JUDGMENT
SETHURAMAN J. – The following questions have been referred by the Tribunal under s. 256(2) of the I.T. Act, 1961, in pursuance of the directions of this court in T.C.P. Nos. 365 to 370 of 1975:
“1. Whether, on the facts and in the circumstances of the case, the assessee was entitled to depreciation at more than 7% on the machinery utilised by it in the aerated water factory ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provisions of section 154 would apply to the assessees case ?
3. Whether the Appellate Tribunal was right in holding that section 154 was not applicable without the Appellate Tribunal deciding the correct rate of depreciation that should be granted on the machinery used for manufacture of aerated water ?”
The assessee is a manufacturer of aerated water under the trade name “Kali Mark”. It has a factory at Virudhunagar. In the original assessment made for each of the assessment years 1964-65 to 1969-70, the assessee claimed depreciation at 9% on all the machineries owned by it and the claim was allowed. This was on the basis that the assessee was having “aerated gas factories”.
Later, the ITO considered that there was a mistake apparent from the record, in that a higher rate of depreciation had been allowed, and called upon the assessee to show cause why the mistake should not be rectified. The assessee contended that the depreciation originally allowed at 9% was in order. The ITO overruled the objection and stated in his order under s. 154 for each of these years as follows:
“At the time of original assessment, the assessee claimed depreciation at 9% on all machineries on the ground that these machineries were operated by electricity and, therefore, the normal rate of 9% was allowable. The claim was allowed as claimed by the assessee.”
The basis of the assessees claim has been wrongly understood as it was not founded on the machinery being electrically operated. The assessee appealed to the AAC. He held as follows:
“To put it very simply, what is most important in soda, and other aerated waters, is the fizziness, and so since manufacture means to work up materials into finished articles, a factory(manufactory), which employs as the principal ingredient aerating gas could meaningfully be described as an aerating gas factory. Of course, vis-a-vis the products, the more accurate description would be aerated water factory, but that does not mean that the other description is totally inapposite.”
According to him, there was no mistake apparent from the records of the case and, therefore, there could not have been any rectification under s. 154.
The ITO appealed to the Tribunal. The Tribunal pointed out in pars. 5 of its order that the assessee had claimed 9% depreciation on the basis that the machinery was “operated by electricity” and that if the machinery was so operated, then the depreciation liable would be 10%. In the view of the Tribunal, though depreciation at 9% had been allowed for several years, and the assessee acquiesced in the allowance of depreciation at the same rate, this did not mean that the assessee had give up its claim that the machinery which it had was electrical machinery. The machinery in an aerating gas factory could, it was pointed out, well be electrical machinery, in which event depreciation to be allowed should have been 10%. The ITO had sought to withdraw the claim on the ground that 9% was the proper depreciation in respect of aerating gas factory. The view of the Tribunal was that the assessees case did not fall within the category of “aerating gas factory”. Even if the factory was not an aerating gas factory, the Tribunal envisaged the possibility of a contention being urged that the machinery being electrical machinery, depreciation should have been allowed at 10% and not at 7%. After the discussion on the above lines, the Tribunal pointed out as follows:
“In any event, therefore, there is no mistake apparent from the record which results in the irresistible conclusion that the rate of depreciation allowable on the machinery used by the assessee was only 7% and no other. In the present case, we have to confine ourselves to determine whether the provisions of section 154 are attracted. It is not necessary for us to pronounce on what would be the correct rate of depreciation. We have to come to the conclusion, on the facts stated, that there is no mistake apparent from the record to warrant the presumption that the rate of depreciation admissible to the machinery utilised by the assessee was only 7%. It could well have been 10% also. Merely because depreciation was allowed at 9% originally following the practice of several year, it did not follow that there was a mistake apparent from the record which authorises the Income-tax Officer to reduce such rate of depreciation to 7%. The order passed under section 154 holding that the machinery was entitled to depreciation at 7% only cannot be sustained since there is no mistake apparent from the record which would warrant such a conclusion. We, therefore, uphold the order of the Appellant Assistant Commissioner and dismiss the appeal of the department.”
It is this order of the Tribunal, which has given rise to the questions extracted already.
Section 154 contemplates the ITO, among other authorities, taking action with a view to rectifying any mistake apparent from the record. So long as the mistake is apparent from the record, the ITO would have jurisdiction to invoke s. 154. Therefore, the starting point of an enquiry, in a case arising under s. 154 would be, whether there is a mistake and then to examine whether the mistake is apparent from the record. If there is such a mistake apparent from the record, then the mistake would have to be rectified. The rates of depreciation are set out in App. I to the I. T. Rules, 1962. Depreciation of machinery and plant is given a general rate of 7%. However, this rate is increased in cases of particular types of factories. For instance, “aerating gas factories” are eligible for depreciation at 9%. Electrical machinery including electrical generators and motors, other than tramway motors, are eligible for depreciation at 10%. In the present case, what was necessary to be examined was, whether the assessee would be entitled to depreciation at 7% under the general rate or at 9% as relating to the aerating gas factories or at 10% as relating to electrical machinery. The nature of the machinery would determine the category in which the assessees case falls. There is no likelihood of any debatable issue in a case like this. In the present case, the case of the assessee was that it produced only aerated water, and did not manufacture aerating gas. It is only in the case of aerating gas factories, that 9% rate is applicable. Therefore, in the present case, even on the basis of the assessees own showing, 9% would be clearly an error apparent from the record. The matter is not one which is likely to involve any debate at all. The relevant details of the machinery would be on record. The Tribunal should have looked into the records and examined whether the 7% rate or the 10% rate would be applicable to the assessee. By not determining this question, the Tribunal acted erroneously, and has failed to exercise its jurisdiction.
In the Tribunals view, the assessee could ask for depreciation at 10%. If so, there was a clear error in the order of the ITO, in so far as he granted 9% as allowance. The assessee would then be eligible for refund and no technicality need have stood in the way of the assessee getting the benefit. The Tribunal will now go into the question as to what would be the proper rate of depreciation applicable to the assessee and adjudicate on the order under s. 154 accordingly.
The result is, the second and third questions are answered in the negative and in favour of the revenue. We do not considered it necessary to answer the first question as the relevant materials are not before us and the Tribunal has not given a finding on the matter. There will be no order as to costs.
