COMMISSIONER OF INCOME-TAX VS JAIPUR UDYOG LTD.
1999 PTD 317
[225 1 T R 1053]
[Rajasthan High Court (India)]
Before V.K. Singhal and M.A.A. Khan, JJ
COMMISSIONER OF INCOME-TAX
Versus
JAIPUR UDYOG LTD.
D.B. I.T.R. No.30 of 1983, decided on 05/07/1996.
Income-tax---
----Depreciation---Plant and machinery---Extra-shift allowance---To be allowed only on number of actual days each machinery worked and not on basis of days the whole unit, i.e., factory worked---Indian Income Tax Act, 1961, S.32---Indian Income Tax Rules, 1962, R.5, Appx. I.
The assessee-company claimed before the Assessing Officer in the course of the assessment proceedings for the assessment year 1967-68, that extra-shift allowance of depreciation equal to the normal depreciation allowance should be allowed to it in respect of its plant and machinery, on the basis of Explanation 1 to the remarks appearing in the remarks column against Item III. "Machinery and plant" in Part I of Appendix I to the Income Tax Rules, 1962. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the assessee's claim following the rejection of a similar claim by the assessee in the assessment year 1965-66. On further appeal to the Appellate Tribunal by the assessee, the Tribunal accepted the assessee's contentions and allowed its claim for extra-shift allowance equal to the normal depreciation, for the full year in respect of the assets, which were used during the year for more than 30 days but less than 180 days. On a reference at the instance of the Commissioner:
Held, that the assessee was entitled to extra-shift allowance only on the number of actual days, it (i.e., each machinery) had worked and not on the basis of working of the whole unit under the provisions of section 32 of the Income Tax Act, 1961, and rule 5 read with Appendix I to the Income Tax Rules, 1962. The Tribunal was not justified in holding that extra-shift allowance equal to the normal depreciation should be allowed for the full year in respect of the assets which were used during the year for more than 30 days but less than 180 days.
Anantapur Textiles Ltd. v. CIT (1979) 116 ITR 851 (Cal.); Buland Sugar Co. Ltd. v. CIT (1981) 130 ITR 434 (Delhi); CIT v. J.K. Cotton Spg. and Wvg. Mills Co. Ltd. (1991) 188 ITR 80 (All.); CIT v. Punalur Paper Mills Ltd. (1988) 170 ITR 37 (Ker.); CIT (Addl.) v.. Sarvaraya Sugars Ltd. (1981) 129 ITR 538 (AP); CIT v. South India Viscose Ltd. (1987) 163 ITR 674 (Ivlad.); CIT v. Transpek Industry (Pvt.) Ltd. (1992) 194 ITR 581 (Guj.); Dhampur Sugar Mills Ltd. v. CIT (1980) 126 ITR 648 (All.); J.K. Synthetics Ltd. v. CIT (1979) 118 ITR 629 (All.); L.H. Sugar Factories and Oil Mills (P.) Ltd. v. CIT (1979) 118 ITR 985 (All.); Raza Sugar Co. Ltd. v. CIT (1981) 130 ITR 421 (Delhi) and South India Viscose Ltd. v. CIT (1982) 135 ITR 206 (Mad.) ref.
JUDGMENT
V.K. SINGHAL, J.---In respect of the assessment year 1967-68, the claim of extra-shift allowance equal to normal depreciation has been made by the assessee. The Income-tax Appellate Tribunal, vide its order, dated September 8, 1982, referred the following question of law arising out of its order, dated October 31, 1980:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that extra-shift allowance equal to normal depreciation should be allowed for the full year in respect of the assets which were used during the year for more than 30 days but less than 180 days?"
Vide letter dated November 29, 1971, the revised claim for extra? shift allowance was made on the basis of Explanation (1) to the remarks appearing in remarks column against heading III, "Machinery and plant" in Part I of Appendix I to the Income Tax Rules, 1962. It was claimed by the assessee that in this Explanation the extra-shift allowance equal to normal shift depreciation will be an allowance that should be given under rule 5 of the Income Tax Rules, the machinery and plant had been put to use for the period of 180 days or more in the previous year, the extra-shift allowance should be allowed at 100 percent. Since the revised working of extra-shift allowance was not submitted, the claim of the assessee was rejected. The claim of the assessee in the year 1965-66 was also rejected on that ground.
In an appeal before the Appellate Assistant Commissioner, it was contended that in case of assets which were in use for more than 30 days, but less than 180 days extra-shift allowance should have been allowed equal to the normal allowance for the full year. Since the appeal in the year 1965-66, was rejected this appeal was also rejected and it was observed that the extra-shift allowance can in no circumstances be more than the normal allowance for a particular asset.
In second appeal before the Income-tax Appellate Tribunal, it was submitted that under Explanation 1 appearing in the remarks column 3 against item No. III in Part I of Appendix I to the Income Tax Rules, 1962, as they stood during the accounting period relevant to the assessment year 1967-68 since the assets were put to use for more than 30 days, but less than 180 days, extra-shift allowance should have been allowed equal to the normal allowance equal to the full year, since the concern worked for the full year and not at the rate of 50 percent. Relying on the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. v. CIT (1979) 118 ITR 629, the claim of the assessee was allowed and the Income-tax Officer was directed to recalculate the extra-shift depreciation allowance. The decision of the Calcutta High Court in the case of Anantapur Textiles Ltd. v. CIT (1979) 116 ITR 851 was not followed. It was observed in this case that the Explanation seeks to give en artificial meaning to the phrase "normal allowance" for the purpose of calculating the extra-allowance for double or triple shift working. For the purpose of calculation of extra-allowance, the normal allowance has to be taken as the full depreciation allowance admissible on the footing that the company had worked for 180 days or more, irrespective of the number of days for which it had actually worked.
It was provided in Explanation 1 that for the purpose of normal allowance the amount of depreciation allowance (other than extra? depreciation allowance) that would have 'been allowed in rule 5, if the machinery or plant had been used during the previous year for a period of 180 days or more. Normal depreciation allowance does not refer to the actual allowance.
We have heard the arguments of learned counsel for the parties. The claim of the assessee is in respect of plant and machinery which has been acquired in the year under assessment and have been operated for more than 30 days, but less than 180 days. The extra-shift allowance has been claimed on the basis of working of the unit. The Tribunal has referred to the decision of J.K. Synthetics' case (1979) 118 ITR 629 (All.) referred to above, where it was interpreted that if the legislative intent had been to take only the actual normal depreciation allowance admissible in any particular year as criteria, there would be no need for engrafting the Explanation because the main provision begins by saying "an extra-allowance up to 50 percent. of the normal allowance by the Income-tax Officer where a concern claims such allowance on account of double shift working". The Explanation was considered to give an artificial meaning to the phrase normal amount for calculating the extra-allowance for double or triple shift and, namely, "for this purpose" and also by the phrase that would have been allowed under rule 5, plant or machinery had been used during the previous year for a period of 180 days or more. The normal allowance referred to in Explanation 1 was interpreted to refer to the figure of normal depreciation of plant and machinery for 180 days or more.
Section 32 provides .for depreciation and the provisions are as under:
Depreciation.---(1)
In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed--- ....
(ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed ....
Provided that such deficiency is actually written off in the books of the assessee .... "
The contention for depreciation allowance and development rebate are contained in section 34 which are as under:
"Conditions for depreciation allowance and development rebate.--?-
----(1) The deductions referred to in subsection(1) of section 32 shall be allowed only if the prescribed particulars have been furnished... ;
(2) For the purposes of section 32--
(2) the aggregate of all deductions in respect of depreciation made under subsection (1) of section 32 or under the Indian Income-tax Act, 1922 (11 of 1922), or under any Act repealed by that Act or under Indian Income Tax Act, 1886 (2 of 1886) , shall, in no case, exceed the actual cost to the assessee of the buildings, machinery, plant or furniture, as the case may be... "
The relevant rule is rule 5 of the Income Tax Rules, 1962. The material provisions of the said rule are as follows:
"5. Depreciation.------(1) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of subsection (1) of section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year.
(2) Where any new machinery or plant is installed during the previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, for the purposes of business of manufacture or production of any article or thing and such article or thing---
(a) is manufactured or produced by using any technology (including any process) or other know-how developed in, or
(b) is an article or thing invented in, a laboratory owned or financed by the Government or laboratory owned by a public sector company or a University or an institution recognised in this behalf by the Secretary, Department of Scientific and Industrial Research, Government of India, such plant or machinery shall be treated as a part of block of assets qualifying for depreciation at the rate of 40 percent of written down value, if the following conditions are fulfilled, namely:
(i) the right to use such technology (including any process) or other know-how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner;
(ii) the return furnished by the assessee for his income, or (he . r..: income of any other person in respect of which he is assessable, for any previous year in which the said machinery or plant is acquired shall be accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory; and
(iii) the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule to the Act."
Explanations----
?1 and 2, appended to Part I of Appendix I of rule 5 are as under:
Explanation-----
?1.---Forth s purpose, the normal allowance means the amount of depreciation allowance (other that the extra-depreciation allowance for multiple shift working) that would have been allowed under rule 5 if the machinery or plant had been used during the previous year for a period of 180 days or more, or in the case of a seasonal factory, if that factory had been worked by the assessee during all the working seasons of the previous year.
Explanation 2.---For the removal of doubts, it is hereby declared that no extra-allowance for double or triple shift working shall be allowed in a case where the machinery or plant has been used for a period of thirty days or less than thirty days during the previous year."
An extra-allowance up to a maximum 50 percent of the normal allowance is to be allowed on the basis of double shift working and 100 percent. For triple shift working. The total amount of working days for calculation have been prescribed as 300 and if the concern has worked for 100 days on double shift and 100 days on triple shift, extra-allowance for double shift would be one-third of 50 percent of the normal allowance and for triple shift also it will be one-third of 100 percent of the normal allowance.
For the purpose of extra-shift allowance, it was found that the assessee is eligible. The dispute is only with regard to the quantum computation. Under rule 5 it is provided that the plant and machinery, which has been used by the assessee in its business for a period of 180 days or more, it will be entitled for 100 percent allowance and where the plant and machinery have been used for less than 180 days, but more than 30 days, the allowance would be 50 percent. The Tribunal has proceeded that rule 5 has no application to the case of the extra-shift allowance in view of the decision in J.K. Synthetics' case (1979) 118 ITR 629 (All.) referred to above as necessary provisions for extra-shift allowance have been made in Appendix I, Part I, and the only thing which has to be seen is as to whether the concern has worked double shift or triple shift and the working of each item and machinery with regard to number of days it has worked is not to be seen
The Calcutta High Court in the case of Anantapur Textiles Ltd. v. CIT (1979) 116 ITR 851, found that the computation of normal depreciation allowance, the actual working of each plant and machinery is material and depreciation allowance is to be computed on the basis of the number of days each plant and machinery worked during the previous year, provided the plant or machinery is otherwise qualified to claim the depreciation allowance. After taking into consideration the remarks in Appendix I, Part 1, of the Rules, it was observed that the assessee is entitled to extra-shift allowance only when he satisfies that the concern has actually worked double shift or triple shift. The computation of extra-allowance separately for double shift and triple shift makes it clear that it is the eligibility of the claim of any concern for extra-allowance and not the mode of calculation. It was also found that there is certain machinery and plant which are not eligible as the word N.E.S.A. is mentioned against them and, therefore, the individual plant and machinery has to be taken into consideration. Explanation 2 refers to a situation where no extra allowance for double triple shift is available if the plant and machinery has been used for a perk,: of 30 days or less than 30 days. Since depreciation allowance is to (1) allowed on each item of plant and machinery on the basis of its working, the form prescribed under section 34(1) of the Act contained in Appendix II to the Income Tax Rules which requires the details to be filled in makes it clear that the extra-allowance for double shift or triple shift working of any concern has to be calculated on the basis of a number of days any plant or machinery has worked and not on the basis of the number of days the concern has worked double shift or triple shift.
The Gujarat High Court in the case of CIT v. Transpek Industry (Pvt.) Ltd. (1992) 194 ITR 581 observed that where a concern has worked double shift or triple shift, extra-shift allowance is to be allowed in respect of the entire plant and machinery used by the concern. The allowance does not depend upon the number of days on which each machine actually worked double or triple shift during the relevant assessment year and for this purpose of letter of the Central Board of Direct Taxes No. F. 10/83/69-II(A-II), dated September 28, 1970 was relied on.
The decision of J.K. Synthetics Ltd. v. CIT (1979) 118 ITR 629 (All.) was followed by the Allahabad High Court in the case of L.H. Sugar Factories and Oil Mills (P.) Ltd. v. CIT (1979) 118 ITR 985.
The Madras High Court in South India Viscose Ltd. CIT (1982) 135 ITR 206 has observed that the extra-shift allowance is to be worked out to respect of each machinery depending on the number of shifts worked by such machinery. This decision was given on the reasoning that there are several items of machinery which were excluded from the scope of extra-shift allowance by the use of the words "N.E.S.A." The Income-tax Officer had to apply his mind and examine which machinery owned by the assessee had been used by him in extra-shift and so long as the particular machinery had worked extra-shift it would be eligible for extra-shift allowance on the basis of the number of days it had worked provided N.E.S.A. did not apply to it.
This judgment was followed in the case of CIT v. South India Viscose Ltd. (1987) 163 ITR 674 (Mad.).
The Kerala High Court in the case of CIT v. Punalur Paper Mills Ltd. (1988) 170 ITR 37, referred to the circular of the Central Board of Direct Taxes No. F. 10/83/63-ITA (II), dated September 28, 1970. The benefit of extra-shift allowance was allowed on the entire machinery.
The decision of the Allahabad High Court in the case of L.H. Sugar Factories and Oil Mills (P.) Ltd. (1979) 118 ITR 985, referred to above, was overruled by the Full Bench of the Allahabad High Court in the case of Dhampur Sugar Mills Ltd. v. CIT (1980) 126 ITR 648 and it was observed that the extra-allowance is to be computed for each plant and machinery that has actually worked double or triple shift. The allowance is not to be given to the assessee as such. The reduction is to be allowed only if the prescribed particulars are furnished as required by section 34(1) of the Income Tax Act-1961, in Form No. 1 of Appendix II of the Income Tax Rules requires the assessee to specifically state the number of days for which extra-shift worked. Therefore, extra-shift allowance is to be calculated in proportion to the number of days the plant or machinery has actually worked and not an amount equal to the full amount of normal depreciation. This decision was followed by the Allahabad High Court in CIT v. J.K. Cotton Spinning and Weaving Mills Co. Ltd. (1991) 188 ITR 80.
The Delhi High Court in the cases of Raza Sugar Co Ltd. v. CIT (1981) 130 ITR 421 and Buland Sugar Co. Ltd. v. CIT (1981) 130 ITR 434 has also taken the view in respect of seasonal factories that they are entitled to double shift and triple shift allowance in the proportion of the number of days worked. The Full Bench of the Andhra Pradesh High Court in the case of Addl. CIT v. Sarvaraya Sugars Ltd. (1981) 129 ITR 538 observed that the plant and machinery other than those used in seasonal factories, are entitled to depreciation on the basis of the number of days for which the plant and machinery has been used during the previous year.
We have considered over the matter. Appendix I has been issued under rule 5 of the Income Tax Rules 1962, and the use of the plant and machinery for different periods have been prescribed therein. There are certain' plant and machinery which are having the inscription of the letters N. E. S. A. In the example given it has been stated as to how the extra? allowance has to be worked out if the plant and machinery has not worked for the full year. Though the view of the decisions is in respect of seasonal factories, the Appendix to the Rules has not made a distinction between the seasonal factory and other factories which have not worked. Under section 34 the particulars have to be given in the prescribed pro forma on the basis of which the Income Tax Officer has to apply his mind as to whether the machinery at all is entitled for extra-allowance or not and, therefore, the proper interpretation which could be taken on the basis of the provisions of section 32 and rule 5 and Appendix I is that the assesses is entitled for the extra-shift allowance only on the number of actual days it has worked and not on the basis of unit has worked.
The reference is accordingly answered in favour of the Revenue and it is held that the Tribunal was not justified in holding that extra-shift allowance equal to normal depreciation should be allowed for the full year in respect of the assets which were used during the year for more than 30 days but less than 180 days.
The reference is answered in favour of the Revenue and against the assessee.
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