Kerala High Court
Commissioner Of Income-Tax vs Heaveacrumb Rubber (P.) Ltd. on 19 January, 1989
Equivalent citations: [1989]179ITR259(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.A. Nayar, J.
1. These income-tax referred cases arise out of the appellate order of the Income-tax Appellate Tribunal for the assessment years 1975-76 and 1976-77 in I.T.A. No. 558 (Coch) of 1978-79, I.T.A. No. 567 (Coch) of 1978-79 and I.T.A. No. 319 (Coch) of 1979. The appeal in I.T.A. No. 558 (Cochin) of 1978-79 was by the assessee and the other two by the Revenue before the Tribunal. Application No. R. A. 281 (Coch) of 1981 arises out of I.T.A. No. 558 of 1978-79 and R. A. No. 282 (Coch) of 1981 arises out of I.T.A. No. 567 of 1978-79 whereas R.A. No. 283 (Coch) of 1981 is from I.T.A. No. 319 (Coch) of 1979. The facts as disclosed from the statement of case are as under :
The assessee is running a rubber factory and claimed depreciation, extra shift allowance and development rebate, among other items, on water supply system and miscellaneous equipment as under :
Water supply system Rs. 74,699 Miscellaneous equipment Rs. 5,977
2. The assessee claimed depreciation on these items at the rate of 15% which is the rate applicable to general machinery and plant in a rubber factory. The Income-tax Officer and the Appellate Assistant Commissioner did not agree with the assessee and denied depreciation at the rate of 15%, the extra shift allowance and development rebate on these items. On appeal to the Tribunal, the assessee contended that the machinery and plant as a whole is shown as the item for which depreciation is admissible at a certain rate, and, therefore, there is no justification for excluding some items forming part of the entire plant. The Revenue contended that these items of plant cannot be considered to be part of the general machinery and plant in a rubber factory. The Tribunal agreed with the assessee that the water supply system and the miscellaneous equipment would form part of the general machinery and plant of a rubber factory. It considered that the supply of water would be necessary for a rubber factory and the miscellaneous equipment would also be part of the general machinery. The Tribunal, therefore, directed the Income-tax Officer to allow depreciation at 15% on the water supply system costing Rs. 74,699 and miscellaneous equipment costing Rs. 5,977. The Tribunal also directed the Income-tax Officer to allow extra shift allowance and development rebate on these items of plant and machinery.
3. In respect of Application No. R. A. 282 (Coch) of 1981, the points raised related to the eligibility of the assessee for depreciation on roads and fences and also on the quantum of the relief available to the assessee under Section 80J. The Income-tax Officer held that the assessee is not entitled to depreciation on the cost of roads and fences. The Appellate Assistant Commissioner allowed the claim of the assessee against which the Revenue appealed and lost. The Appellate Tribunal held that the roads should be treated as part of the building and, therefore, eligible for depreciation. The Appellate Tribunal also held that the assessee is entitled to depreciation on fences as well.
4. The plant of the assessee was commissioned on March 18, 1974, and the accounting year of the assessee ended on December 31, 1974. Therefore, while allowing the relief under Section 80J, the Income-tax Officer took into consideration the fact that the plant was commissioned only on March 18, 1974, and restricted the relief for the proportionate period. On appeal by the assessee, the Appellate Assistant Commissioner held that the assessee was entitled to the relief at 6% of the capital without reference to the period. On appeal by the Revenue, the Tribunal upheld the conclusion of the Appellate Assistant Commissioner. On the above facts, the following questions of law are referred by the Income-tax Appellate Tribunal at the instance of the Revenue under Section 256( 1) :
"In R. A. No. 281 (Coch) of 1981 for the assessment year 1975-76 :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing depreciation at the rate of 15% on water supply system and miscellaneous equipment treating them as part of the general machinery and plant ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing Rs. 74,699 as extra shift allowance on water supply system and Rs. 5,977 as extra shift allowance on miscellaneous equipment ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that water supply system and miscellaneous equipment are entitled to get development rebate ?
5. In R. A. No. 282 (Coch) of 1981 for the assessment year 1975-76 :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that the roads and fences are eligible for depreciation ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that 'relief under Section 80J' is to be allowed at a flat rate of 6% for each assessment year irrespective of the duration of the period during which the undertaking works during the previous year ?
6. In R. A. No. 283 (Coch) of 1981 for the assessment year 1976-77 :
(1) Whether, on the facts and in the circumstances of the case, the assessee is entitled to the special rate of depreciation on the water supply system and the miscellaneous equipment inclusive of the weighing machine ?
(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to extra shift allowance on water supply system ?
(3) Whether, on the facts and in the circumstances of the case, the assessee is entitled to depreciation on roads and fences ?"
7. Depreciation is allowable to the assessee under Section 32 of the Income-tax Act, 1961. It says that in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business, deduction is allowed at such percentage on the written down value thereof as may in any case or class of cases be prescribed. The prescription is contained in Rule 5 of the Income-tax Rules, 1962, read with Appendix I, Part I, item III, which contains rates at which depreciation is admissible. The contention of the Revenue is that water supply system and miscellaneous equipment are machinery and plant to which the general rate is applicable, namely, 10%. Admittedly, the said rate is applicable if no special rate has been prescribed. But the assessee's contention is that a special rate has been prescribed under item III(ii)B(16) of Part I of Appendix I to the Income-tax Rules, 1962, under the head "Rubber and plastic goods factories". The assessee runs a rubber factory and water supply system and miscellaneous equipment are general machinery and plant in the factory and, therefore, the assessee claims 15% depreciation thereon. The Tribunal found that the supply of water is necessary for the rubber factory and the miscellaneous equipment is also part of the general machinery normally used in a rubber factory. In that view of the matter, the Tribunal allowed depreciation at 15%. There is no contention that if water supply system and miscellaneous equipment are part of the rubber factory, extra shift allowance and development rebate are not allowable. There is also no dispute that the items of machinery and plant are new machinery. The Tribunal directed the Income-tax Officer to determine the development rebate on these items of machinery and allow the same to be carried forward subject to the assessee satisfying the necessary conditions.
8. We have heard counsel for the Revenue as well as the assessee. The question relating to section 80J relief, it is agreed by counsel for the Revenue, is covered in favour of the assessee, by the decisions in CIT v. Simpson and Co. [1980] 122 ITR 283 (Mad), CIT v. English Indian Clays Ltd. [1984] 149 ITR 112 (Ker) and in CIT v. Protein Products Ltd. [1987] 167 ITR 157 (Ker).
9. Admittedly, the assessee owns a rubber factory and a water supply system and miscellaneous equipment, are installed in the factory. Therefore, on a fair reading of rule 5 of the Income-tax Rules, 1962, and the second column of the Table in Part I of Appendix I to the Rule, namely, item III(ii)B(16), it is clear that water supply system and miscellaneous equipment are entitled to depreciation at 15%. The finding of the Tribunal is that supply of water is necessary for a rubber factory and miscellaneous equipment is also part of the general machinery normally used in rubber factories. Therefore, the conclusion is irresistible that the assessee is entitled to depreciation on the machinery used in the water supply system and miscellaneous equipment at 15%. From this, it would follow that the assessee is entitled to extra shift allowance as also development rebate.
10. The Appellate Assistant Commissioner, for the year 1975-76, stated that it is well-settled in law that roads are entitled to depreciation and so are fences. And the Commissioner of Income-tax (Appeals) for the year 1976-77, following the order of the Appellate Assistant Commissioner for the year 1975-76, directed the Income-tax Officer to allow the claim for depreciation on roads inside the factory and compound fence. The Tribunal, in view of the decision of the Madras High Court in CIT v. Lucas-T. V. S. Ltd. (No. 2) [1977] 110 ITR 346 and of the Calcutta High Court in CIT v. Indo-Burma Petroleum Co. Ltd. [1978] 112 ITR 755, which have held that roads should be treated as part of the building, found that the assessee would be entitled to depreciation on roads. Similarly, following the decision in CIT v. Caltex Oil Refining (I.) Ltd. [1976] 102 ITR 260 (Bom), the Tribunal held that the assessee was entitled to depreciation on fences. The Tribunal also held that the assessee erected fences for protecting its property and, therefore, the assessee is entitled to depreciation on fences as well. But a Bench of this court in CIT v. Periyar Chemicals Ltd. [1987] 164 ITR 174 (Ker), considering the above decisions, held that (at p. 177) :
"Ordinarily, roads are not understood as buildings. There may, however, be exceptional roads such as a viaduct or a like structure of a permanent character involving such a degree of construction and expense as to be approximated to a building. Such roads, when owned and used by the assessee for the purposes of business, attract depreciation at the rates specified in Part I of Appendix I to the Income-tax Rules, 1962.
The character of a road in the context of a claim for depreciation has to be determined in each case on the basis of relevant facts and with reference to the principle stated ..."
11. It. would appear that facts have not boon gone into or examined in the light of the above decision. Therefore, the question whether roads and fences are eligible for depreciation has to be re-examined by the Tribunal. The answer to the question relating to this would depend upon the determination of the relevant facts. Therefore, we do not answer question No. 1 in R. A. No. 282(Coch) of 1981 and question No. 3 in R. A. No, 283(Coch) of 1981,
12. In the light of the above discussion, we answer all the questions in R. A7No. 281(Coch) of 1981 for the assessment year 1975-76 and question No. 2 in R. A. No. 282(Coch) of 1981 for the assessment year 1975-76 and questions Nos. 1 and 2 in R. A. No. 283(Coch) of 1981 for the assessment year 1976-77 in the affirmative, i.e., in favour of the assessee and against the Department and we decline to answer question No. 1 in R. A. No. 282(Coch) of 1981 and question No. 3 in R. A. No. 283 (Coch) of 1981, The Tribunal shall hear the parties after affording an opportunity to produce further evidence relating to question No. 1 in R. A..No. 281(Coch) of 1981 for the assessment year 1975-76 and question No. 3 in R. A. No. 283(Coch) of 1981 for the assessment year 1976-77 regarding the eligibility to depreciation on roads and fences. We direct the parties to bear their respective costs in these cases.
13. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.