Kotval, C.J:— Two items claimed by the assessee have been allowed to them and in regard to them two questions have been framed. The first item is of Rs. 53,634, which the assessee claimed for depreciation on their assets for the assessment year 1956–57. The other is an item of Rs. 6,600, in respect of which the assessee claimed exemption under section 15B of the Income-tax Act. We will separately state the facts relating to each item as we deal with it.
2. Regarding the sum of Rs. 53,634, on account of depreciation, the facts in brief are that the Cement Marketing Co. of India Ltd., which is a subsidiary of the assessee, the Associated Cement Co. Ltd., was at one time appointed a common sales manager for the assessee and several other companies, namely, the Patiala Cement Co. Ltd. and the Dalmia group of cement companies. This was by an agreement dated 4th June, 1942. In 1948, however, the Dalmia group dropped out of the arrangement and since then the Cement Marketing Company was only attending to the sales on behalf of the assessee and its subsidiary, the Patiala Cement Co. Ltd. On 21st April, 1954, the agreement with the Cement Marketing Company was renewed for a period of ten years with effect from 1st August, 1953. The Patiala Cement Co. Ltd. was amalgamated with the assessee-company on 1st April, 1954. From the date 1st August, 1953, all the assets of the Cement Marketing Company were taken over by the assessee-company and the entire assets appear in the books of the assessee as the assessee's assets. The position of the Cement Marketing Company today is that it is not paid any selling commission or any other remuneration for acting as sales manager but the assessee-company annually reimburses to the Cement Marketing Company all its working expenses in full both for work done for the assessee-company as well as for the Patiala Cement Company, with the result that so far as the Cement Marketing Company is concerned its revenue account is balanced annually leaving no surplus and no deficit because such deficit as there may be is reimbursed to them by the assessee-company.
3. Now, the assets of the Cement Marketing Company, which were taken over by the assessee, consisted of office equipment, motor vehicles and other assets. As we have said, they appear in the books of the assessee-company as the assets of the assessee but for the purposes of the management of the assessee-company's sales, these assets are being utilised by the Cement Marketing Company for the business of marketing the products of the assessee and its subsidiary, in their capacity as sales manager. It was on these assets that the figure of Rs. 53,634 was computed as the annual depreciation for the assessment year 1956–57, and the short question that has been posed is whether the assessee-company would be entitled to be allowed this depreciation in the year of account. The Income-tax Officer took the view that the Cement Marketing Company was a separate legal entity from the assessee-company and since the assets were in fact being used by the Cement Marketing Company, it cannot really be said that the assets were being used for the purpose of the assessee's business. This order was set aside by the Appellate Assistant Commissioner in appeal, who took the view that the assets irrespective of who was using them actually belonged to the assessee and, therefore, the requirements of section 10(2)(vi) were satisfied. He, therefore, allowed the depreciation to the assessee-company. The view of the Appellate Assistant Commissioner has been upheld by the Tribunal. The view which the Tribunal took was “the Marketing Co. is on the above facts factually only another department of the assessee, though for legal purposes it is a separate entity. The assets in question have, therefore, only been used by the assessee in the course of its carrying on its business. The decision of the Appellate Assistant Commissioner is right and accordingly upheld.”
4. The terms in which section 10(2) grants this allowance to an assessee from the profits and gains of business are as follows:
“10. (2) Such profits or gains shall be computed after making the following allowances, namely:—
(vi) in respect of depreciation of plant or furniture being the property of the assessee, a sum equivalent to such percentage on the written down value thereof as may in any case or class of cases be prescribed.”
5. In terms, therefore, the allowance is granted in respect of assets “being the property of the assessee.” It is the owner of the property who is entitled to the depreciation and it is immaterial as to who uses the asset. That was the only ground upon which this item was disallowed by the Income-tax Officer. The Appellate Assistant Commissioner and the Tribunal have concurrently found that the assets belonged to the assessee-company and that the assets in question have only been used by the assessee in the course of carrying on its business. No doubt they are being used by the Cement Marketing Company, but the position of the Cement Marketing Company is no more than that of a sales manager and, therefore, if the property of the assessee has been used by the sales manager it is still the property of the assessee, the assets being used by them for and on behalf of the assessee. Upon these facts, we have no doubt whatever that this item of depreciation was rightly allowed to the assessee. We can see nothing wrong in the view taken by the Tribunal. In that view the question No. 1 which covers this item and was framed in the following terms: “Whether, on the facts and in the circumstances of the case, depreciation on assets owned by the assessee but used by the Cement Marketing Co. of India Ltd. as its sales manager is admissible to the assessee-company?”, is answered in the affirmative.
6. Then we turn to the other item in dispute, namely, the amount of Rs. 6,600, which the assessee claims as an amount exempted from taxation under section 15B as being a donation for charitable purposes. In regard to this item, the facts are a matter of written record. On 26th December, 1962, the University of Bombay through its Department of Chemical Technology wrote to the chairman of the board of directors of the assessee-company saying that their Professor of Chemical Engineering was carrying out important laboratory experiments on certain chemicals and for that purpose he desired to institute pilot plant experiments on the problem. One of the items of the pilot plan was a “rotary experimental kiln” and in connection with that, the letter stated “I understand from Dr. R.R Hattangadi, who has been associated with this department as an examiner and as a member of our selection and inspection committees, that the A.C.C (the assessee) now fabricates all their rotary kilns for cement making in its own workship. I shall be most grateful if you could persuade the directors of the A.C.C to arrange for the fabrication of a small rotary experimental furnace for this department, which will enable us to complete an investigation of national importance.”
7. Pursuant to this request the board of directors of the assessee-company passed two resolutions. The first was on the 26th June, 1953. By it they sanctioned a sum of Rs. 5,000 for the “Pilot Kiln—Department of Chemical Technology, University of Bombay.” It appears that thereafter the preparation of the pilot kiln was undertaken but its actual cost came to Rs. 6,600 and since the amount of Rs. 5,000 sanctioned had run short, the second resolution was passed as follows:
“Rs. 1,600 the extra cost of manufacturing a pilot kiln for presentation to the University, Department of Chemical Technology, Bombay, in addition to Rs. 5,000 previously sanctioned.”
8. When the total of these two amounts came under the scrutiny of the Income-tax Officer he held that the rebate under section 15B was not admissible. The Appellate Assistant Commissioner set aside this view holding that “donation either in cash or in kind would entitle the assessee for rebate and a kiln having been given to an educational institution for research work, rebate in respect of it shall be allowed.” This view of the Appellate Assistant Commissioner was upheld by the Tribunal in appeal. The Tribunal observed: “It is learnt that the department is inclined to allow donations which take the shape of stock-in-trade as the only exception to the legal requirement of cash. If so the instant claim too is eligible by a slight extension of the same principle. The materials and labour have gone out of what otherwise would have gone into cost of production. The Appellate Assistant Commissioner's order is upheld.” On behalf of the department Mr. Joshi has pointed to the words of subsection (1) of section 15b “any sums paid by him… as donations.” There is no dispute that the University of Bombay is one of the institutions to which the section applies, but what has been urged is that the manner in which this donation was given shows that it was not a sum of money which was paid by the assessee, but that the donation was of movable property, viz., the kiln. The contention advanced places reliance upon the very words of the section and to that extent, is technical in the extreme, but if one were to look to the substance of this transaction, there is no doubt that in substance what the assessee-company gave to the University of Bombay was ultimately a sum of Rs. 6,600. That amount ultimately went out of its coffers and in another shape was received by the University of Bombay. If instead of passing the two resolutions, which it did and then undertaking the preparation of the kiln and supplying the kiln to the University, the assessee had made out a cheque for that amount, handed it over to the University, got it re-endorsed in their favour and then had undertaken the preparation of the kiln, we suppose that the department would have had no objection. Rather than resorting to such an obvious device the assessee considered that the amount of Rs. 6,600 which it had donated to the University was with the consent of the University at its disposal and utilised it for the preparation of the kiln. In substance, therefore, the amount was paid to the University, though ultimately because of the exertions of the assessee the kiln came to be prepared out of that amount and was handed over to the University. In our opinion, looking to the substance of this transaction there is no doubt that the sum of Rs. 6,600 was paid by the assessee-com-pany as a donation to the University of Bombay. Any other construction upon this transaction would, in our opinion, be unnecessarily limiting the language of the section as well as its purpose. We think for these reasons that the answer made by the Tribunal in its appellate order was the correct answer. The question No. 2 which has been framed in the following terms:
“Whether, on the facts and in the circumstances of the case, the donation of Rs. 6,600 being cost of a kiln is eligible for the relief under section 15B of the Income-tax Act?”
9. Must be answered in the affirmative. The Commissioner will pay the costs of the assessee.
10. Question answered in the affirmative.
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