Sethuraman J.

The following question has been referred to this court under s. 256(1) of the I. T. Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to the allowance of development rebate for the assessment year 1971-72 " *

The assessee is a company, which owns a tea plantation and also a tea factory. The assessment year under consideration is 1971-72, the previous year ending on March 31, 1971. In submitting the return for this year, the assessee claimed an allowance of Rs. 75, 000 as development rebate under s. 33(1) of the Act. The Income-tax Officer did not allow the claim on the ground that the machinery in respect of which this claim had been made, was only installed and had not been used in the year of account and that the amount would be allowed as a deduction in the next year when the machinery was actually brought into use. The assessee appealed to the Aac, who held that the assessee had fulfilled the requisite conditions prescribed for the development rebate and he, therefore, directed the Income-tax Officer to allow it. The Income-tax Officer appealed to the Tribunal. The Tribunal after con- sidering the facts, came to the conclusion that when the machinery was kept ready for use and could not be used in the relevant accounting year, because of extraneous circumstances, then it would amount to passive user and, under the law, the allowance would be admissible to the assessee. The Commissioner of Income-tax has questioned this conclusion of the Tribunal in the form of the question extracted already.

Before proceeding to consider the question in its legal aspect we would extract certain passages from the directors report accompanying the statement of accounts for the years ended 31st March, 1971, and 31st March, 1972.

In the directors report for the year ended 31st March, 1971, the following passage occurs :

New Tea Factory : The board of directors have pleasure to report that the new tea factory building was completed during the season, and the erection of all the new tea machinery (purchased on hire purchase agreement with the Tea Board) was also over during the season. The machinery has been tested for manufacture of tea by trial runs even before 31st March, 1971. But the regular manufacture commenced only from June 1971, due to frequent labour unrest.

"In the directors report for the year ended 31st March, 1972, it is stated :

New Tea Factory : The board of directors have pleasure to report that the new tea factory building was completed last season and the new tea machinery, purchased on hire purchase agreement with the Tea Board, the installation of which was also completed during the last season has gone into production from the middle of June, 1971 (the year under review). Since then, C. T. C. process of tea manufacture was adopted, and there was marked improvement in the quality of the tea. This has resulted in better demand and higher prices. The average price was Rs. 5.33 per Kg. which is Rs. 0.57 per Kg in excess of the average price of Rs. 4.76 obtained during the previous year." *

From the above extracts, it would be clear that the assessee had completed the construction of the building and the installation of the machinery before 31st March, 1971, which is the year under consideration. The assessee could not start regular manufacture with the aid of this machinery because of frequent labour unrest. The machinery which was installed brought in better prices for the tea produced in the plantation as the process of manufacture was better. It is in the background of these facts, that the question as to whether the assessee is eligible for the development rebate in the year 1971-72 has to be decided.

The Income-tax Officer himself has stated in his order that he would allow it in the next year, when according to him, the regular production of tea with the aid of the machinery commenced. We shall now examine the claim of the assessee in the light of the relevant provisions.

Section 33 was inserted by the Finance (No. 2) Act, 1967, with effect from 1st April, 1968. The provision, in so far as it is material, runs as follows :

"33. Development rebate.-(1) (a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction, in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b) . . . . . . . . ." *

This section imposes two conditions for the allowance : one is that the machinery must be new and owned by the assessee and the other is that it must be wholly used for the purpose of the business carried on by the assessee. There is no dispute in the present case, that the machinery is new and that it is owned by the assessee. Mrs. Nalini Chidambaram, the learned counsel who argued the case on behalf of the Commissioner, contended that the actual user of the machinery for the purpose of business carried on by the assessee was only in the year next to the year in question and that, therefore, the assessee has not satisfied the twin conditions laid down in s. 33. Mr. Chidambaram, the learned counsel for the assessee, contended that he has satisfied the second condition also as the machinery was kept ready for use and it could not be used only because of certain extraneous circumstances, viz., frequent labour unrest. It is in this context we have to examine certain decisions brought to our notice.

Those decisions were rendered under ss. 10(2)(vi) and 10(2)(vii) of the Indian I. T. Act, 1922. Section 10(2)(vi), in so far as it is material, provided :

"Such profits or gains shall be computed after making the following allowances, namely :- . . . . . . . . .

(vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent, . . . . . . to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed . . . . . . "

The words" such buildings, machinery or plant" *

referred to the machinery, plant, etc., mentioned in sub-cl. (iv) of s. 10(2). That provision stated

"such profits or gains shall be computed after making the following allowances, namely in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation, the amount of any premium paid." *

This clause prescribes the condition of user for the purposes of the business, while cl. (vi) contemplates the machinery being the property of the assessee. Thus, under the law in force then also, there were two conditions to be satisfied by the assessee : one was that he should own the machinery and the other was that the machinery must be used for the purposes of the business. Section 32 of the I. T. Act, 1961, has practically re-enacted s. 10(2)(vi) and, in so far as it is material, runs as follows :

"32. Depreciation.-(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed- . . ." *

Thus, the law, as enacted in 1922 and re-enacted in 1961, was clear that the assessee must be the owner of the machinery or plant and must have used the plant or machinery for the purposes of the business.

The earliest case which went into the construction of s. 10(2)(vi) is Commissioner of Income-tax vs Viswanath Bhaskar Sathe. In that case, the assessee was a ginning factory and was a member of a pool. During the year of assessment, the factory of the assessee was not employed in the work of ginning in accordance with the pooling agreement though he received a share of the profits, presumably under the arrangement with the pool. The assessee claimed depreciation under s. 10(2)(vi) and the question was whether the assessee had "used" the machinery during the relevant year. The contention urged on behalf of the Commissioner was, that the word "used" would refer only to the actual working of the machinery. Beaumont C. J. pointed out at page 625 :

"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." *

This view has been followed in all later cases. In Whittle Anderson Ltd. vs Commissioner of Income-tax the Bombay High Court had again to deal with the case of machinery owned by a person who had entered into a pooling arrangement regarding cotton ginning and pressing. After referring to the earlier cases and the agreement relevant to that case the learned judges pointed out at page 630 :

"The agreement clearly provided that, although two out of the four presses which were directly in the pooling arrangement were to remain idle while the two presses worked, it is clear that the owners of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the definition of the word used as indicated in the authorities to which we have referred, it is clear that even these presses which remained under forced idleness were in use during the entire period of the year." *

(Emphasis added).

These cases came to be referred before the Supreme Court in Liquidators of Pursa Ltd. vs Commissioner of Income-tax their Lordships, in construing the expression "used for the purposes of the business", observed :

"The words used for the purposes of the business in section 10(2)(iv) of the Indian Income-tax Act, 1922, mean used for the purpose of enabling the owner to carry on the business and earn profits in the business. In other words, the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under section 10(1).

The word used has been read in some of the pool cases in a wide sense so as to include a passive as well as active user. It is not necessary, for the purposes of the present appeal, to express any opinion on that point on which the High Courts have expressed different views. It is however, clear that in order to attract the operation of clauses (v), (vi) and (vii) the machinery and plant must be such as were used in whatever sense that word is taken at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under clause (vii) in respect of them and the second proviso also does not come into operation." *

It may be noticed that the Supreme Court did not express any opinion on the correctness or otherwise of the decision in what are called the "pool cases". It would be necessary, however, to bear in mind that the statutory expression cannot vary in its meaning and content with the cases belonging to the pooling category and with others. The expression would have to be construed in a uniform sense so as to be applicable to all cases.

There appears to have been cases where a different view was taken as pointed out by the Supreme Court and these cases are noticed in Commissioner of Income-tax vs Jiwaji Rao Sugar Co. Ltd. which is printed as an Appendix to the decision in Commissioner of Income-tax vs Dr. Fida Hussain G. Abbasi ( 1969 ) 71 Itr 314 (Mp). We consider that the view taken by the Bombay High Court in Commissioner of Income-tax vs Vishwanath Bhaskar Sathe and the cases following it, is the more appropriate view to take on the construction of the provision.

The above passage from the judgment of the Supreme Court was referred to before the Bombay High Court in Whittle Anderson Ltd. vs Commissioner of Income-tax The learned judge pointed out at page 629 :

"Now profits can be earned and business can be carried on as much by using ones machinery as by allowing it to remain unused pursuant to an agreement so long as the assessee by that agreement also earns an income or is enabled to carry on his business." *

There is nothing peculiar to the pooling cases to give a wider meaning to the word "used" for the purpose of the business as comprehending a passive user only to those cases.

The result of these cases is to establish that the machinery could be "used" for the purposes of the business so long as it is kept ready for such user. Any "forced idleness" of the machinery cannot disentitle the assessees from getting the benefit of the allowance. In the present case, from the directors report, which have already been extracted and the contents of which are not at all in dispute, it is clear that the assessee was prevented from using the machinery because of the frequent labour unrest. In these circumstances, we consider that, in the present case, the assessee would be eligible for the allowance as the machinery was kept ready for use and in that sense had been "used" for the purpose of that business, as contemplated under the provision.

Mrs. Chidambaram contended that such a view would run counter to the second part of the provision under consideration. The second part of the provision is more or less a new concession in the sense that such a provision did not exist in the 1922 Act or in the 1961 Act, until it was introduced in 1967. This part of the provision in so far as it is material can be set out as follows :

"In respect of a new ship or new machinery or plant . . . . . . which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, . . . . . . be allowed a deduction, in respect of the previous year in which the . . . . . . machinery . . . . . . was installed or, if . . . . . . machinery . . . . . . is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b) . . . . . ." *

The first part of s. 33 contemplates the installation of machinery during the particular year and its user in the same year. If this provision was left as it was, then in a case where the machinery for some reason or other could not be put to actual use, but was used in the very succeeding year, the assessee would become ineligible for the grant of development rebate. In order to cover these cases where the assessee had installed the machinery in one year and put it into use in another year, the second part of s. 33 has been brought into operation. It is not necessary for us to express any opinion as to whether this part of the provision applies only to those cases where a new business is set up and in setting up the machinery is installed in one year and used in another. So long as the first part of the provision is satisfied in the present case, we consider that the assessee would be eligible for the grant of development rebate and it is unnecessary for us to go into the second part and whether the assessee is eligible for the development rebate next year on the view that the assessee had brought into use the machinery in the next year. The second part of the provision is an additional concession and is not to be understood as if it cuts down or restricts the first part. In view of the finding in the present case that the machinery was kept ready for use in that year and could have been used but for the strike, we are satisfied that the assessee is eligible for the development rebate.

The result is, the question referred to us is answered in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel fee Rs. 500.