AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (2) of the Income-tax Act, 1961, the following question of law has been referred to this court for the assessment years 1981-82 and 1982-83 :"whether, on the facts and in the circumstances of the case, the assessee was entitled to claim depreciation on the cost of electrification of labour quarters and if so at what rate ?"

( 2 ) THE facts giving rise to this reference are as under : the assessee-company in the two years, viz. , assessment years 1981-82 and 1982-83, owned several tea estates scattered over the Nilgiri hills. On the electrification of labour quarters/lines in the different tea estates, the assessee-company incurred an expenditure of Rs. 2,35,199 in 1981-82 and Rs. 5,25,956 in 1982-83. The expenditure which was incurred by way of electrification of the different quarters in the tea estates consisted of stationery items, wiring and fittings of electric light and fan installations.

( 3 ) THE assessee-company claimed before the authorities for the first year, i. e. , 1981-82, the expenditure incurred on 897 labour quarters and in 1982-83 on 1,324 labour quarters. For the purpose of depreciation of the electrification of each quarter, the expenditure incurred was divided by the total number of quarters for which the said expenditure was incurred and thus commuted the cost for electrification of each quarter was less than Rs. 750 and depreciation at 100 per cent. as per the first proviso to Section 32 (1) (ii) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), was claimed.

( 4 ) THE assessing authority accepted the said contention and allowed depreciation on the electrification of different quarters at 100 per cent. in view of the first proviso to Section 32 (1) (ii) of the Act.

( 5 ) THE Commissioner of Income-tax issued a notice under Section 263 of the Act and the assessee replied to the said notice. The assessee in its reply contended that the nature of the assets on which 100 per cent: depreciation has been allowed are stationery items, wiring and fittings of electric light and fan installations and the description of the assets given in Appendix I with reference to "electrical machinery" which are not entitled to E. S. A. covered those items in its plain language. The assessee further contended in its reply that the said electrical machinery was installed in each unit of labour quarter/lines which were separate and identifiable units and hence, depreciation with reference to the expenditure incurred on such electrification should be allowed at 100 per cent. because the cost of such expenditure for each unit of the labour quarters did not exceed Rs. 750.

( 6 ) HOWEVER, the Commissioner of Income-tax was of the view that the components used in the electrification of labour quarter/lines for each unit cannot be considered as either machinery or electrical machinery. Hence, according to the Commissioner of Income-tax, the Income-tax Officer has incorrectly allowed depreciation at 100 per cent. on the cost of electrification of labour quarters/lines and the order, according to the Commissioner of Income-tax, was erroneous to that extent. However, the Commissioner of Income-tax directed the Income-tax Officer to recompute the depreciation at ten per cent. on the cost of electrification of labour quarter/lines and suitably amend the assessment order.

( 7 ) ON appeal before the Tribunal, the Tribunal pointed out that there was contradiction in the order of the Commissioner of Income-tax.

( 8 ) ACCORDING to the Tribunal, if electrification of labour quarter/lines are not covered under the term "machinery", no depreciation under Section 32 (1) (ii) of the Act or under Appendix I to the said Rules could be allowed. However, the Commissioner of Income-tax himself had given direction to allow depreciation at ten per cent. and implied thereby that electrification of quarters had been treated as machinery.

( 9 ) ACCORDING to the Tribunal,

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