H.N. Seth, J. - (1.) THIS is a consolidated reference, relating to the assessment years 1964-65 and 1965-66.
(2.) AT the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal, Allahabad, has referred the following two questions of law for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct, in holding that the portion of the walls of the freezing chamber containing insulation materials constituted 'plant' within the meaning of Section 43(3) of the Income-tax Act, 1961, and that it was entitled to depreciation as on a 'plant' ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of Rs. 14,742 to the Allahabad Electric Supply Undertaking towards cost of transformer and service line for replacing the existing line to enable it to have higher K. V. A. electric power for cold storage was an allowable expenditure in computing the income of the assessee-firm for the assessment year 1965-66?" The assessee is a registered partnership firm. It purchased, as a going concern, a cold storage styled as M/s. Govind Hari Cold Storage and started its business from April, 1963. In the assessment of the firm for the two years the Income-tax Officer allowed depreciation on the building of the cold storage on its written down value, amounting to Rs. 38,179 and Rs. 36,270 at 5%. He also disallowed a sum of Rs. 14,742 claimed by the assessee as revenue expenditure, for the assessment year 1965-66, on transformer and service line for replacing the existing line, on the ground that it was an expenditure of capital nature. In appeal, the Appellate Assistant Commissioner held that in the relevant years, the Income-tax Officer should have allowed depreciation on factory building at 10% instead of 5%. However, he upheld the order passed by the Income-tax Officer, in so far as the assessee's claim for the expenditure incurred by it in getting the transformer and the existing service line replaced was concerned. The assessee then filed two appeals (which were ultimately heard together) before the Income-tax Appellate Tribunal. The Tribunal allowed both the appeals. It held that in the circumstances the assessee was, in respect of each of the two years, entitled to depreciation, calculated at 15% on the written down value of the factory building as it formed part of the plant used for running the cold storage. It also accepted the assessee's case that the expenditure incurred by it in connection with the change of the transformer and the existing service line, being a business expenditure which could neither be classed as a personal expenditure nor as an expenditure of capital nature, was an expenditure which had to be deducted in computing its income for the year 1965-66.
(3.) BEING aggrieved by the aforementioned order of the Tribunal, the Commissioner of Income-tax moved applications and got the aforementioned two questions referred to this court for opinion. Assessee's case was that the factory building in respect of which it claimed depreciation at the rate of 15% was a part of an air-conditioning machinery or plant. At the request of the assessee, the learned members of the Tribunal inspected the cold storage and found that the walls of the building in respect of which depreciation at 15% was being claimed was being used as freezing chamber containing insulation material like cork, etc., to keep it at the appropriate temperature. It was impossible to work the cold storage plant without such a treatment to its walls. The Appellate Tribunal found that the building which was being used as freezing chamber, though not a machinery or part thereof, was a part of the air-conditioning plant of the cold storage and the assessee was entitled to claim special depreciation at 15% on its written down value. The question, therefore, that arises for consideration is whether the Tribunal was right in holding that the building in question was a part of the air-conditioning plant of cold storage.;