- (1.) The Income Tax Appellate Tribunal, Delhi Bench 'C has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court: R.A. No. 200/Delhi/88: Whether the Hon'ble Tribunal is correct in directing the Income Tax Officer to allow the depreciation on generator @ 20 per cent R.A. No. 201/Delhi/88: Whether the Hon'ble Tribunal is correct in holding that investment allowance under Section 32A is allowable on generator
(2.) The reference relates to the year 1981-82. Briefly stated the facts giving rise to the present reference are as follows: The assessee was a manufacturer/exporter of shoe uppers. It has installed a generator for generating electricity and claimed depreciation thereon @ 20 per cent. The Income Tax Officer held that the generator was a machinery falling in the general category and, therefore, granted depreciation @ 10 per cent. Regarding the assessee's claim for investment allowance in respect of the generator, the Income Tax Officer held that the generator was not used in the actual manufacture of shoes and it was installed simply to fill the gap caused with the break down of electricity. The learned Commissioner (Appeals) upheld the Income Tax Officer's objection regarding the rate of depreciation but on the question of investment allowance he accepted the assessee's claim and directed the Income Tax Officer to grant investment allowance to the assessee. On the respective appeals, by the revenue and the assessee, the assessee's stand on both these points was upheld by this Tribunal as below: 11. The next ground raised by the assessee is as below: 5. Because the learned Commissioner (Appeals) was not justified in not allowing depreciation on generator on 20 per cent in place of 10 per cent. 12. This Tribunal has in several cases held that a generator is an electrical machinery falling in Category III C(4) of the Depreciation table in Appendix I Part I of the Income-tax Rules and was, therefore, entitled to depreciation @20 per cent. A similar view was taken by a Bench of this Tribunal in the case of S.K. Iron Foundry v. ITO vide order dated 24-7-1986 passed in ITA No. 5901/1984 for assessment year 1982-83. The learned departmental Representative did not show us any authority to the contrary and following the view already taken, we direct the depreciation on generator shall be allowed at 20 per cent'. 23. The 4th and the last ground raised by the revenue is as under: The learned Commissioner (Appeals) has erred in law and on facts in directing the Income Tax Officer to allow investment allowance on the cost of new generator without taking judicial note of the fact that the generator was not part and parcel of machinery used in manufacturing articles or things as it was only an alternative arrangement as a stand bye to fill up the gaps caused because of the breakdown of electricity. If it would have been part and parcel of the machinery used in manufacturing business it would have been installed right from the inception of manufacturing business which is not the position. 24. The Income Tax Officer refused to allow investment allowance to the assessee as the generator was not actually used for the production of goods. This contention, in our view, is not tenable. Investment allowance is allowable in respect of any machinery or plant installed in any industrial undertaking for the purpose of business of construction, manufacture or production of any article or thing. It is the industrial undertaking as a whole that has to be for the purpose of construction, manufacture or production of any article or thing and it is a misconstruction of the provisions of Section 32A to hold that every plant and machinery installed in the industrial undertaking must directly produce the goods. The Commissioner (Appeals)'s direction is, in our view, correct and we uphold the same.
(3.) We have heard Sri Shambhu Chopra, learned Standing counsel for the revenue. So far as the first question relating to allowance of 20 per cent depreciation on generator is concerned we find that the Tribunal has already held that generator is an electrical machinery not covered under Item No. (ii) of Clause (C) at serial No. 4 which provides for special rate under the heading 'Machinery and plant' Clause C(4) relates to the electrical machinery. The entries reads as under: III(ii)(C)(4) Electrical machinery-Batteries; X-ray and electrotherapeutic apparatus and accessories thereto (N.E.S.A.).;