COMMISSIONER OF INCOME TAX Vs. TATA HYDRO ELECTRIC POWER SUPPLY COMPANY LIMITED

JUDGEMENT

(1.) TATA Hydro Electric Power Supply Co. Ltd., the assessee, is engaged in generating and supplying electric power. For the purposes of storage of water it had, inter alia, two dams, Walawhan Dam and Shirawata Dam. In the accounting year relevant to the asst. year 1962 63, the assessee spent Rs. 14,81,124 on anchoring of Walawhan Dam by the Coyne method and Rs. 29,87,802 on cement grouting of Shirawata Dam. In the accounting year relevant to the asst. year 1963 64, the assessee spent Rs. 47,151 and Rs. 23 lakhs on the cement grouting and improvement to Shirawata Dam by the Coyne method. A question arose, whether the assessee was entitled to claim development rebate on these amounts spent for the two years referred to above.

(2.) THE contention, on behalf of the assessee, before the ITO was that the two dams were designed and constructed between the years 1911 and 1916. The design criteria and construction practices adopted were those then in vogue. The design did not allow for any uplift pressure as is the present practice. The dams were constructed as a mass and coarse rubble masonry structure with lime surki mortar. No cement was used at all. Naturally, after years of weathering, the dams could not be considered as impervious or as stable as the present day dams. It was, therefore, considered absolutely essential to strengthen the dams by the Coyne method which involves anchoring high tension steel into the bedrock of the dams, which is subsequently tensioned and grouted. Before anchoring the dams to the bedrock foundations under the Coyne method, however, it was necessary to carry out extensive grouting over the full length of the dams to make them stable and monolithic, thereby conforming to present day design criteria and accepted construction practice. The inside structure of the dams of coarse rubble and surkilime mortar had to be consolidated and made waterproof to protect the high tensile steel cables used for anchoring the dams from corrosion. It was the case of the assessee that a considerable expenditure now incurred on the dams has resulted in a distinct improvement in them with regard to their stability and their resistance to uplift pressure which were dangerously lacking in the old dams. According to the assessee, these additions were so vital that for all practical purposes they have resulted in the creation of new dams. In the very nature of things, it was not possible to replace an obsolete dam by a new one. The assessee claimed that the considerable expenditure incurred on giving the dams a totally new stability may be treated as the creation of new assets entitled to development rebate and the provisions of S. 33 of the IT Act, 1961, need not be interpreted so literally as to deprive the assessee of the benefits. The assessee pointed out that in the statement in para. 1 of Appendix I to the I.T. Rules, 1962, Dams (Hydraulic Works) have been classified under plant and machinery.

(3.) IN second appeal before the Tribunal, it was urged on behalf of the assessee that owing to the nature of the dams the assessee could not pull down the old dams and, therefore, the dams should be considered as new dams after they were renovated by the Coyne method. Alternatively, it was contended on behalf of the assessee that anchoring its bedrock foundation by inserting high tension steel cables and consolidating the same and making the same waterproof and carrying on the work of cement grouting should be taken as additions to the existing dams and development rebate should be allowed on the expenditure incurred by the assessee. On the other hand, it was contended, on behalf of the Revenue, that having regard to the provisions of S. 33 of the IT Act, 1961, in order to claim development rebate, the plant and machinery must be a new one and should be used as a self contained unit and the fact that under certain conditions, the addition may be regarded as self contained for the purposes of any business in which it was used is irrelevant in considering its admissibility for development rebate. It was also urged on behalf of the Revenue that it could not be said that the plant or machinery was installed as only the old dams were constructed or strengthened by incurring the expenditure and it cannot be said that after the expenditure new dams came into existence. It was also urged that even if the dam is regarded as plant or machinery, it was not new and reliance was placed upon the meaning, given in the Oxford Dictionary, of the word "new" as "not existing before", "now first made", or "brought into existence for the first time". It was urged that the plant in the present case not being new, the same would not qualify for development rebate.