Ranganathan, J.:— This reference under s. 66(1) of the Indian I.T Act, 1922, raises an interesting question. The assessee, M/s. Capital Bus Service (P.) Ltd., is a transport operator. The assessment year is 1961-62. The previous year being the year which ended on March 31, 1961.

2. The assessee for purposes of its transport business maintained a fleet of twenty buses. Fifteen buses were maintained against twelve permits for running buses on regular routes. The other five buses were maintained for being run on contract basis on temporary permits such as for marriages, private tours and the like. Out of these five buses, one bus was never used and it had been taken off from the road. The other four buses bearing DLP Nos. 2208, 2288, 2720 and 2726 were not actually employed by the assessee for more than 30 days on account of the lack of demand therefor. The assessee's case, that these buses had been earmarked for contract purposes and were always ready and in a fit condition to ply on the road is not in dispute. It is common ground that the only reason why each of them was plied for less than 30 days was because the assessee did not get enough customers for those buses. In these circumstances, the question arose whether the assessee would be entitled to depreciation in respect of these four buses. The ITO declined to grant depreciation since these buses had not been “used” during the previous year for 30 days or more. The AAC took a different view and was of opinion that there was passive user of these buses which would entitle the appellant to claim depreciation. But on further appeal by the department the Appellate Tribunal upheld the view taken by the ITO and hence this reference at the instance of the assessee. The question that has been referred to us is:

“Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to claim depreciation in respect of four buses which were kept ready for use throughout the previous year although the same were not actually used for more than thirty days?”

3. The present case is governed by the provisions of the Indian I.T Act, 1922. Under s. 10(2)(vi) of the Act an assessee is entitled to an allowance “in respect of depreciation of such buildings, machinery., plant or furniture being the property of the assessee, a sum equivalent……………to such per centage on the original cost thereof to the assessee as may in case or class of cases be prescribed”. It is settled law that the word “such” takes us back to cl. (iv) which requires that the buildings, machinery, plant, or furniture on which depreciation is claimed should have been “used for the purposes of the business, profession or vocation” during the previous year. The rates of allowance of depreciation were prescribed under the Rules. Originally the assessee was entitled to depreciation at fixed rates on the written down value provided the asset in question was used for purposes of the business at any time during the previous year. However, in 1948, the Rules were amended. The rates of percentage were prescribed and the allowance of depreciation was to be at 1/12 of the prescribed figure per month of user of the asset in the business, provided there was minimum use for at least two months. Rule 8 reads as follows:

“8. The allowance under section 10(2)(vi) of the Act in respect of depreciation of buildings, machinery, plant or furniture shall be at percentage of the written down value or original cost, as the case may be, equal to one-twelfth the number shown in the corresponding entry in the second column of the following statement:

Provided that if the buildings, machinery, plant or furniture have been used by the assessee in his business for not less than two months during the previous year, the percentage shall be increased proportionately according to the number of complete months of user by the assessee:……….”

4. There was a further amendment to the rule in 1960. By this amendment it was provided that:

“(2) In relation to assessments for the year ending on the 31st March, 1961, and subsequent years, the allowance under section 10(2)(vi) of the Act in respect of depreciation of buildings, machinery, plant or furniture shall be at percentage of the written down value or original cost, as the case may be, equal to (i) 100 per cent.; (ii) fifty per cent.; or (iii) nil per cent.; of the number shown in the corresponding entry in the second column of the following statement, according as the buildings, machinery, plant or furniture have been used by the assessee in his business, profession or vocation during the previous year, (i) for a period of 180 days or more, (ii) for a period of less than 180 days but more than thirty days or, (iii) for a period of thirty days or less than thirty days, respectively: ……”

5. The Tribunal has taken the view that the terms of the amended rule indicate that in order to get depreciation, the asset in question must have been actively used for the specified number of days in the business of the assessee. The Tribunal has held that since the buses in question have not been actually plied by the assessee for more than thirty days during the previous year, the assessee would not be entitled to any depreciation in respect thereof. The question that arises for consideration in the present case is not entirely free from authorities but has arisen for consideration in different contexts. It first came up for consideration in the case of N.D Radha Kishen and Sons v. CIT, [1928] 3 ITC 73 (Lah). In this case, the assessee who had a motor car agency at Rawalpindi bought a foreign car for the purposes of their business but never used it in their business as they found it was too costly to run at a profit. The View of the department that the assessee would not be entitled to depreciation was confirmed by the High Court. It was argued before the High Court that, though not used, the machinery depreciated from lying idle. The court observed (p. 76):

“Whether it did so or not it appears to us that the allowance is granted not for depreciation as such but for depreciation as a consequence of the earning of income or while employed in the earning of income. Once it is conceded that the machiney in question lay idle, there is no question of such earnings.”

6. In Bhikaji Venkatesh v. CIT, [1937] 5 ITR 626 (Nag), the assessee owned a ginning factory. He joined a pool of owners of such factories. Under the pooling agreement the factories worked in rotation and during the year of account the assessee's factory did not work, though he received his share of the profits out of the pool. It was held that the assessee was not entitled to depreciation on the machinery and plant belonging to him because they were not actually used for the purposes of the business. It was held that the word “used” must be taken to mean “actually used” and not “capable of being used” or “generally used”. The decision in Radka Kishen and Sons, [1928] 3 ITC 73 (Lah) was followed. This case, however, was distinguished by the Bombay High Court in CIT v. Viswanath Bhaskar Sathe, [1937] 5 ITR 621, on practically the same facts. However, in the Bombay case, the pooling agreement contained a clause which bound the assessee at his own expense to keep his ginning and other working plant and machinery in good repair and condition and in working order even when his factory was not working so that it may be ready for actual use at any moment. The High Court held that the assessee was entitled to depreciation notwithstanding that the plant and machinery did not actually work during the previous year in question. Beaumont C.J, observed (p. 625):

“The question, therefore, resolves itself into this—was the machinery of the assessee during the year of assessment used for the purposes of the business from which his profit was derived? I agree with the view expressed by the Commissioner of Income-tax, and in the cases to which he refers, that ‘used’ denotes actual user, and not merely being capable of being used. But that does not dispose of the question whether, when machinery is kept ready for use at any moment in a particular factory under an express contract from which taxable profits are earned, the machinery can be said to be used for the purposes of the business which earns the profits, although it is not actually worked. To my mind, it is so used. The business from which the profits were derived was that of ginning factories, and the contribution of the assessee to that business was the obligation to keep his machinery ready for actual use ait any moment. It is, no doubt, true, as the learned Advocate General says, that it is possible to give the word ‘used’ a more limited meaning and hold that it includes only the actual work of the machinery, and it is urged that it is that working which occasions depreciation. But I think that the Word ‘used’ in this section may be given a wider meaning and embraces passive as well as active user. Machinery which is kept idle may well depreciate, particularly during the monsoon season. It seems to me that the ultimate test is, whether, without the particular user of the machinery relied upon the profits sought to be taxed could have been made; and as I read the agreement in the case, the profits of the assessee during the year under assessment could not have been earned except by his maintaining his factory in good working order, and that involves the user of the factory and the machinery.”

7. The case of Bhikaji Venkatesh, [1937] 5 ITR 626 (Nag), was distinguished on the ground that in that case there was no covenant to maintain the machinery in question in reserve ready for actual use. Radha Kishen's case, [1928] 3 ITC 73 (Lah) was distinguished on the ground that the facts were different.

8. In the case of CIT v. Dalmia Cement Ltd., [1945] 13 ITR 415 (Pat), the assessee was a cement company which owned a number of cement factories. But one of them worked only for a period of two months during the relevant year. The I.T authorities held that the assessee was entitled only to such amount of depreciation as was proportionate to the period of the year during which the factory was actually working. But this contention was negatived. Fazl Ali C.J (as he then was) referred to the observations of Beaumont C.J, in Viswanath Bhaskar Sathe's case, [1937] 5 ITR 621 (Bom), and agreed with his view that the depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle.

9. The question whether the word “used” would include both passive as well as active user was left open by the Supreme Court in Liquidators of Pursa Ltd. v. CIT, [1954] 25 ITR 265.

10. In Machinery Manufacturers Corporation Ltd. v. CIT, [1957] 31 ITR 203 (Bom), Chagla C.J, observed that the court was prepared to put a wide construction upon the expression “used” in s. 10(2)(vi) but that did not solve the difficulty in the case before them. Again in State of Madras v. Glenburn Estates Ltd., [1962] 44 ITR 643, the Madras High Court was dealing with a case of coffee plantations in which a pulper was used only during a part of the year, the plantation being of a seasonal nature. There was no specific provision in the Agrl. I.T Act and Rules framed thereunder regarding seasonal factories as there is under the I.T Act. The relevant rule for the grant of depreciation provided that where any machinery was used for the purposes of agricultural plantations only during a part of the year, the allowance should be restricted proportionately. Interpreting this rule the court observed (p. 645):

“……we do not understand it was the intention of the Government in the case of factories working only during seasons to restrict the depreciation allowance with reference to the time factor, that is, with reference to the working season in relation to the year. The test really should be, in the case of seasonal factories, whether the machinery was available for use and for the whole use of agricultural purposes right through the working season. If that condition were to be satisfied, we see nothing in the rule or in the proviso thereto to disentitle the assessee to the whole of the depreciation allowance for that year, though the machinery could have been used only for a portion of the year, that is, during the working season. A very literal interpretation of the proviso would lead even to this absurdity. Obviously, the machinery could not be used all day and every day right through the year. There are the normal working hours even during the day. There are holidays in the year. If depreciation allowance is to be calculated only with reference to the actual time the machinery was used, obviously, the provision in section 5(f) read with rule 4(3) would lead to this, that the provision for depreciation allowance would be robbed of much of its content. That obviously was not intended by rule 4(3), nor was that its effect.”

11. Their Lordships pointed out that the rule could be applied quite consistently with this interpretation. For example, in a case where a machinery has been acquired after the working season was over or sold before the working season commenced or was not available for use at all during the working season it may be that the depreciation could be proportionately restricted in terms of the above rule.

12. The question arose in a different context in Niranjam Lal Ram Chandra v. CIT, [1963] 49 ITR 177 (All). In this case, the assessee was a registered firm carrying on the business of plying motor trucks and lorries on hire. Its accounting year was the calendar year. The trucks in question were in use up to the end of the accounting year ending on December 31, 1945, and depreciation had been allowed in respect thereof till the assessment year relevant thereto. On January 1, 1946, relevant for the assessment year 1947-48, the assessee sold the trucks at a price which exceeded the written down value. Eventually, the business was also closed down on April 7, 1946. The assessee, however, claimed that it was not liable to be charged in respect of the excess of the sale price over the written down value under the proviso to s. 10(2)(vii) on the ground that the trucks having been sold on the first day of the previous year could not be said to have been used during the previous year for the purposes of the business and hence the provisions of s. 10(2)(vii) were not attracted. This contention was negatived by the High Court. M.C Desai C.J, speaking for the court, observed (pp. 182, 183):

“The assessee's business consists of plying trucks on hire; what it actually does is to put the trucks into motion for the purpose of carrying goods from one place to another on payment of money. Though the business consists of putting trucks into motion it cannot be said that a truck is used in the business only when it is in motion and not when it is kept stationary, capable of being put into motion and is available for being, or waiting to be, put into motion. A truck which is put into motion for transporting goods on hire from time to time or periodically is as much used for the purposes of the business when stationary as a truck continuously in motion. In the words of Lord Sumner in Barendra Kumar Ghosh v. Emperor, AIR 1925 PC 1, ‘They also serve who only stand and wait’. Though a telephone is meant for receiving sound from a distance, it is said to be used by a person even though the person is not actually receiving any sound with its help. A burglar alarm can be said to be in use at a given moment even though there is no burglar in the premises and the alarm is not ringing at the moment. An article which is meant for yielding a certain result and which yields the result not continuously but periodically as and when required, cannot be said to be not in use at a particular time simply because it is not yielding the result at that time. If it is capable of yielding the result and is available for producing the result, it is in use. It is only that article which is meant to go on yielding the result continuously that can be said to be not in use at a time when it is not yielding the result. A truck to be used for the purpose of the business of plying trucks and lorries on hire is not an article of this kind, not being meant to be used continuously without a break. Hiring is always for a certain time or for a certain distance and as soon as the time is over or the distance is covered the article hired must remain idle till it is to be hired again.”

13. The learned C.J proceeded to refer to cases where it had been held that a person walking with a gun with intent to kill game “uses” it for that purpose even without firing it that a house could be said to be “used” for purposes of betting even though betting is done in it only occasionally; that a boat could be said to be “used” for catching salmon even though it had not been put into water and that land though not put into active use could be said to be “used” where a tuberculosis hospital had acquired it and kept it vacant in order to keep the hospital free from buildings in the immediate vicinity.

14. The question again came up before the Bombay High Court in the context of s. 10(2)(vii) and the second proviso thereof in Whittle Anderson Ltd. v. CIT, [1971] 79 ITR 613. The assessee-company which owned two cotton ginning and pressing factories entered into a pooling agreement with two other concerns owning two more presses which was to be enforced from February 8, 1950, to October 20, 1960. Under the pooling agreement, the parties had to keep their respective presses in good and working condition until the expiry of the period of the agreement. The assessee's factory worked up to June 4, 1956, during the cotton season in 1956. On June 8, 1956, some of the staff and workmen were discharged. On July 15, 1956, the company passed a resolution for voluntary winding up. A liquidator took possession of the assets on October 29, 1956, and the assets were sold by the liquidator in October, 1956, at a surplus. For the assessment year 1958-59 for which the relevant previous year was a period from August 1, 1956, to July 31, 1957, the question arose about the taxability of profits under s. 10(2)(viii), second proviso. The assessee contended that the business having been closed down on July 15, 1956, the provisions of the said proviso were not applicable but this contention was rejected by the I.T authorities and the Tribunal who held that the assessee continued to “use” the machinery even beyond that date and, therefore, it could not escape from the provisions of the said proviso. This view was upheld by the Bombay High Court on a reference. The court pointed out that even for the applicability of the second proviso to s. 10(2)(vii), the machinery in question must be shown to have been used by the assessee in the business which it was carrying on in the previous year. Reference was made to the earlier decision in the case of Viswanath Bhaskar Sathe, [1937] 5 ITR 621 (Bom), where it had been held under similar circumstances that the assessee was entitled to depreciation allowance, to the decision of the Patna High Court in CIT v. Dalmia Cement Ltd., [1945] 13 ITR 415, where same principles had been applied, and to Niranjan Lal Ram Chandra, [1963] 49 ITR 177 (All) which, it was pointed out, had not dissented from the decision in Sathe's case, [1937] 5 ITR 621 (Bom).

15. The words “used for the purposes of the business are capable of a larger and a narrower interpretation. If the expression “used” is construed strictly, it can be taken as connoting or requiring the active employment or the actual working of a machinery, plant or building in the business. On the other hand, the wider meaning will include not only cases where the machinery, etc., is actively employed but also cases where there is, what may be described as, a passive user of the same in the business.

16. The above survey of the decisions on the subject clearly shows that the consensus of judicial opinion is in favour of adopting the liberal interpretation. We are also of opinion that in the context in which the expression occurs and also having regard to the various types of cases that could arise, the wider interpretation has to be placed on this expression. The decided cases, which have been earlier referred to, have arisen in different contexts which clearly indicate that the wider and more liberal interpretation of the provisions would in the context of s. 10(2)(vi) and (vii) may be appropriate.

17. Though it is true that a machinery generally depreciates with actual user, the decisions indicate that it is not necessary to import this concept in interpreting the expression “used” in the statute. In the first place, a machinery may well depreciate even where it is not used in the business and even due to non-user or being kept idle. Secondly, a very strict correlation between the actual use of machinery and the concept of depreciation would lead to several anomalies and difficulties, for a machinery cannot be used throughout the day and night or even throughout the working hours or even during the days when the business is in full scale operation. Thirdly, there will be no strain on the statutory language by interpreting it widely and not limiting it to the actual working or actual employment of the machinery in the business. On the other hand, it would be more appropriate to envisage the expression as comprehending cases where the machinery is kept ready by the owner for its use in the business and the failure to use it actively in the business is not on account of its incapacity for being used for that purpose or its non-availability. In the present case, e.g, the four buses in question were admittedly in working order and the assessee was keeping them ready for being operated upon if and when some tourist contract materialised. They were not actually run on the road not because they were under repair or were unfit for use for one reason or the other, but only because there were not enough contracts during the year to ply the buses for more than 30 days each. This does not mean that so far as the assessee was concerned he did not employ the trucks for the purposes of the business. They were kept ready for operation and they were there only in the business and for use in that business. In these circumstances, in our opinion, it can be said, without straining the language of the statute and the context in which it is employed, that the buses were used for the purposes of the business throughout the year though they were not actually plied on the roads for more than 30 days.

18. We do not think that the language used in the Rules is inconsistent with this interpretation. The amendment of 1960 is of no particular significance because even under the earlier rules, minimum use of the asset for two months was necessary. However, the word “used” employed in the Rules should first of all be interpreted only in a sense in which it will be consistent with the language in the statute and cannot be given a wider meaning. That apart, by giving the word the meaning which we have referred to earlier, the purpose of the rule is not in any way defeated. It will still be applicable to several cases. For example, where a machinery has been purchased only in the last month or where the machinery was unfit to be employed and not available for employment in the business for a specified period, the restriction in the rule will operate. The concept of proportionate allowance of rates in the Rules is, therefore, not inconsistent with the liberal interpretation being placed on the word “used” employed in the statute as well as in the Rules. In this context, it may be pointed out that the Rules also provide for the grant of an extra shift allowance in respect of depreciation where a machinery works double shift and triple shift. The language of the Rules makes it clear that the allowance for double and triple shifts will be available only where there is an actual working of the machinery for two shifts or more. But the main clause of r. 8 does not refer to the working of the machinery. It only refers to the user of the plant, etc., in the business. This also indicates that so far as the allowance for normal depreciation allowance is concerned, it does not depend upon the actual working of the machinery. It is sufficient if the machinery in question is employed by the assessee for the purposes of the business and for no other business and it is kept by him ready for actual use in the profit making apparatus the moment a need arises. The test is satisfied in the present case.

19. For the reasons abovementioned, we are of opinion that the assessee in the present case was entitled to grant of depreciation in respect of the four buses which were kept ready for use throughout the previous year although they were not actually used for more than 30 days. The question referred to us is, therefore, answered in the affirmative and in favour of the assessee. However, in the circumstances of the case, we make no order as to costs.

20. Question answered it the affirmative.