Dipak Kumar Sen, J. - (1.) Messrs. Steel Rolling Mills of Hindusthan (P.) Ltd., the assessee, carries on the business of manufacture of steel castings, forgings and casting of iron rolls and ingots. On January 1, 1970, the assessee entered into an agreement with Caltex (India) Ltd. and Apeejay Structural Ltd. Under the said agreement, the assessee agreed to purchase low pressure gas cylinders from Caltex (India) Ltd, directly or from any manufacturer nominated by the latter and to hire out the said cylinders to Apeejay Structural Ltd. for sale or distribution of Calgas on the terms agreed to by and between the said Apeejay Structurals Ltd. and the assessee which would not be contrary to or inconsistent with the said agreement. The said agreement provided further that during its currency, the assessee and Apeejay Structurals Ltd. would not sell, pledge, pawn or otherwise alienate the cylinders to others without the prior consent of : Caltex (India) Ltd. Which Would retain an option to purchase back the cylinders at the stipulated prices.
(2.) The assessee was assessed to income-tax for the assessment year 1970-71, the corresponding accounting year ending on March 31, 1970. In the order of assessment, it was recorded by the Income-tax Officer that the business carried on by the assessee in the relevant assessment year remained the same as in the previous year, viz., manufacture and sale of iron and steel goods. The Income-tax Officer, however, included in the income of the assessee, the rental from hiring out the gas cylinders under the said agreement, as the assessee's business income. But the Income-tax Officer did not allow either depreciation or development rebate on the cylinders whose value was computed at Rs. 2,74,402.
(3.) The assessee preferred an appeal to the Appellate Assistant Commissioner against the assessment. The Appellate Assistant Commissioner also recorded in his order that the assessee was engaged only in the business of manufacture and sale of iron and steel goods. He noted that the Income-tax Officer did not allow depreciation on the cylinders as they were put to use for less than thirty days. He, however, held that under the amended rules, the assessee was entitled to full depreciation on the cylinders. He directed the Income-tax Officer to allow the assessee such depreciation and also development rebate on the cylinders after verification of their cost. It was recorded that a statutory development rebate fund had been created by the assessee.;