The main legal point established in the judgment is that obsolescence allowance is claimable only when machinery becomes obsolete due to newer types of machinery or methods becoming necessary in the face of competition, and not simply because it has become worn out.

JUDGMENT

Rankin, C.J. - In this case the assessees claim to be entitled to the allowance authorized by Section 10, Sub-section 2, Clause (7), income tax Act:

in respect of any machinery or plant which in consequence of its having become obsolete has been sold or discarded.

2. The Commissioner for income tax has disallowed the claim and has stated a case for the opinion of. the Court upon the question "Was the claim for obsolescence allowance rightly disallowed?"

3. It appears that the assessees purchased some old machinery and started oil mill in Calcutta just before the beginning of the year 1927-28 being Ramnavami year 1984. It was however worked at a loss and the oil mill was accordingly closed down in that year, some parts of the machinery being sold and the remainder scrapped. The present question arises out of the assessment for 1929-30 which has been based upon the income of the previous year, namely Ramnavami 1985. The finding of the Commissioner is to the effect that the business of the oil mill closed down in 1984 for the reason that the machinery being old and worn out could not be worked at a profit in the face of competition, and he takes the view accordingly that the machinery was not scrapped because it was obsolete but because it was worn out with the result that the working expenses were heavy in comparison with new machines. He has negatived the suggestion that new inventions or the employment of newer types of machinery were any part of the reasons for which the oil mills were closed down.

4. In those circumstances it appears to me that unless we are to hold that the obsolescence allowance is claimable whenever machinery has become worn out and is sold or discarded for that reason the assessees cannot succeed. The allowance given by Clause 7, Sub-section 2 of Section 10 of the Act, is to be read with the allowance for depreciation given by id. 6. Both are exceptions made by the statute to the general principle that so far as the fixed capital of a business is concerned appreciation or depreciation do not enter into the computation of pro-fits. Prima facie the proper heading under which provision is made for the loss in value occasioned by wear and tear or continuous user is the heading "Depreciation." The statute recognizes however that machinery and plant may have to be discarded not because it has come to the end of its working "life" but by reason that newer types of machinery or newer methods have become necessary in the face of competition, Even if it is good of its kind obsolescence allowance comes into play in such a case but it is another matter altogether to hold that whenever a machine becomes worn out and it is seen that the aggregate of the allowances made for depreciation has not exhausted its original cost, allowance for obsolescence can be claimed in respect of the balance. In the case of Rathan Singh Vs. The Commissioner of Income Tax to the Government of Madras, AIR 1926 Mad 462 the Madras High Court held as follows:

"Obsolete" as applied to machinery means machinery which has got out of date because it has been superseded by later machinery more suitable to its purpose and therefore although able to perform its functions it is not, in common parlance, sufficiently up-to-date to make it machinery that a prudent man would continue to use, but machinery which he would replace as being in the ordinary meaning of the term "obsolete."

5. Now there is always a certain danger in committing one's self to a definition but for the purposes of the present case this exposition is I think correct and sufficient. It is not possible for us to hold that the Commissioner of income tax, upon the findings of fact at which he arrived was obliged in law to permit the assessees to make the deduction which they claim. We may say here what Rowlatt, J. said in South Metropolitan Gas Co. v. Dadd [1927] 13 T.C. 205:

It quite clearly is a question of degree, and a question of fact when machinery becomes obsolete, and I cannot