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Bindal Sugar Works v. Commissioner Of Income Tax
Factual and Procedural Background
The assessee, a registered firm operating a Khandsari sugar factory at Moradabad, installed a generator to power its industry and claimed depreciation at 30% on this generator. The Assistant Commissioner of Income Tax (IAC) allowed depreciation only at 15%, reasoning that the generator was diesel-run and thus not covered under the category of generators and pumps run on wind energy as per the Income Tax Rules, 1962. The assessee appealed to the Commissioner of Income Tax (CIT), who allowed depreciation at 30% and directed modification of the assessment accordingly.
The Revenue contested the CIT’s order before the Income-tax Appellate Tribunal (ITAT), which reduced the allowable depreciation to 20%, relying on precedents from Delhi Benches. The assessee then filed a reference application seeking a question of law to be referred to the High Court, challenging the Tribunal’s reduction of depreciation from 30% to 20%.
The Tribunal members differed on whether a referable question of law arose from their order. The Accountant Member dismissed the reference application, while the Judicial Member opined that a question of law did arise. Consequently, under section 255(4) of the Income Tax Act, 1961, the matter was referred to the President of the Tribunal for reference to a third member. The third member reviewed the case and held that the Tribunal’s interpretation of the applicable rule on depreciation percentage did give rise to a question of law, thus justifying the reference.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in not allowing grant of depreciation at 30% on the generator?
- Whether the order of the Tribunal gave rise to a referable question of law under section 255(4) of the Income Tax Act, 1961?
Arguments of the Parties
Assessee's Arguments
- Claimed depreciation at 30% on the generator under Article 10(xiii) of Appendix I of the Income Tax Rules, 1962, which entitles electric generators and pumps run on wind energy to depreciation at 30%.
- Contended that the generator qualified for 30% depreciation as per the relevant statutory provision.
- Challenged the Tribunal’s reduction of depreciation to 20% as erroneous in law.
Revenue's Arguments
- Argued that depreciation should be allowed only at 15% because the generator was diesel-run and thus not covered under the category for 30% depreciation applicable to wind energy generators.
- Contested the CIT’s order allowing 30% depreciation.
- Supported the Tribunal’s decision to allow 20% depreciation citing precedents from Delhi Benches.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Decisions of Delhi Benches of the ITAT | Depreciation rates applicable on generators under Income Tax Rules, specifically the percentage allowed on diesel-run versus wind energy generators. | Used to justify the Tribunal’s allowance of 20% depreciation instead of 15% or 30%. |
| M/s Ghanshayam Sugar Factory (CIT(A) order) | Precedent holding that depreciation on certain generators is not allowable at 30%. | Referenced by the IAC in denying 30% depreciation and allowing only 15%. |
Court's Reasoning and Analysis
The Court examined whether the Tribunal’s order gave rise to a question of law. The Tribunal had reduced the depreciation rate from 30% (allowed by the CIT) to 20%, interpreting the relevant statutory provisions under section 32 of the Income Tax Act and rule 5 of the Income Tax Rules, 1962. Rule 5 refers to Appendix I, which lists asset categories and corresponding depreciation rates, including Article 10(xiii) that provides a 30% rate for special devices such as electric generators run on wind energy.
The Tribunal’s decision to allow 20% depreciation required interpretation of these legal provisions and their applicability to a diesel-run generator. The Court noted that interpretation of a statutory rule by the Tribunal constitutes a question of law. Therefore, the Tribunal’s order did give rise to a referable question of law, justifying the reference for a third member’s opinion.
Holding and Implications
The Court held that a referable question of law did arise from the Tribunal’s order concerning the appropriate rate of depreciation on the generator.
The direct effect is that the matter was referred to a third member for disposal of the reference application under section 255(4) of the Income Tax Act, 1961. No new precedent was established by this opinion; rather, it affirmed the principle that interpretation of statutory rules by the Tribunal gives rise to a question of law suitable for reference.
S.K Chander, A.M:— By this reference application, the assessee is before us with a prayer that the following question, said to be question of law and said to arise out of the consolidated order of the Tribunal bearing ITA Nos. 5699.Del/85 adn 74.Del/86 dated 14th June, 1988 be referred to the Hon'ble High Court:
“Whether on the facts and in the circumstances of the case, the Tribunal erred in law in not allowing grant of depreciation @ 30% on generator?”
2. We have heard the parties. The Tribunal in its order observed that in a number of cases, the Delhi Benches on similar set of facts had taken the view that depreciation at 25 % on generator is admissible. In our considered opinion, this does not give rise to a referable question of law. Reference application is, therefore, dismissed.
18th Nov., 1988
S.S Mehra, J.M:— Draft order prepared by my learned Brother has carefully been gone into but it is regretted that I failed to agree with the conclusion arrived at therein. In my considered view a referable question of law does indeed arise from the Tribunal's order. I, therefore, proceed to prepare a draft statement of the case for making a reference of the question raised by the applicant.
2. Assessee in this case by status is a registered firm engaged in the running of a khandasri industry and maintaining accounts on mercantile basis. Accounting period was the year ending 14th August, 1983. Assessee claimed depreciation at 30% on generator but the learned IAC (Asst) alllowed only at 15 % with the following observation:
Depreciation on generator has been allowed only at 15% as it is run by diesel only and cannot be covered under point No. 10 (xiii) of Appendix of IT Rules, 1962 which is applicable in the case of Generator and pump run on wind energy. Learned CIT(A) has also held in case of M/s Ghanshayam Sugar Factory that depreciation on generator is not allowable at 30%.”
Copy of the assessment order dated 28th March, 1985 is marked as ‘annexure ‘A’ and forms part of the statement of Case.
3. The issue was contested by the assessee and the learned CIT(A) making mention of order dated 12th Feb., 1985 for the asst. yrs. 1982–83 and 1983–84 decided the issue in favour of the assessee and directed the learned IAC (Asst) to modify the assessment accordingly.
A copy of the first appellate order dated 12th Sept., 1985 is marked as annexure ‘B’ and forms part of the Statement of the Case.
4. The issue was thereafter contested by the Revenue and the Bench making mention of some decisions of the Delhi Benches of the ITAT directed that depreciation of the generator would be admissible at 20% in place of 30% claimed and 15% allowed.
A copy of the Tribunal's order dated 14th June, 1988 is marked as annexure ‘C’ and forms part of the Statement of the Case.
5. From the facts narrated in the preceding paragraphs a referable question of law as suggested by the applicant does indeed arise for making reference: I. do accordingly.
5th/19th December, 1988
Order under s. 255(4);
In this case, we have the following difference of opinion:
“Whether, on the facts and in the circumstances of the case, a referable question of law arises out of the order of the Tribunal tearing ITA No. 5699.Del/1985 and ITA No. 74.Del/1986 dated 14th June, 1988.”
In view of the above, we refer the case under s. 255(4) of the IT Act, 1961 to the Hon'ble President for its refrecnce to a third Member.
5th May, 1989
Ch. G. Krishnamurthy, President:— On a difference between the learned Members of ‘C’ Bench, Delhi as it then constituted, the following point was referred to me as a Third Member:
“Whether, on the facts and in the circumstances of the case, a referable question of law arises out of the order of the Tribunal bearing ITA No. 5699.Del/85 and ITA No. 74.Del/86 dated 14th June, 1988.”
2. The assessee in this appeal is a firm, running a Khandsari sugar factory at Moradabad. It had installed a generator to generate electric power to run its industry. It claimed depreciation on this generator at 30%. The IAC (Asst), Moradabad who made the assessment allowed depreciation thereon only at 15% by observing that the generator was run only by diesel and could not be covered under point No. 10(xiii) of Appendix of IT Rules, 1962, which in his opinion was applicable only in the case of generators and pumps run on wind energy. Against the decision of the IAC (Asst), an appeal was filed before the CIT. The CIT, Barriely, following his earlier order for the asst. yrs. 1982–83 and 1983–84, allowed depreciation at 30 % and directed the IAC to modify the assessment.
3. Aggrieved by this order of the CIT, the Revenue filed an appeal before the Income-tax Appellate Tribunal, The Bench of the Tribunal unanimously declared that the depreciation allowable on generators was neither 15% nor 30% but only 20%. For this view, it relied upon the decisions given by Delhi Benches in a large number of cases. Thus the ground of the Revenue was partly allowed.
4. Thereafter the assessee filed a reference application stating that the following question of law arises from the order of the Tribunal and that should be referred to the Hon'ble High Court for its opinion:
“Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in not allowing grant of depreciation @ 30 % on generator?’
The learned Accountant Member declined to refer the question, to the Hon'ble High Court on the ground that the order of the Tribunal did not give arise to a question of law, whereas the learned Judicial Member held that a referable question of law arose out of the order of the Tribunal.
5. Now the point is whether the order of the Tribunal gave rise to a question of law. In my opinion, the order of the Tribunal does give rise to a question of law because it was not possile to come to a conclusion that depreciation on generators was allowable at 20% as against 30% allowed by the CIT and 15% allowed by the IAC (Asst), unless and without interpreting the rules governing the grant of depreciation. The grant of depreciation is allowable under s. 32 of the IT Act, read with r. 5 of the IT Rules, 1962. Rule 5 stipulates that subject to the provisions of sub-rr. (2) and (3), allowance of depreciation under sub-s. (1) of s. 32 on the respective assets shall be calculated “at the percentages specified in the Second Schedule of the Table in Part I of Appendix I. to these Rules on the actual cost or as the case may be, the written down value of such assets aforesasaid as are used for the purpose of business or profession of the assessee at any time during the previous year. Thus r. 5 makes a reference to the Appendix I. to find out the percentages at which depreciation is to be allowed. Appendix I lists the various types of machinery that is entitled to depreciation and under Art. 10(xiii) it states that any special device including electric generators and pumps run on wind energy will be entitled to depreciation at 30% It was under this head that the assessee claimed depreciation at 30% which the CIT allowed but which the Tribunal reduced to 20%. In reducing the rate of depreciation from 30% to 20%, it did interpret the applicable rule on the percentage and it could not have come to this conclusion other wise than by interpreting the rule. It is now settled law that a decision reached by the Tribunal on the interpretation of a statutory rule gives rise to a question of law. For this reason, I am of the opinion that the order of the Tribunal does give rise to a question of law.
6. The matter will now go before the regular Bench for the disposal of the reference application in accordance with the opinion of majority.
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