It is an oil filter.
There is a version of an oil filter that was made that bolted up directly to the "oil distributor" on the side of the block. This is for all 216 and 235 babbit pounders. There were a couple of them on ebay recently. The housings were made of aluminum. There are no provisions for lines because it doesn't need them as there isn't any place to hook them up to on the engine, like on the later full pressure 235's and all 261's.
I'm assuming thats what it is, as I can't really see enough in your picture.
