- (1.) These two appeals by special leave arise out of two references, one under Section 66 (1) of the Income-Tax Act, 1922, and the other under Section 256 (1) of the' Income-Tax Act, 1961. The two appeals relate respectively to assessment years, 1961-62 and 1962-63. The assessee in both cases is a private limited company, engaged in transport business and owns a fleet of lorries and buses. In both appeals the appellant is the Commissioner of Income-Tax (Central), Madras. In respect of the assessment year 1961-62, the Tribunal allowed the claim of the assessee for development rebate on the new diesel engines installed by the assessee in its vehicles. The Tribunal however dismissed a similar claim made by the assessee in the assessment year 1962- 63 when the Income Tax Act, 1961 had come into force. Two questions were referred to the High Court, one in each of these two cases, both questions involve similar query though they are framed somewhat differently because of the contrary decisions out of which the references arise. In Civil Appeal No. 211 of 1970 which relates to the assessment year 1961-62 the question referred under Sec-66 (1) is: "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that tine assessee was entitled to claim development rebate on new diesel engines fitted to Vehicles." The question Civil Appeal No. 212 of 1970 referred under Section 256 (1) of the Income Tax Act, 1961, relates to the assessment year 1962-63 and reads: "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that development rebate was not allowable on the new diesel engines installed on road transport vehicles." During the accounting period ending with March 31, 1961, relevant to the assessment year 1961-62, the assessee fitted 11 new diesel engines to its vehicles and claimed development rebate of RS. 23,740/- on the cost of the engines. The Income-tax Officer disallowed the claim and on appeal by the assessee the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. On further appeal to the Tribunal by the assessee, the Tribunal allowed the claim for development rebate on the view that new diesel engines fitted to vehicles were "machinery installed" within the meaning of Sec. 10 (2) (vi-b) of the Income-Tax Act, 1922.
(2.) The assessee fitted new diesel engines to two of its transport vehicles during the accounting year ending with March 31, 1962, relevant to the assessment year 1962-63, and claimed development rebate of Rupees 3,144/- on the cost of these engines. The Income-tax Officer disallowed this claim and, his order was affirmed by the Appellate Assistant Commissioner on appeal. The Tribunal in this case held that a diesel engine by itself might be machinery but, when fitted to a road transport vehicle, it became part of the vehicle and the question of development rebate had to be considered in such a case in regard to the larger unit, namely, the road transport vehicle on which no development rebate was admissible under Section 33 of the Income-Tax Act, 1961. On this view the Tribunal affirmed the order disallowing the claim.
(3.) The High Court answered the question referred to it in each case in favour of the assessee and disposed of the two references in identical language. The Judgment of the High Court in both cases reads as follows: "This reference is covered by the Judgment of the Supreme Court in Commr. of Income-Tax v. Mir Mohammad (53 I. T. R. 165) c (AIR 1964 SC 1693). In view of this the reference is answered in favour of the assessee No costs." In Mir Mohammad's case on which the High Court based its decisions, the assessee, a bus-owner and transport operator, replaced the petrol engine in two of his buses incurring expenditure in that connection during the year of account ending with March 31, 1950, relevant to the assessment year 1950-51. This Court by a majority held that the same meaning ought to be given to the word "machinery" in all the clauses, namely, clauses (iv), (v), (vi) and (vi-a) of Section 10 (2) of the Income-Tax Act, 1922 as then in force, that a diesel engine was clearly machinery, and that when an engine was fixed in a vehicle it was installed within the meaning of the expression in clauses (vi) and (vi-a) of Section 10 (2) as it then stood.This Court accordingly held that the assessee was entitled to the extra depreciation allowances under the second paragraph of cl.. (vi) and clause (vi-a) of Section 10 (2) as in force at the relevant time.;