Karnataka H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the CIT(A) order who held that the assessee is entitled to depreciation at 40 per cent. on moulds used by it for making rubber containers ?

S. RAJENDRA BABU, J.:

This is a reference under s. 256(1) of the IT Act, 1961. The following questions of law have been referred for our opinion :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the CIT(A) order who held that the assessee is entitled to depreciation at 40 per cent. on moulds used by it for making rubber containers ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in upholding the CIT(A) order who held that borewell cannot be held to fall under the description of ‘hydraulic works’ and allowed depreciation at 10 per cent. instead of 5 per cent. allowed by the ITO ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right in justifying the CIT(A) decision in deleting the disallowance made under ss. 40(c) and 40A(5) in respect of the cash payments of reimbursement of medical expenses and premia paid for the personal accident insurance policy of the employees for the asst. yr. 1977-78 only ?”

2. The assessee is engaged in the manufacture of batteries. It also has a separate division for making rubber containers which are required for manufacturing batteries. In respect of moulds used for making rubber containers, depreciation at the rate of 40 per cent. was claimed by the assessee under E(2) of item III, Depreciation Schedule under r. 5, which reads thus : ” E(2) : Rubber and plastic goods factories—Moulds—rate 40 per cent.”

3. The ITO held that the rate of 10 per cent. is applicable as the moulds come under the category of Item III. Machinery and Plant of Depreciation Schedule. But, on appeal, the CIT(A) held that, in view of the fact that the factory run by the assessee has a separate division for manufacturing rubber goods, the factory can be regarded at least in part as a rubber factory. In that view of the matter, he held that the assessee is entitled to depreciation at 40 per cent. on moulds used by it for making rubber containers.

4. The Revenue appealed against this order made by the CIT(A). The Tribunal held that even though the assessee is not a factory solely manufacturing rubber and plastic goods, still it has a division for manufacturing rubber goods, that is, rubber containers used for manufacturing batteries. Accordingly, it held that E(2) of item III, Depreciation Schedule is applicable to the assessee as the assessee can be called a factory engaged in manufacturing rubber goods as it makes rubber containers and upheld the order of the CIT(A) allowing depreciation at 40 per cent. The Revenue, aggrieved by this view of the Tribunal, has sought for a reference on the first question referred to above.

5. The Tribunal, as a matter of fact, found that the assessee, though a manufacturer of batteries, has got a separate division in its factory for making rubber containers which are used for making batteries and which are not sold in the market. On the moulds used for making rubber containers, the assessee had claimed depreciation at 40 per cent. Therefore, no infirmity can be found in the conclusion reached by the Tribunal that the assessee was engaged in the manufacture of rubber goods and the rubber containers used for batteries manufactured by it and thus

entitled to depreciation at 40 per cent. on moulds. Therefore, we have to answer the first question referred to us in the affirmative and against the Revenue.

With regard to the second question, the same is covered by a decision of this Court in CIT vs. MICO (IT Ref.s Nos. 178 to 180 of 1979—dt. 12th Feb., 1986—CIT vs. Motor Industries Co. Ltd. (1988) 173 ITR 374 (Kar)(sic)), wherein it was held that depreciation at 10 per cent. is allowable on borewells, instead of 5 per cent. as allowed by the ITO in this case. We answer the said question, following the aforesaid decision and for the reasons stated therein, in the affirmative and against the Revenue.

On the third question also we have to hold against the Revenue since, in respect of the same assessee, for an earlier year, a similar question had been referred to us which was answered in the affirmative and against the Revenue. Following the said decision which is reported in (CIT vs. Amco Batteries Ltd. (1985) 46 CTR (Kar) 103 : (1984) 150 ITR 48 (Kar)), we answer the third question in the affirmative and against the Revenue.

[Citation : 203 ITR 614]