prescribed for different types of machinery, no extra shift allowance shall be allowed in terms of machinery and plant. According to the Revenue, the Tribunal upheld the respondent's contention by holding that plant has a wider connotation than individual machinery and the 'No Extra Shift Allowance' (NESA) restriction is only applicable to specific machinery but not to a composite plant. The Tribunal has stated 'if item (1) of item III(iv) is critically examined, it is clear that item (1) includes various machinery on which extra shift allowance was not available'. It does not speak about a composite-plant on which no extra shift allowance was available.' Learned counsel for the Revenue contended that the Tribunal is wrong in comingto the conclusion as the same clause being in Appendix ID(iii) states that the extra shift allowance shall not be allowed in respect of any machinery or plant which has been specifically excepted by the inscription of the letter NESA. Thus, the finding of the Tribunal that item I of item III(iv) does not speak about a composite plant but only speaks about individual machinery is wrong. On the contrary, it has been specifically stated that only the general rate of depreciation of 10% only would apply. Thus, for a plant or electric machinery--switch-gear instruments, transformers, etc., no extra shift allowance should be permitted due to the specific NESA clause.
10. It has further been contended on behalf of the Revenue that the Tribunal also placed reliance on Rule 26 of the Indian Electricity Act which deals with the form of disclosure of the assets of an Electricity Generating Company. Just as in the Banking Companies Act and in the Insurance Act, separate forms of disclosure of final accounts have been specified, simultaneously, for electricity companies, separate form has been specified. And several assets are clubbed together and disclosed as Hydraulic Power Plant, Steam Power Plant, Internal Combustion Power Plant, Transmission Power Plant, etc. The Tribunal relied on annexure V, where these plants have been mentioned as a part of the statement of provision for depreciation as per Electricity Rules. However, the first column of this statement--which describes the term--plant--is grouped from Statement II, i.e., the statement of capital expenditure and, in the said statement of capital expenditure--boilers, switchgears, transformers, etc., are all separate items right from the inception of the company. The Tribunal did hot consider this statement being annexure II but only considered annexures IV and V in coming to the decision that it is a composite plant. In other words, annexure II clearly indicates that these are assets maintained separately which is clubbed through annexures IV and V for the sake of disclosure of accounts so that it can be summarised. Hence the conclusion derived by the Tribunal that this is a composite plant as these are shown in block in annexure V is wrong as the Tribunal ignored the fact that annexure V is backed up by annexure II disclosing assets separately from the inception.
11. Reliance has been placed by the Revenue upon the meaning of machinery as given by the Privy Council in the case of Corporation of Calcutta v. Chairman, Cossipore and Chitpur Municipality ilr [1922] (Cal) 190 , which is approved by the Supreme Court in the case of CIT v. Mir Mohammad Ali : [1964]53ITR165(SC) . Similar view could be found in the decision of the Bombay High Court in CIT v. London Hotel : [1968]68ITR62(Bom) , and also in Addl. CIT v. Lawlys Enterprises Pvt. Ltd. : [1975]100ITR369(Patna) . It is contended that neither the word 'plant' nor theword 'machinery' is confined to a self-contained unit as plant includes part of a plant, machinery includes part of machinery, etc. Schedule III of fixed assets relied upon for the first time before this court is the summarised position of the assets prepared from several break-up schedules including Statement II of annexure V of the Indian Electricity Rules, 1956, framed under the Indian Electricity Act. The said Statement II of the Electricity Rules would clearly reveal that the various machineries are accounted for separately, right from the inception, disclosing additions separately and then clubbed as different plants for the sake of convenient disclosure as otherwise too many figures would be jumbled up in the top schedule attached to the balance-sheet primarily prepared for the shareholders.
12. On the other hand, the contention of the assessee is that the Tribunal came to a correct conclusion in the facts of this case. Reliance has also been placed on a decision of the Madras High Court in CIT v. South Madras Electric Corporation : [1966]60ITR491(Mad) and on a decision of the Kerala High Court in Amalgamated Electric Co. v. CIT : [1974]97ITR334(Bom) . We, however, considered the rival contentions. At all material times, the assessee was an electric supply undertaking licensed under the Indian Electricity Act, 1910. In terms of the Rules framed thereunder, its electric plant was shown in its annual accounts under the heads, Transmission plant, Distribution plant and Public lighting, without particularising the component machineries. The entirety of the said plant, admittedly, fell within the classification (2)(a) under the letter 'E' in Section (iii) of machinery and plant as appearing in Part I of Appendix I to the Income-tax Rules, 1962, before the coming into force of the Income-tax (Sixth Amendment) Rules, 1969, with effect from April 1, 1970. Accordingly, allowance for depreciation used to be then given at the special rate of 10% prescribed for the said item E(2)(a). The letters 'N. E. S. A.' not being shown against the said item, extra shift allowance at 100% of the allowance for depreciation also used to be then given to the assessee as provided by the pre-amendment Rules.
13. After the said amendment, however, the said item E(2)(a) ceased to appear in the new chart for special rates. As a result, the assessee's electric plant qualified for the general rate which, by the amendment, was raised to 10% as. against the previous rate of 7%. The rate of depreciation applicable to the assessee's electric plant thus remained unaffected by the amendment, and allowance therefor continued to be given as before the amendment. The extra shift allowance also continued to be given as before because the amendment did not at all change the scheme for such allowance. This was the position up to and including the assessment for 1974-75.
14. For the assessment year under consideration, i.e., 1975-76, the written down value of the assessee's aforesaid plant at the beginning of the yearwas Rs. 11,75,956 and, during the year, there was a further addition thereto of Rs. 3,51,181, totalling Rs. 15,27,137, on which the assessee claimed allowance for depreciation at the rate of 10%, i.e., Rs. 1,52,714, and an equal amount as extra shift allowance. The Income-tax Officer, however, disallowed the entire claim for extra shift allowance on the ground that entry (1) under Section (iv) of the new chart for depreciation prohibited such allowance, by stating that the assessee has claimed extra shift allowance on switchgear and instruments and other stationary plant, etc. The Income-tax Officer also reduced by Rs. 10,000 the assessee's claim for depreciation allowance, by holding that such claim included claim for cables and wires on which the rate prescribed was 5%. He failed to notice the most important fact that the disqualification referred to by him was attached to the named items as constituents of 'Electrical machinery' and not as parts of 'Electric plant' of 'Electric supply undertakings'. He also failed to notice that, even prior to the amendment, the identical prohibition was operative by virtue of E(3)(c) in the old chart, but that did not stand in the way of extra shift allowance being given in respect of the assessee's electric plant as a whole under E(2)(a) of the said chart. He failed to appreciate that the amendment did nothing more than abolish the special rates of depreciation applicable to the said E(2)(a) and E(3)(c) and, instead, made the general rate applicable to both. But their respective qualifications for extra shift allowance remained unaltered. And that is why such allowance was continued to be given to the assessee even after the amendment, as already stated. The Department failed to appreciate either the rationale behind the amendment or its precise content. As already stated, prior to the amendment, a general rate of 7% was prescribed for machinery and plant, and special rates were prescribed for nearly 169 categories. Such rates, again, were as numerous as 17, ranging from 21/2% to 100%. It is only for simplifying and rationalising this complexity that the amendment was brought about, after nearly three years' labour. The scheme for simplification effected through the amendment essentially consisted in classifying machinery and plant under seven broad categories, comprising various items according to their estimated lives with seven corresponding rates of depreciation in replacement of the previous seventeen. At one stage of the deliberations, there was a suggestion to altogether do away with the system of granting the extra allowance for multiple shift working of machinery and plant. But, that recommendation of the Bhoothalingam Committee was not adopted. In a press note explaining the amendment, it was expressly clarified that 'the extra shift allowance will continue to be allowed. Prior to the amendment, the provision for the said allowance was incorporated in the 'Remarks' column of the old depreciation chart, with the concluding remark.' This applies to all concerns whether the general rate or any special rate applies to them, but does notapply to an item of machinery and plant specifically excepted by the letters 'N. E. S. A.' being shown against it. After the amendment, the heading was incorporated in Section (iv) of the new chart which also contained the same remark, but specially excepting from such allowance ten groups of items of machinery and plant to which the new general rate of 10% became applicable by reason of the amendment. On scrutiny, however, it will be seen that the very same items appeared in the old chart individually marked N. E. S. A. in the following groups to which special rates were applicable :
(1) E(3)(c)
(2) L
(3) M(2)
(4)
(5) M(3)
(6) R(1)
(7) R(4)
(8) S(1)(b),(e),(f) and (g)
(9) T(2) A(a) and B (a)
(10) W(1)
15. The fact remains that the N. E. S. A. items which appeared in the old chart for special rates and which continued to appear in the new chart for such rates continued to be individually marked N. E. S. A. thus-
Item of the old chart Item in the new chart
A(1)N. E. S. A.corresponds to B(1)N. E. S. A. (2)N. E. S. A. (a) and (c)'D(1)' (b)'E(1)' (4)N. E. S. A.'B(2)'B N. E. S. A.'B(4)'C(1)N. E. S. A.'B(6)'C(2)N. E. S. A.'C(1)N. E. S. A. (4)N. E. S. A.'C(2)N. E. S. A.E(1)N. E. S. A.'D(4)N. E. S. A. and so on...
16. But the N. E. S. A. items of the old chart which lost their individuality by being removed from the list of special rates, and to which the general rate, therefore, became applicable could not possibly be so marked. Effect to the declared policy of continuing the allowance for extra shift was,therefore, given by individually naming such items, for disqualification inthe new Section (iv). Far from effecting any change in the law, the new Section (iv) in the depreciation chart only served to stress the continuityof the law in this regard. The Department laboured under a total misconception regarding the nature of the amendment.
17. It would be evident from a comparative study of Rule 5 prior to its amendment and after its amendment with effect from April 1, 1970, that 17 different rates of depreciation ranging from 21/2% to 100% were prescribed for nearly 169 different categories. A general rate of 7% was prescribed for items not so categorised. By the amendment, the categories were reduced to 60 only, and the items were grouped under 7 broad rates of depreciation ranging from 5% to 100%. The nearly 109 categories for which the preexisting special rates ceased to apply thenceforth qualified for the general rate only which was raised from 7% to 10%.
18. The extra shift allowance remained unchanged subject only to the modification in the meaning of the expression 'normal working period'. Some of the items marked NESA in the old list (iii) were retained in the new list (ii) and some were not. In order to maintain the aforesaid continuity, the items of the former category were also marked NESA in the new list, as already pointed out. But, such marking was not possible in respect of the items in the latter category which lost their individual identity and to which the general rate of 10% became applicable. There is no doubt that the aforesaid continuity in respect of these items could only be maintained by individually naming them. That is precisely what has been done in Section (iv) of the Appendix.
19. The old Rules prescribed two percentage rates, viz., one for all machinery and plant used in particular kinds of factories, and another for particular kinds of machinery and plant, with an option to the assessee to adopt the latter percentage if he prefers to do so. The new Rules fix a percentage only for particular kinds of machinery and plant and do not provide an alternative 'group rate' for all machinery and plant used in a factory.
20. It is true that the scheme of allowing special rates for all plant and machinery used in a factory is given up. Special rates are provided only for particular kinds of machinery and plant.
21. On a correct reading of the amended rule in the light of the Rules which are in force before the amendment, we are of the view that the amendment has not introduced any new disqualification regarding the electrical plant, etc., used by the Electric Supply Undertakings.
22. Under heading (iv), Extra shift depreciation allowance, it has been provided that electrical machinery, switchgear and instruments, trans-formers and other stationary plant and wiring and fittings of electric light and fan installations would not be entitled to any extra shift allowance. Prior to the amendment, a distinction was made between the 'electrical machinery' in terms of item E(3) of the old Rule and 'electric machinery' in terms of item E(2)(a) relating to Electric Supply Undertakings. Electrical machinery has been treated differently from electric machinery used in Electric Supply Undertakings. No Electric Supply Undertaking can function without working full three shifts as it has to generate and distribute electricity throughout the day and night. Electrical machinery which may be used in an undertaking other than Electric Supply Undertaking would be disqualified from getting the benefit of extra shift allowance.
23. The distinction which was made between electrical machinery and electric supply undertaking under the old Rules cannot be ignored while construing the provisions of the amended Rules. The electric machinery used by the Electric Supply Undertakings stands on a footing different from the electrical machinery which may be used by Undertakings other than Electric Supply Undertakings. Electric machinery must be such machinery which is exclusively used by the Electric Supply Undertakings. It is obvious that the disqualification regarding extra shift allowance is assigned to certain electrical machinery, but no specific mention has been made about the electric machinery which is used by an Electric Supply Undertaking. In our view, electric machinery used by an Electric Supply Undertaking will be entitled to extra shift allowance even after the amendment.
24. For the reasons aforesaid, we answer both the questions in this reference in the affirmative and in favour of the assessee.
25. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
26. I agree.