HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 55 / 2006 Modern Denim Ltd. Having Its Registered Office At A-4 Vijay Path, Tilak Nagar, Jaipur. Appellant Versus 1. Commissioner of Income Tax-II, Jaipur New Central Revenue Building Statue Circle, Jaipur. 2. Joint Commissioner of Income Tax, Special Range-I Jaipur. Respondents Connected With D.B. Income Tax Appeal No. 464 / 2008 Modern Denim Ltd. Having Its Registered Office At A-4 Vijay Path, Tilak Nagar, Jaipur. Appellant Versus Deputy Commissioner of Income Tax, Circle-6, New Central Revenue Building Statue Circle, Jaipur. Respondent D.B. Income Tax Appeal No. 53 / 2011 Modern Denim Ltd. Having Its Registered Office At A-4 Vijay Path, Tilak Nagar, Jaipur. Appellant Versus Deputy Commissioner of Income Tax, Circle-6, New Central Revenue Building Statue Circle, Jaipur. Respondent For Appellant(s) : Mr. Sunil Nath, Mr. Sandeep Taneja & Mr. Archit Bohra For Respondent(s) : Mr. R.B. Mathur HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment (2 of 17) [ ITA-55/2006] Per Hon ble Jhaveri, J. 09/05/2017 1. By way of these appeals, appellant has challenged judgment and order of Tribunal whereby Tribunal has dismissed appeal of department as well as assessee. 2. This Court while admitting appeal No.55/2006 on 22.12.2010 has framed following substantial questions of law: (i) Whether in facts and circumstances of case, Hon ble ITAT was justified in not allowing depreciation claimed by appellant without there being any contrary evidence? (ii) Whether in facts and circumstances of case, Hon ble ITAT was justified in holding that machine installed by appellant company is not energy saving device? (iii) Whether in facts and circumstances of case, Hon ble ITAT was justified in not considering certificate issued by manufacturing company stating that machine installed by appellant is thermally efficient in energy saving? (iv) Whether in facts and circumstances of case, Hon ble ITAT was justified in not considering machine installed by appellant having automatic switch off facility on completion of job is not energy saving device? (v) Whether in facts and circumstances of case, Hon ble ITAT was justified in not treating boiler as part of composite unit particularly when without boiler machine cannot be put to operation. 2.1. This Court while admitting appeal No.464/2008 on 21.08.2009 has framed following substantial questions of law: (3 of 17) [ ITA-55/2006] (i) Whether in facts and circumstances of case, Hon ble ITAT was justified in not allowing depreciation claimed by appellant without there being any contrary evidence? (ii) Whether in facts and circumstances of case, Hon ble ITAT was justified in holding that machine installed by appellant company is not energy saving device? (iii) Whether in facts and circumstances of case, Hon ble ITAT was justified in not considering certificate issued by manufacturing company stating that machine installed by appellant is thermally efficient in energy saving? (iv) Whether in facts and circumstances of case, Hon ble ITAT was justified in not considering machine installed by appellant having automatic switch off facility on completion of job is not energy saving device? (v) Whether in facts and circumstances of case, Hon ble ITAT was justified in not treating boiler as part of composite unit particularly when without boiler machine cannot be put to operation. 2.2. This Court while admitting appeal No.53/2011 on 15.09.2011 has framed following substantial questions of law: (i) Whether in facts and circumstances of case, Hon ble ITAT was justified in not allowing depreciation claimed by appellant without there being any contrary evidence? (ii) Whether in facts and circumstances of case, Hon ble ITAT was justified in holding that machine installed by appellant company is not energy saving device? (iii) Whether in facts and circumstances of case, Hon ble ITAT was justified in not considering (4 of 17) [ ITA-55/2006] certificate issued by manufacturing company stating that machine installed by appellant is thermally efficient in energy saving? (iv) Whether in facts and circumstances of case, Hon ble ITAT was justified in not considering machine installed by appellant having automatic switch off facility on completion of job is not energy saving device? (v) Whether in facts and circumstances of case, Hon ble ITAT was justified in not treating boiler as part of composite unit particularly when without boiler machine cannot be put to operation. 3. brief facts of case are that return declaring NIL taxable income and unabsorbed depreciation of relevant year was filed which was processed under section 143(1)(a) of Income Tax Act. assessee subsequently filed revised return declaring unabsorbed depreciation of year. It has been stated that interest due to financial institutions in earlier years has been paid during year and same was allowable u/s 43B of Act. Case was selected for scrutiny. Notice u/s 143(2) was served on assessee. In response to notice company appeared before AO from time to time. 4. Counsel for appellant has fairly conceded that all issues are interconnected and, therefore, only one issue is required to be decided. 5. Counsel for appellant Mr. Sunil Nath has taken us to observation made by Assessing Officer with regard to depreciation on dying machine which reads as under: (5 of 17) [ ITA-55/2006] During year assessee s total claim for depreciation amounted to Rs.17,42,72,455/-. Scrutiny of same revealed that assesseee has claimed deduction of Rs.6,89,53,605/- being 100% depreciation on certain items of P&L machinery. Vide query No.3 of questionnaire dated 23.9.1998 assessee was required to furnish dtails of such claim and to explain as to how 100% depreciation is allowable on Plant & Machinery. assessee vide its reply dated 2.1.1999 furnished break up of claim of 100% depreciation on Plant & Machinery as under:- S No. Name of Supplier Amount 1 Morrison Textile Machinery Co 5,97,18,603/- (Dye machine Automatic Monitor) 2 -do- 38,27,397/- 3 IAEC, Boilers, Ranipet (BOILER) 21,10,988/- 4 Mangaladeep Mateal Corporation, Bombay 9,19,856/- (POWER CABLE CONDUCTOR) 5 Crompton Greaves, bad 9,38,680/- (TRANSFORMER) 6 Installation, Transportation charges etc. 14,38,681/- 7 TOTAL COST 6,89,53,605/- On scrutiny of schedule for depreciation on various fixed assets it is seen that depreciation on aforesaid Dyeing machine other than BOILERS is allowable @ 25% only. assessee treated this device as energy saving device embed unit and claimed 100% deprecation. Assessee s plant and machinery under consideration does not fall under this category. It is in fact dyeing machine used in Textile industry. Therefore, depreciation @ 25% is allowable. Since assets were put to use for less than 6 months, 50% of normal rate would be allowed. In response to queries raised assessee furnished its detailed reply (6 of 17) [ ITA-55/2006] vide its letter dated 6/1/99 as under:- We have submitted details, list of plant & machinery along with invoices which is entitled for 100% depreciation. list of machinery includes main item i.e. 1219 MM 48 Faceo Roller width 12 Warp Indigo Dye Range 72 Face 1828 MM Roller width Integrated Range. Less Pare Brusher and Singer. It is imported latest dyeing machine, imported from USA and operation of this machine includes automatic monitoring of its use and automatic switch off once job is completed. This machine is energy saving device embed unit. In old type of dyeing machine these facilities were not available and consumption of energy was more as compared to production. Since it is energy saving device, we have correctly claimed 100% depreciation on this item of machinery as per rule 3(iii) of Income Tax Rules. Similarly, second item machinery is also imported latest dyeing machine having above advantages. cost of machine is Rs. 38,27,397/-. Third item is Efficiency Boiler costing to Rs. 21.10 lakhs which is covered by rule 3(iii) (DR) of Income Tax Rules, 1961. item No. four and fifth are electrical conductor and transformer which is covered by rule 3(E) of Income tax Rules. Assessee s claim for 100% depreciation on Dyeing machine is rejected. 5.1 He has also taken us to order of CIT(A) wherein in para 5.1 and 5.3 which was also reiterated by Mr. Mathur appearing on behalf of department, CIT(A) has observed as under: 5.1 Ao at pages 5 & 6 of asstt. Order allowed depreciation @ 100% on certain part of machinery i.e. Boiler and did not allow 100% depreciation on other machines, but allowed depreciation on those machine @ 25%. (7 of 17) [ ITA-55/2006] main contention of assessee company is that machines/equipments installed during year comes within category of Energy saving Devices. As per item No. 3(iii) of Append to Income-tax Rules, it will be noticed that in respect of Energy Saving Devices 100% depreciation has been provided. During year underconsideration equipments/plants ware installed. This also includes installation of Boiler. Such equipments including Boiler were installed for use of dyeing. latest equipments were imported and such equipments include automatic monitoring its use i.e. automatic switch off and switch on. Thus such automation i.e. automatic switch off and switch on conserve energy. Therefore, such equipments come within category of Energy Saving Devices. AO while discussing this issue held that only boiler which has been installed during year will qualify for 100% depreciation and other equipments installed with quality only for normal depreciation available on plant & machinery. He simply disallowed claim or assessee for 100% depreciation holding that 100% depreciation on dyeing machine is not available. He has not discussed anything nor pointed out how claim of assessee appellant was not correct. It is submitted that while considering applicability of particular rule one has to look into totality of facts. When one talks of plant & machinery or Energy Saving Devices, composite unit has to be taken into consideration. assessee company during year installed boiler and dye house in which equipments needed for energy conservation were included. Thus, total plant including boiler will constitute plant & machinery (Energy Saving Devices) on which 100 % depreciation is allowable. Machinery for purpose of obtaining depreciation allowance need not be self-contained unit; it may be part of bigger machine, or it may even be one that is used in conjunction with one or more machines before it can commence to operate. Nor would machinery cease to be machinery merely because it has been installed as part of manufacturing or (8 of 17) [ ITA-55/2006] industrial plant. It would continue to be machinery even after it has been made integral part of plant. This position has now been established by Supreme court in CIT V M/r Mohammad Ali. Thus, electric supply company is entitled to depreciation and development rebate on cost of mains, service lines and switch gears installed by it. So also, in context of rubber factory, water supply system and miscellaneous equipment have been held to be part of machinery normally used in rubber factories. 5.3 I have considered rival submissions. details of machinery on which 100% depreciation had been claimed are given at page-5 of asstt. Order. After scrutiny, it was found that depreciation on dyeing machine other than boilers was allowable @ 25% only. assessee treated this device as energy saving device embed unit and claimed 100% depreciation. Assessee s plant and machinery under consideration does not fall under this category. It is in fact dyeing machine used in Textile Industry. ld. AR has not been able to convince as to how this machinery & accessory to machine i.e. boiler entitled to 100% depreciation. This is not integral party of machinery. Therefore, AO was justified in restricting claim of depreciation. claim of depreciation had correctly been considered by AO. No relief is allowed to appellant on this account. 5.2 He has taken us to certificate issued by company which reads as under: NOTE ON DYE HOUSE Rope dyeing machine is main machines of Dye house to dye prepared yarn, Apart from Dyes and chemicals used for dyeing yarn, steam has key role for proper & uniform dyeing of yarn with best penetration which is must. Afterward yarn is dried by drying range where steam again has key role & hence Boiler (9 of 17) [ ITA-55/2006] is attached with functioning of Dye house. We have high efficiency oil fired Boilers which work on approximately 83% thermal efficiency. To have best performance, we use fuel additive in F.O., Feed water of commercial zero PPM quality and add oxygen scavenger, corrosion inhibitor, antisealant and sludge conditioner to feed water. Thus we keep heating surface of Boiler free from soot and seale deposition in water and fire side respectively and consequently energy is thermally conserved. moment, dyeing machine is fed at approximately 6kg/cm2. As such we can t separate Dyeing & Boiler and boiler is integral part of Dye house. As soon as maximum required pressure in Boiler is attained, Boiler gets auto stopped and starts back automatically when lowest pressure is touched. Thus electrical energy is conserved by auto start and stop of Air Blower, Feed Pump, F.O. Pump, Electirc heater etc. 5.3 He has also taken us to letter issued by manufacturer which reads as under: Morrison rope dyeing machine is best Thermally energy efficient machines , as it requires only 697 Kcal of heat to evaporate one kt of water. 5.4 depreciation has been ignored by all authorities and basic object of granting 100% depreciation has been frustrated. Tribunal in para 10 of its order has observed as under: 10. By merely installing auto-cut machine, it cannot be treated as Energy Saving Devices. In absence of any legal provision or case law, we are unable to agree with submission made by Ld. A/R. Hence, without repeating, we uphold order of lower authorities, who have (10 of 17) [ ITA-55/2006] rightly allowed depreciation @ 25%. Hence, we find no merit in this ground. This ground is dismissed. 5.5 Counsel for appellant has relied upon decision of Orissa High Court in case of M/s. Industrial Development Corporation of Orissa Ltd. vs. Commissioner of Income Tax & Ors. (2004) 268 ITR 130 wherein it has been observed as under: 15. It will be clear from aforesaid communication that as per said expert opinion of Chief Electrical Inspector (T & D), at least two of items, namely, 63 MVAR capacitor bank and 100 MVAR capacitor bank at different sub-stations come under 'energy saving devices'. In communication dated November 7, 2003, of Chief Electrical Inspector (T & D) quoted above, he has not stated that other items of machinery in different grid sub- sections purchased by appellant from OSEB are not devices which can form part of 'automatic electrical load monitoring systems'. Commissioner himself has observed in order dated March 29, 2001, under Section 263 of Act that transmission sub-stations consist of usual circuit breakers, transformers, isolators, arresters, control panel, capacitor bank, etc., which are normal components of voltage step-down systems where high voltage transmission is stepped down to lower voltage. What Commissioner lost sight of is that transmission of electrical energy is made at high voltage with view to prevent loss of electrical energy during transmission and if after such transmission, any plant and machinery are used for stepping down high voltage transmission to lower voltage, such plant and machinery for stepping down high voltage to lower voltage are part of larger system of saving electrical energy. We are thus of view that depreciation is allowable on plant and machinery in question under Rule 5, (11 of 17) [ ITA-55/2006] Appendix I, Part III(3)(iii)B of Rules and finding of Commissioner in order dated March 29, 2001, under Section 263 of Act that assessment order passed by Assessing Officer allowing 100 per cent. depreciation on such plant and machinery was erroneous is not correct. For self- same reasons, finding of Tribunal that plant and machinery which have been purchased by appellant and leased out to OSEB is eligible for 25 per cent. depreciation is not correct. first and third substantial questions of law are answered accordingly. 5.6 He has also relied upon decision of Madhya Pradesh High Court in case of Dy. Commissioner of Income Tax, Special Range-2 vs. Vippy Solvex Products Ltd. MANU/MP/0558/2007 wherein it has been observed as under: core question which has been raised by learned Counsel for revenue is that although High efficiency boilers in assessee's concern is entitled to 100 per cent depreciation, including insulation material to preserve heat, other components such as coal container, coal conveyer, bucket elevator, dust collecting system qualify for 25 per cent depreciation and Commissioner (Appeals) and Tribunal have, both, committed patent error in setting aside order of assessing officer, declining 100 per ent depreciation on abovesaid items. Learned Counsel for department contends that items for which now depreciation is being claimed at 100 per cent, are not integral part of boiler in order to become eligible for 100 per cent depreciation. Learned Counsel for respondent- assessee, per contra, has pointedout that coal container, coal conveyer, bucket elevator and dustcollecting system can have no independent existence and it is for purposes of modernisation and automation that these items were pur-chased and (12 of 17) [ ITA-55/2006] attached to boiler and since they become integral and inseparable part of boiler, without having any utility otherwise, they are also entitled to depreciation at rate of 100 per cent. We have heard learned Counsel for parties and perused there cord. As per facts of case, as revealed in ITA No. 132/2003,the assessee is Public Limited Company which filed return for assessment year 1993-94 on 30-12-1993 indicating taxable income of Rs. 2,25,71,671. assessment was completed under Section 143(3) and income was determined in sum of Rs. 41,68,560. Company is engaged in manufacture of Soya Oil in which it had installed fluidized bed type boiler in assessment year 1992-93. Thereafter Company procured coal container, coal conveyor, bucket elevator and dust collecting system for better utilization of boiler and claimed 100 per cent depreciation Ie., Rs. 48,84,796. Except for insulating material, Assessing Officer by his order dated 26-2-1996, rejected claim for 100 per cent depreciation. assessee appealed to Commissioner (Appeals) against order of assessing officer and appeal was allowed. Further appeal to Income Tax Appellate Tribunal was dismissed by Tribunal in light of judgment of Hon'ble Kerala High Court in CIT v. Cochin Refineries Ltd. . Tribunal observed that observation of assessing officer was conjectural as utility of item should not be examined in isolation and nature shall depend on function for which its is used. It also observed that there was no doubt that boiler will not function in absence of coal supply system and, therefore, Tribunal agreed with Commissioner (Appeals) that coal supply system was part and parcel of boiler and entire coal system is entitled to depreciation at rate of 100 per cent. Cochin Refineries Ltd.'s case (supra), claim was made for depreciation in respect of waste ponds, fresh water tank, pipe racks, alloy piping, jetty facilities, cherry (13 of 17) [ ITA-55/2006] pieker cranes, etc, as part of Refinery. claim was turned down by Assessing Authority but High Court, on question being raised before it, came to conclusion that waste ponds, fresh water tank, pipe racks, alloy piping, jetty facilities, cherry piker cranes, etc, formed integral part of Refinery and it was entitled to higher rate of depreciation and development rebate in that respect. In case in hand, it has not been shown by revenue that coal container, coal conveyer and bucket elevator, dust collecting system can individually be utilised f or any other purpose. Apart from f act. that there was no other purpose for use of this machinery in assessee's Company, further fact that these were integral components of boiler, strengthens view that they also become eligible to 100 per cent depreciation as was allowed in case of Cochin Refineries Ltd. (supra). We are, therefore, of view that questions formulated in this case should be answered in favour of assessee and against revenue. We accordingly hold that Tribunal did not err in extending benefit to assessee towards depreciation at rate of 100 per cent on automatic coal system, treating it to be part and parcel of boiler, and that on these items assessee was not required to restrict its claim to 25 per cent. 5.7 He has also contended that said judgment of Madhya Pradesh High Court was taken to Supreme Court vide its order dated 11.02.2008 dismissed SLP. 6. Mr. Mathur has taken us to schedule 3 (iii) E which reads as under: (3) (i) Wooden parts used in artificial silk manufacturing machinery (ii) Cinematograph files- bulbs of studio lights (iii) Energy saving devices, being--- (14 of 17) [ ITA-55/2006] A. Specialised boilers and furnaces: B .. C .. D E. Electrical equipments: (a) Shunt capacitors and synchronous condenser systems (b) Automatic power cut off devices (relays) mounted on individual motors (c) Automatic voltage controller (d) Power factor controller for AC motors (e) solid state devices for controlling motor speeds (f) Thermally energy-efficient stenters (which require 800 or less kilocalories of heat to evaporate one kilogram of water) 6.1 Counsel for respondent Mr. Mathur has contended that boiler is granted depreciation but dyeing machine will not be part of it. certificate issued by manufacturer is for purpose of advertisement. He has taken us to judgment of Madras High Court in case of Commissioner of Income Tax vs. Adar Tea Products Company [2009] 314 ITR 38 (Mad) where word being has been interpreted. Madras High Court has observed as under: 2. assessee had claimed depreciation at 100% on Fluid Bed Drier for Assessment Year 1994-95. It was allowed. notice under Section 154 of Income Tax Act, 1961 ('Act' in short) was issued calling for assessee's objection for withdrawal of 100% depreciation. assessee objected to disallowance. objections were rejected as untenable since Revenue took stand that Fluid bed drier is not enumerated as energy saving device in old Appendix-I which is applicable for Assessment Year period from 1988- (15 of 17) [ ITA-55/2006] 1989 to 2002-2003. Even earlier, Revenue took same stand for Assessment Year 1993-94. Those orders were confirmed in appeal. But, appeal filed against assessment orders in this case was allowed by Commissioner of Income Tax (Appeals), relying on (2002) 253 I.T.R. 71 [Asst. C.I.T. vs. Bijoy Nagar Tea Co. Ltd.] (Income Tax Appellate Tribunal, Calcutta "B" Bench) and Assessing Officer was directed to allow 100% depreciation. Tribunal also dismissed appeal filed by Revenue. So, present tax case appeal has been filed. 5. Table of Depreciation reads as follows :- Block of assets Depreciation allowance as percentage of written down value III. MACHINERY AND PLANT ... 8... (ix) Energy saving devices, being A. Specialised boilers and furnaces : (a) Ignifluid/fluidised bed boilers ] (b) Flameless furnaces and continuous ] pusher type furnaces ] (c) Fludised bed type heat treatment ] 80 furnaces ] (d) High efficient boilers (thermal ] efficient higher than 75 per cent ] in case of coal fired and 80 per ] cent in case of oil/gas fired ] boilers ] 13. Let us see what can be used in above extracts to substitute word "being". For example, in sentence, "excise duty being levy on manufacture or production of goods" can be read to mean, "excise duty which is levy on manufacture or production of goods". Therefore, how we may understand word "being" used in depreciation table is, it means, Energy saving devices "which are" devices mentioned therein. Further, in same table, subject category in 8(ix) has caption "specialised boilers and furnaces" and word "drier" is not used. In same table, words "ventilator used with anesthesia apparatus" and words (16 of 17) [ ITA-55/2006] "ventilators other than those used with anesthesia" are used with reference to "life saving... being...". If we have to treat "being" as like or including, then it was not necessary to specifically mention "ventilators used with anesthesia apparatus" and "ventilators other than those used with anesthesia". So, it does appear that depreciation table enumerates and exhausts those equipments for which depreciation is admissible at rates mentioned. Under head "Renewal energy devices", "solar crop driers" as well as "solar water heaters" are included. So, if "driers" was meant to be included, we are sure, they would have been specifically indicated therein. 18. Table of Depreciation states that energy-saving devices for which 100% depreciation is allowed are equipments named therein, i.e., "the energy devices" which are "fluidised bed boilers, furnaces". 21. table includes energy-saving device in context and for purpose of encouraging industries to adopt energy- saving measures. While it was possible, in context of encouraging industrial activity, to bring within net of exemption, manufacture of products which may even 'be remotely considered as 'paper'; we cannot adopt same reasoning here, since table indicates its intention to afford depreciation at rates mentioned only to specifically listed equipments. It is not even proved that drier of kind mentioned herein is energy saving device. 6.2 Mr. Mathur has further contended that word being has been rightly interpreted by Madras High Court and, therefore, view taken by Tribunal is required to be upheld. While referring to Schedule 3, he has contended that intention of legislation was very clear that in items which were included in schedule, dyeing machine was never part of boiler and (17 of 17) [ ITA-55/2006] therefore, view taken by all authorities appeal deserves to be dismissed. 7. We have heard counsel for both sides. 8. Before proceeding with matter it will be out of place to mention that boiler is main part of dying machine to increase efficiency and energy level and boiler being part of effective machinery which converts water into steam at lower efficiency of energy. 9. In our considered opinion, in view of judgment of Madhya Pradesh High Court in case of Dy. Commissioner of Income Tax, Special Range-2 vs. Vippy Solvex Products Ltd. (supra) view taken by Tribunal is required to be accepted modified that boiler is part of dyeing machine and any part which is required in dying process is required to be granted 100% depreciation. 10. In that view of matter, all authorities have seriously committed error. 11. In that view of matter, issue is answered in favour of assessee and against department. 12. All appeals stand disposed of accordingly. 13. copy of this judgment be placed in each of file. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Asheesh Kr. Yadav/7-9 Modern Denim Ltd. v. Commissioner of Income-tax-II, Jaipur/ Joint Commissioner of Income-tax, Special Range-I Jaipur