COMMISSIONER OF INCOME TAX MADRAS vs. SOUTHERN ROADWAYS (P) LTD.

CIVIL APPEAL No. 211/1970Supreme Court[1975] 2 S.C.R. 88128 November 1974Bench: 2 JudgesAuthor: HANS RAJ KHANNA, A.C. GUPTA5 pages
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What were the facts?

The assessee, Southern Roadways (P) Ltd., engaged in the transport business, purchased new diesel engines and fitted them into its fleet of lorries and buses. The assessee claimed development rebate on the cost of these engines for assessment years 1961-62 and 1962-63. The Income Tax Officer and the Appellate Assistant Commissioner rejected these claims for both years. The Income Tax Appellate Tribunal allowed the claim for AY 1961-62 but rejected it for AY 1962-63. The High Court, relying on the Supreme Court's decision in Commissioner of Income-Tax v. Mir Mohammad, decided both references in favour of the assessee. The Commissioner of Income-Tax appealed this decision.

What did the Supreme Court hold?

The Supreme Court held that the High Court erred in its decision. For assessment year 1961-62, under Section 10(2)(vi-b) of the Income Tax Act, 1922, a proviso was introduced with effect from April 1, 1960, which explicitly stated that no allowance would be made in respect of any machinery or plant which consists of office appliances or road transport vehicles. The Court found the assessee's argument that the diesel engines retained their character as machinery to be unsound, as the engines were not used by the assessee for its business; rather, the vehicles in which they were fitted were used for the business. Therefore, the proviso was attracted, barring the claim. For assessment year 1962-63, Section 33(1)(a) of the Income Tax Act, 1961, materially differed from the law in the Mir Mohammad case, as it expressly excluded office appliances or road transport vehicles from its scope. Consequently, the development rebate was not allowable. The appeals were allowed, and the High Court's answers were discharged.

What were the issues?

1. Whether, for assessment year 1961-62, the Tribunal was right in law in holding that the assessee was entitled to claim development rebate on new diesel engines fitted to vehicles, considering Section 10(2)(vi-b) of the Income Tax Act, 1922, and its provisos? The assessee argued that the diesel engines retained their character as machinery even when fitted to vehicles, and therefore the proviso excluding road transport vehicles should not apply. The Revenue contended that the proviso explicitly excludes machinery that consists of road transport vehicles, and the engines were not used by the assessee for its business but were part of the vehicles which were used. 2. Whether, for assessment year 1962-63, the Tribunal was right in holding that development rebate was not allowable on new diesel engines installed on road transport vehicles, considering Section 33(1)(a) of the Income Tax Act, 1961? The assessee's argument would be similar to the first issue, that the engines are machinery. The Revenue argued that Section 33(1)(a) of the 1961 Act expressly excludes road transport vehicles from the scope of development rebate.

Which sections of the Income-tax Act were involved?

Section 10(2)(vi-b),Section 33(1)(a),Section 66(1),Section 256(1)

AI-generated summary — verify with the full judgment below

... j A B c D E F G H SSL· COMMISSIONER OF INCOME TAX MADRAS v. SOUTHERN ROADWAYS (P) LTD. · November 28, 1974 [H. R. KHANNA AND A. C. <:JUPTA, JJ.J Income.tax Act 1922-Scctiim 10(2)(vi·b) Proviso-Income Tax Act 1961, Section 33(1) (a )-Dei·e/opment rebate-Diesel Enginj;?s after they are fitted !O trucks wherher retai11 their characrer as rnacl1inery, The respondent is er.gaged in transport business and owns a fleet of lorries ;;nd buses. The respondent purchased new diesel .engines and fitted them in the vehicl~s. He claimed development rebate on the price of the die·;el engines pur~hased in respect of the assessment years 1961-62 and 1962-63. For the ac~ounting year relevant to assessment year 1961-62 the Income Tax Act, 1922 was applkable and for the tlccounting year relevant to 1962-63 the Income Tax Act, 1961 was applicable. The Income Tax Officer rejected the claim for development rebate in respect of both the years, The Appellate Asstt. Commis- sioner confirmed the decision of the In:ome Tax Officer. In respect of the assessment year 1961·62, the Tribunal allowed the claim of the assessee for development rebate. The Tribunal, however, rejected th

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