Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, MADRAS
Vs.
RESPONDENT:
MIR MOHD. ALI, BUS OWNER, VELLORE
DATE OF JUDGMENT:
24/04/1964
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.
CITATION:
1964 AIR 1693 1964 SCR (7) 846
CITATOR INFO :
D 1975 SC 481 (3)
ACT:
Income Tax-Depreciation allowance-Replacement of petrol
engine in a bus by new Diesel engine-If amounts to
installation of machinery ’Installation of machinery", Mean-
ing of-Indian Income-tax Act, 1922 (11 of 1922), ss.
10(2)(vi). 10 (2) (via).
HEADNOTE:
The assessee, who was the owner of a fleet of buses, rep-
laced the petrol engines in two of his buses by new Diesel
engines incurring an expenditure of Rs. 18,544/- in this
connection, during the year of account ending with March 31,
1950. For the relevant assessment year he claimed deprecia-
tion allowance under the second para of cl. (vi) and cl.
(via) of s. 10(2) of the Indian Income-tax Act, 1922, apart
from the normal depreciation under the first para of cl.
(vi) but he was allowed only 25 per cent depreciation under
the first para ,of cl. (vi) on the ground that he was not
entitled to extra depreciation under s. 10(2)(vi). or s.
10(2)(via) because the ,engine was only part of an equipment
and could not by itself become machinery and that when an
engine was fixed in a motor vehicle it could not be said to
be installed within the meaning of those sub-sections.
Held: (per Subba Rao and Sikri, JJ.) (i) The assessee was
entitled to extra depreciation under ss. 10(2)(vi). and
10(2) (via) of the Indian Income-tax Act, 1922, in respect
of the diesel oil engine fitted to the motor vehicles in
replacement of the existing engines.
(ii)The definition of "machinery" given by the Privy
Council in the case of Corporation of Calcutta v. Chairman,
Cossipore and Chitpore Municipality (1922) L.R. 48 I.A. 435,
is applicable, and according to that definition a diesel
engine is clearly "machinery". And when an engine is fixed
in a vehicle it is installed within the meaning of the
expression in cls. (vi) and (via).
Per Shah, J. (dissenting)--Replacement of a petrol engine by
a new diesel engine in a motor car cannot be said to be
installation of machinery. To be installed, the machinery
must for the purpose of the business be brought into service
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as a self-contained unit, and it would be difficult to
regard the introduction of a mere part, which has no
independent use in the business conducted by the assesses,
as machinery installed for the purpose of the second para of
cl. (vi) of s. 10 (2).
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 145 of 1963.
Appeal from the judgment and order dated November 16. 1959,
of the Madras High Court in Case Reference No. 82 of 1956.
S. K. Kapur and R. N. Sachthey, for the appellant.
S. Swaminathan and R. Gopalakrishnan, for the respondent.
847
S. T. Desai, J. B. Dadachanji, O. C. Mathur and Ravinder
Narain, for the intervenor.
April 24, 1964. The judgment Of SUBBA RAo and SIKRI In, JJ.
was delivered by SIKRI J. SHAH J. delivered a dissenting
Opinion.
SIKRI, J.-This is an appeal by the Commissioner of Income
Tax, Madras, against the judgment of the High Court, dated
November 16, 1959, on a certificate granted by the High
Court under s. 66A(2) of the Indian Income Tax Act, 1922.
The respondent, Mir Mohd. Ali, hereinafter referred to as
the assessee, is a bus owner and transport operator at Vel-
lore, North Arcot District. He had a fleet of buses, and
during the year of account ending with March 31, 1950
(relevant to assessment year 1950-51) he replaced the petrol
engines in two of his buses (MDJ 583 and MDJ 723) by new
Diesel engines, incurring an expenditure of Rs. 18,544/in
this connection. Before the Income Tax Officer, apart from
claiming normal depreciation under the first Paragraph of
cl. (vi) of s. 10(2), he also claimed depreciation under the
second paragraph of cl. (vi) and cl. (via) of the Indian
Income Tax Act, 1922. The Income Tax Officer only allowed
25 per cent depreciation under the first paragraph of cl.
(vi). The assessee appealed unsuccessfully to the Appellate
Assistant Commissioner on this point. There were other
points involved in the appeal but as we are not concerned
with them in this appeal, they are not being mentioned. On
further appeal, the Appellate Tribunal held that "the
assessee is not entitled to extra depreciation under s.
10(2) (vi) or s. 10(2)(via) because however important the
engine might be for running of a motor, it is after all part
of an equipment and it cannot by itself become "machinery"
for the purpose of claiming extra depreciation, as envisaged
in these sub-sections. We have to hold that the
"installation of the new engines is only a capital addition,
for the above reasons the assessee was rightly refused the
extra depreciation he claims". The Income Tax Appellate
Tribunal, on the application of the assessee, referred the
following question to the High Court:
"Whether extra depreciation is admissible
under the provisions of section 10(2)(via) of
the Income Tax Act, in respect of a diesel oil
engine fitted to a motor vehicle in
replacement of the existing engine."
We may mention that another question regarding disallowance
of interest had also been referred to the High Court but we
are not concerned with that in the present appeal.
848
As the High Court felt that there had been an accidental
slip in framing the question, it amended the question as and
the amended question reads:
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"Whether extra depreciation is admissible
under the provisions of s. 10(2)(vi) and
section 10(2)(via) of the Income Tax Act in
respect of the diesel oil engines fitted to
the motor vehicles in replacement of the
existing engines".
The High Court answered this question in the affirmative
i.e., in favour of the assessee. The Commissioner of Income
Tax, on obtaining a certificate under s. 66A(2) of the
Income Tax Act, has filed this appeal.
Before attempting to answer the question, it is necessary to
set out the relevant provisions of the Income Tax Act. The
relevant provisions, as in force at the relevant time, were:
s. 10(2) Such profits or gains shall be
computed after making the following
allowances, namely--
(iv)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;
(v) in respect of current repairs to such
buildings, machinery, plant or furniture, the
amount paid on account thereof;
(vi)in respect of depreciation of such
buildings, machinery, plant, or furniture
being the property of the assessee, a sum
equivalent, where the assets are ships other
than ships ordinarily plying on inland waters,
to such percentage on the original cost
thereof to the assessee as may in any case or
class of cases be prescribed and in any other
case, to such percentage on the written down
value thereof as may in any case or class of
cases be prescribed;
and where the buildings have been newly
erected, or the machinery or plant being new
has been installed, after the 31st day of
March, 1945, a further sum (which shall
however not be deductible in determining the
written down value for the purposes of this
clause) in respect of the year of erection or
installation equivalent,-
(a) in the case of buildings the erection of
which is begun and completed between the 1st
day
849
of April 1946 and the 31st day of March 1952
(both dates inclusive), to fifteen per cent of
the cost thereof to the assessee;
(b) in the case of other buildings, to ten
per cent of the cost thereof to the assessee;
(c) in the case of machinery or plant, to
twenty per cent of the cost thereof to the
assessee:
Provided that-
(via) in respect of depreciation of buildings
newly erected, or of machinery or plant being
new which has been installed, after the 31st
day of March, 1948, a further sum (which shall
be deductible in determining the written down
value) equal to the amount admissible under
clause (vi) (exclusive of the extra allowance
for double or multiple shift working of the
machinery or plant and the initial
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depreciation allowance admissible under that
clause for the first year of erection of the
building or the installation of the machinery
or plant) in the assessments for such of the
five years commencing on the 1st day of April,
1949, and ending with the 31st day of March,
1954:
Provided that where, in respect of such
machinery or plant, the assessee establishes
that the market value of similar machinery or
plant on the 31st day of March, 1953, is lower
than the original cost, then, subject to the
provisions of clause (vi), there shall be made
in the assessment for the year commencing next
after that date a further allowance (which
shall be deductible in determining the written
down value) of an amount by which the written
down value of the machinery or plant as on
that date (without deduction of the initial
depreciation admissible in the first year)
would have exceeded the corresponding written
down value thereof as on the same date if the
market price of the machinery or plant had
been taken as the actual cost of the assessee;
(vii)in respect of any such building,
machinery or plant which has been sold or
discarded or demolished or destroyed, the
amount by which the written down value thereof
exceeds the amount
850
for which the building, machinery or plant, as
the case may be, is actually sold or its scrap
value:
Provided that
(5) In sub-section (2) ..........‘plant’
includes vehicles, books, scientific apparatus
and surgical equipment purchased for the
purpose of the business, profession or
vocation......."
The point at issue before us has been considered by three
High Courts. The Bombay and Andhra Pradesh High Courts have
held against the assessee while in the judgment under
appeal, the Madras High Court has held in favour of the
assessee. The High Court of Andhra Pradesh, in the case of
B. Srikantiah v. Commissioner of Income-Tax Andhra
Pradesh(1), followed the Bombay case and expressly dissented
from the Madras case.
In the judgment under appeal (reported as Mr. Mohd. Ali v.
Commissioner of Income-Tax, Madras(2), the High Court
arrived at the conclusion by the following steps:
(a)Machinery must be given the same meaning
with reference to each of the statutory
provisions, in s. 10(2)(vi) and s.
10(2)(via);
(b) A diesel engine is machinery by the test
laid down in the case of Corporation of
Calcutta v. Chairman, Cossipore and Chitpore
Municipality(3);
(c) Machinery does not cease to be machinery
merely because it has to be used in
conjunction with one or more machines. Nor
does it cease to be machinery merely because
it is, for instance, installed as part of a
manufacturing or industrial plant;
(d) The statutory provision for depreciation
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is in the alternative. Whether it is plant or
whether it is machinery without its being
itself a plant, the assessee is entitled to
claim the statutory allowance for
depreciation.
The question then is: Which is the correct view? First, the
history of para two of cl. (vi) may be noticed. The object
of the Income Tax (Amendment) Act, 1946 (VIII of 1946),
which first inserted the provisions regarding extra
depreciation, was to encourage the modernisation and re-
habilitation of industry and trade. The Second World War
(1961) 41 I.T.R. 518. (2) (1960) 38 I.T.R. 413.
(3) (1922) I.L.R. 49Cal. 190.
851
had ended recently and during the long war machinery and
plant had not only not been replaced or modernised but had
been subjected to excessive wear and tear and needed
rehabilitation. During the War, there had also been
great,,, -advance in technology.
It is then pertinent to point out that the word ’machinery’
occurs in cls. (iv), (v), (vi) and (via) of s. 10(2). Prima
facie the same meaning must be given to the word ,machinery’
in all these clauses. If a machine is machinery for
purposes of giving an allowance in respect of insurance or
for repairs or in respect of normal depreciation or for the
purpose of para one of cl. (vi), it must also be machinery
for the purpose of second para of cl. (vi) and cl. (via).
But it is said that the scheme of para two of cl. (vi) and
cl. (via) is different from that of para one of cl. (vi)
inasmuch as before it can qualify for extra depreciation,
the machinery must be new and must be installed, and the
rate of depreciation is provided in the Act itself. Keeping
in view this scheme, it is urged that the word ’machinery’
must be given a restricted meaning in para two of cl. (vi)
and cl. (via), and the meaning suggested is that it must be
a "self contained unit capable of being put to use in the
business, profession or vocation for the benefit of which it
was installed". That this is the true meaning, it is
further said, is evidenced by the definition of the word
’plant’ in s. 10(5). It is argued that this definition
indicates that for purposes of para two of cl. (vi) and cl.
(via), ’plant’, including a vehicle should be viewed as a
unit and component parts thereof are excluded from its
purview, and ’machinery’ should also be considered in the
same light.
Let us now examine these contentions. First, we do not
think that there is anything in the scheme of the second
para ,of cl. (vi) and cl. (via) that throws any light on the
construction of the word ’machinery’ in these clauses. It
is true that the machinery must be new and it must be
installed and the rate of allowance is prescribed in the Act
itself. But the requirement that the machinery must be new
does not tell us what is ’machinery’. Assuming for the
present that a diesel engine is machinery, if an assessee
buys and instals a secondhand diesel engine, he will not be
given the extra allowance under the second para of cl. (vi),
and the ground would be that the engine is not new and not
that because it is second-hand, it is not machinery.
Similarly, if it is purchased but not installed, the ground
of refusal would be that it has not been installed and not
that because it has not been installed it has ceased to be
machinery. Suppose a new machinery is purchased but not
installed, it would not qualify for extra depreciation on
the ground that it has not been
852
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installed and not because it has ceased to be machinery due
to its non-installation. The fact that the rate of
depreciation is provided for in the Act has also no bearing
on the question of the construction of the word ’machinery’.
This fact only indicates that the legislature had made up
its mind as to the extent of encouragement to be given to
industry and, therefore, it did not consider it necessary to
delegate this to the rule-making authority.
The definition of the word ’plant’ in s. 10(5) equally does
not throw any light on the meaning of the word ’machinery’.
The word ’plant’ is of wide import, but even so it may be
argued that vehicles, books, scientific apparatus and
surgical equipment are not ’plant’ in all businesses, pro-
fessions and vocations. The legislature settled this
possible controversy, but without throwing any light on the
true meaning of the word ’machinery’.
What then is the test for determining whether a mechanical
contrivance is machinery for the purposes of second para of
cl. (vi) and cl. (via)? The Privy Council in the case of
Corporation of Calcutta v. Chairman, Cossipore and Chitpore
Municipality(1) hazarded the following definition of
‘machinery’:
"The word ’machinery’, when used in ordinary
language prima facie, means some mechanical
contrivances which, by themselves or in
combination with one or more other mechanical
contrivances,. by the combined movement and
inter-dependent operation of their respective
parts generate power, or evoke, modify, apply
or direct natural forces with the object in
each case of effecting so definite and
specific a result."
They had already observed that the word ’machinery’ must
mean more than a collection of ordinary tools. The Privy
Council case was not a tax case but prima facie the ordinary
meaning of the word ’machinery’-and the word machinery’ is
an ordinary and not a technical word-must, unless there is
something in the context, prevail in the Indian Income Tax
Act also.
According to the above definition, a diesel engine is
clearly ’machinery’. Indeed, r. 8 of the Income Tax Rules
treats aero-engines separately from aircraft. It is true
that this rule cannot be used to interpret the clauses in
the Act but it does show that components of an aircraft,
which are machinery, can be treated separately.
(1) (1922) I.L.R 49 Cal. 190
853
Further, when the assessee purchased the diesel engines,
they were not ’plant’ or part of a plant, because they had
not been installed in any vehicle. They were, according to
the definition given by the Privy Council, machinery. They,
were not yet part of a plant, and, according to the Act, 20’
per cent of the cost thereof was allowable to the assessee.
All the conditions required by the Act are satisfied. If we
look at the point of time of purchase and installation, what
was purchased and installed was machinery.
The learned counsel next contended that the assessee is not
entitled to extra depreciation because a diesel engine
cannot be said to be installed. He urges that the word
’installed’ is wholly inappropriate to cover the fixing of a
diesel engine in a motor vehicle. We are of the opinion
that there is no force in this contention. As observed by
the Bombay High Court in the case of Commissioner of Income-
Tax v. Saraspur Mills Ltd.(1) the expression ’installed’ did
not necessarily mean ’fixed in position’ but was also used
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in the sense of ’inducted or introduced’-, or to use the
language of the Madras High Court in the case of
Commissioner of Income Tax, Madras v. Sri Ram Vilas Services
(Pvt) Ltd.(2), installed would certainly mean ’to place an
apparatus in position for service or use’. We are of the
opinion that when an engine is fixed in a vehicle it is
installed within the meaning of the expression in cls. (vi)
and (via).
Accordingly, we hold that the High Court was correct in
answering the question referred to it in the affirmative.
The appeal, therefore fails and is dismissed with costs.
SHAH, J.- I am unable to hold that the respondent is
entitled to the allowance under s. 10(2)(vi) paragraph 2, in
respect of the diesel engines claimed by him.
Section 10 of the Indian Income-tax Act provides that tax
shall be payable on the profits and gains of an assessee
under the head ’profits and gain of business, profession or
vocation". By sub-s. (2) in the computation of taxable pro-
fits certain allowances prescribed therein are permissible.
We are primarily concerned in this appeal with the initial
allowance permissible under the second paragraph of cl. (vi)
of sub-s. (2). But cls. (iv), (v), (vi), (vi)(a) and (vii)
are inter-related and it may be necessary briefly to refer
to those provisions By cl. (iv) allowance for premium paid
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 is admissible. Under cl. (v) an
amount paid on account of any current repairs to such
buildings, machinery, plant or furniture is
(1),(1959) 36 I.T.R. 580.
( 2 ) (1960) 38 I.T.R. 25.
854
an admissible allowance. Clause (vi) recognises by the
first paragraph a right to normal depreciation of a
percentage on the prescribed valuation of such buildings.
machinery, plant or furniture, which are the property of the
assessees. The second paragraph at the material time stood
as follows:
"and where the buildings have been newly
erected, or the machinery or plant being new
has been installed, after the 31st day of
March, 1945, a further sum (which shall
however not be deductible in determining the
written down value for the purposes of this
clause) in respect of the year of erection or
installation equivalent, etc. etc."
Clause (vi)(a) which was inserted by Act 67 of 1949 permit-
ted a further depreciation allowance In respect of buildings
newly erected or of machinery or plant being new which had
been erected or installed after March 31, 1948, in not more
than five successive assessments, for the financial years
next following the previous year in which such buildings
were erected, or machinery or plant installed. Clause (vii)
permitted as an allowance the difference between the written
down value and the sale price or scrap value of such
buildings, machinery or plant which had been sold,
discarded, demolished or destroyed.
All these clauses dealt with allowances in respect of assets
of the specified description and used for the purpose of
business, profession or vocation. The depreciation allow-
ance permitted under the first paragraph of cl. (vi) which
may be called the normal allowance is in respect of all
buildings, machinery, plant and furniture of the assessee
used for the purpose of his business. By the second
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paragraph of cl. (vi) an initial allowance in the year in
which buildings have been newly erected or the machinery or
plant being new has been installed after March 31, 1945, is
allowable. Use of the definite article "the" in the second
paragraph indicates that the buildings, machinery or plant
referred to in that paragraph must also be used for the
purpose of the business, profession or vocation of the
assessee. However to qualify for the initial allowance
under paragraph two, the buildings must be newly erected or
the machinery or plant being new must have been installed,
after March 31, 1945.
Two rival views are pressed upon us in support of the
respective cases of the Commissioner and the assessee as to
the meaning of the second paragraph. The Commissioner
contends that the buildings, machinery or plant for which
the initial allowance is admissible must be a self-contained
unit capable of being put to use in the business, profession
or vocation for the benefit of which it is erected or
installed. It is submitted that the second paragraph of cl.
(vi) was en-
855
acted with the object of giving a fillip to industry which
had been starved during the war years of new machinery and
building activity. But the buildings, machinery, or plant
to qualify for the initial allowances were not intended to
be in the nature of replacement, addition, or repair to
existing units: they had to be buildings newly erected or
machinery or plant being new installed. On behalf of the
assessee it was contended that the Legislature has not put
any restriction of the nature suggested on behalf of the
Commissioner and, therefore, any building or a part thereof
newly erected or any new machinery or plant or a part
thereof installed,. qualified for the benefit of the initial
allowance.
The question to be decided is one about the intention of the
Legislature. Can it be said that when to an existing
building a room even a floor is added, that the additional
construction is a building newly erected? In my view, that
does not appear to be the intention. Such an addition to an
existing structure, becomes a part of the structure, and
cannot be said to be a building newly erected. If every
alteration or addition in an existing building is covered by
the second paragraph of cl. (vi) mere repairs falling within
the words of cl. (vi) may also qualify for initial
allowance. If a mere addition to a building cannot be
regarded as such an erection as is contemplated by the
second paragraph of cf. (vi), it would be difficult to hold
that the machinery or plant would include part of machinery
or plant.
Counsel for the assessee concedes that replacement of a
petrol engine by a diesel engine in a motor transport vehi-
cle is not installation of plant. The question is whether
it is installation of machine. In my view replacement of a
petrol engine by a new diesel engine in a motor-car cannot
be said to be installation of machinery within the meaning
of the relevant clause. To be installed the machinery being
new must for the purpose of the business be brought into
service as a self-contained unit. If the argument of the
assessee is sound, every bolt, nut, rod or flywheel which
constitute a part of machinery would qualify for the initial
allowance and the difference between the allowance for
repairs and initial allowance may be obliterated. Counsel
for the assessee also did not, as I understood him, contend
that replacement of a mere part of machinery was
installation of machinery within the meaning of the second
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paragraph of cl. (vi). The Legislature has not given any
definition for that expression, and the expression
"machinery" is otherwise somewhat difficult to define. The
Judicial Committee in Corporation of Calcutta v. Cossipore
and Chitpore Municipality(1) when it was called upon to
consider whether a tank supported on
(1) L. R. 48 I.A. 435.
856
columns, and which could be filled by pumping from a re-
servoir belonging to the Corporation could be regarded as
machinery within the meaning of the Bengal Municipal Act,
1884, observed at p. 445:
"If their Lordships were obliged to run the
hazard of the attempt (to define machinery)
they would be inclined to say that the word
’machinery’ when used in ordinary language,
prima facie means some mechanical contrivances
which, by themselves or in combination with
one or more other mechanical contrivance, by
the combined movement and inter-dependent
operation of their respective parts generate
power, or evoke, modify, apply or direct
natural forces with the object in each case of
effecting so definite and specific a result."
But we are not called upon in this case to decide whether a
diesel engine is in the abstract machinery: the question is
whether a diesel engine, which is used for replacing a pet-
rol engine, in a vehicle used by a transport operator for
the purpose of his business is machinery installed within
the meaning of s. 10(2)(vi) paragraph 2. Whether "machinery"
is some contrivance for supplying motive power to another
contrivance which directly produces an article or is a
mechanical contrivance which produces or assists in the
production of an article, it would be difficult to regard
introduction of a mere part, which has no independent use in
the business conducted by the assessee, as machinery
installed for the purpose of the second paragraph of cl.
(vi). The Legislature has provided for the normal
depreciation by paragraph 1 of cl. (vi) and in respect of
newly installed machinery it has provided for the initial
allowance, the object being to induce industrialists to
start new industries or to extend their existing industries
by erecting new buildings, or installing new machinery or
plant.
A diesel engine by itself may undoubtedly be used in a
business other than that of a transport operator, for
instance, for working a pump to draw underground water and
may for that purpose be regarded as a self-contained unit.
But that is not decisive of the question whether in the
business of a transport operator a diesel engine used to
replace a petrol engine may be regarded as machinery
installed. Machinery installed within the meaning of
paragraph 2 of s. 10(2)(vi) is qualified by the expression
"used for the purposes of the business", and therefore
unless as a self-contained unit the machinery is used for
the purposes of the business, initial depreciation would not
be admissible in respect thereof. That it may be capable of
being used in another
857
business by the same or another assessee as a self-contained
unit is irrelevant in considering its admissibility for
initial allowance in the business in which it is actually
used.
It would be fruitless to refer to the schedule under rule 8
of the Income-tax Rules for computing the allowance in res-
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pect of the depreciation under s. 10(2)(vi). The schedule
catalogues different items in respect of which depreciation
is admissible at the rates prescribed. But whether a
particular item is admissible for initial allowance in the
second paragraph must depend upon two factors-(i) that it is
in respect of the year of erection or installation that the
initial allowance is permissible; and (ii) the building or
the machinery is used for the purposes of the business. If
it is a predicate of admissibility to initial allowance that
the machinery must be new and a self-contained unit in the
particular business in the carrying on of which the initial
allowance is claimed, the fact that in certain conditions
that machinery may be regarded as self-contained for the
purpose of another business in which it is used, would
furnish no guide in ascertaining whether initial allowance
is permissible as a deduction in the assessment of taxable
income of the business in which it is actually used.
In my view the appeal should be allowed and the question
referred for opinion should be answered in the negative.
ORDER
In accordance with the opinion of the majority the appeal is
dismissed with costs.
Appeal dismissed.
858