Full Judgment Text
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PETITIONER:
THE EAST INDIA HOTELS LIMITED, CALCUTTA
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, CALCUTTA
DATE OF JUDGMENT: 08/11/1996
BENCH:
B.P. JEEVAN REDDY, K.S. PARIPOORNAN
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
B.P. JEEVAN REDDY,J.
Under Section 256(2) of the Income Tax Act, two
questions were referred for the opinion of the High Court
viz.:
"1. Whether, on the facts and in
the circumstances of the case, the
Appellate Tribunal was correct in
law in cancelling the Commissioner
of Income-tax’s Order Under Section
263 of the Income-Tax Act, 1961 for
the assessment year 1977-78?"
"2. Whether, on the facts and in
the circumstances of the case, the
Appellate Tribunal was correct in
law in holding that the assessee
was entitled to extra depreciation
allowance and also extra shift
depreciation allowance on the
reasoning that there was no
prohibition for granting both the
allowance either in the Income-tax
Rules or in the Act?"
The High Court has answered the second question against
the assessee and in favour of the Revenue following the
judgment of that Court in S.P.Jaiswal Estates Private
Limited v. Commissioner Income Tax [188 I.T.R. 603]. In view
of its answer to question No.2, question No.1 was also
answered in favour of the Revenue and against the assessee.
The assessment year concerned in this appeal is 1977-
78. The assessment was made by the Inspecting Assistant
Commissioner (I.A.C.) who allowed deduction for depreciation
which included extra shift allowance on plant and machinery
and also extra depreciation on office equipment. This order
was revised by the Commissioner who set aside the
assessment order and remitted the matter to the I.A.C. to
redetermine the amount of admissible depreciation in
accordance with law. He opined that in the case of an
’approved hotel’ only extra depreciation allowance was
admissible but not extra shift depreciation allowance. The
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assessee preferred an appeal against the order of the
Commissioner before the Tribunal. The Tribunal allowed the
appeal on merits following its earlier decision relating to
an approved hotel.
In S P.Jaiswal Estates Private Limited, the Calcutta
High Court has taken the view that in the case of hotels,
the very concept of double or extra shifts is inapplicable.
The High Court has opined that the said CONCEPT is relevant
only in the case of factories. It was following the said
decision that question No.2 was answered in favour of the
Revenue. It is brought to our notice that in a subsequent
decision in S.P.Jaiswal Estates (P) Ltd. [216 I.T.R. 145]
another Division Bench has taken a contrary view. The latter
Division Bench has held that even a hotel is entitled to
extra shift allowance.
The rates of depreciation are provided in Appendix to
the Income Tax Rules. Whether it is prior to 1.4.1970 or
thereafter, depreciation is allowed on "machinery and
plant", mentioned as Item III in the Appendix. Prior to
1.4.1970, the rate of depreciation on machinery and plant
was 7 per cent. But in the case of a concern working double
shift, an additional 50 per cent of the said rate of
depreciation was allowed. Similarly in the case of triple
shift, another 50 per cent of the said rate was allowed. In
other words, in the case of a concern working for three
shifts, the rate of depreciation allowed was 14 per cent.
After 1.4.1970, the extra shift depreciation allowance was
practically continued in same terms in clause (iv) of Item
III, though there was a change in the rate. Clause (iii) of
Item III, however, provided "extra depreciation allowance"
for "approved hotels". It would be appropriate to read
clauses (iii) and (iv) of Item III, to the extent they are
relevant for our purposes.
"(iii) An extra allowance of
depreciation of an amount equal to
one half of the normal allowance
shall be allowed in the case of
machinery and plant installed by an
assessee, being an Indian company,
in premises used by it as a hotel
is for the time being approved by
the Central Government for the
purpose of Section 33 of the Act.
Explanation: For the purpose of
this sub-item and sub-item (iv)"
normal allowance means the amount
of depreciation allowance under
this item or the extra shift
depreciation allowance under sub-
item (iv) which is allowable under
Rule 5.
"(iv; An extra allowance upto a
maximum of an amount equal to one-
half of the normal allowance shall
be allowed where a concern claims
sub-allowance on account of double
shift working and establishes that
it has worked double shift. An
extra allowance upto a maximum of
an amount equal to the normal
allowance, instead of one-half of
the normal allowance shall be
allowed where a concern claims such
allowance on account of triple
shift working and establishesthat
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if has worked triple shift." "
The contention of the Revenue is that an approved hotel
- (the appellant is admittedly running an approved hotel)
is entitled only to the depreciation allowance provided by
clause (iii) and not to the extra shift depreciation
allowance provided by clause (iv). The contention is that an
approved hotel is not entitled to both the said allowances
simultaneously and that it is entitled only to the extra
depreciation allowance in clause (iii) but not to extra
shift allowance in clause (iv). It is not possible to agree.
The depreciation is allowed on machinery and plant and not
with reference to the nature or character of the activity
carried on in the premises where the said machinery is
installed. Indeed prior to 1.4.1970, there was no reference
to hotels in Item III. If any machinery is installed in a
hotel, such machinery is certainly entitled to depreciation
allowance. Admittedly, there is no provision in the Appendix
whether before 1.4.1970 or thereafter stating that a hotel
is not entitled to extra shift depreciation allowance. The
expression "shift" is not defined in the Income Tax Act. It
is defined only in the Factories Act. The definition is of
great relevance to the controversy herein. It reads:
"(r) where work of the same kind is
carried out by two or more sets of
workers working during different
periods of the day, each of such
sets is called a "relay" and each
of such periods is called a
"shift"."
A reading of the definition shows that the concept of
shift is with reference to the workers and not with
reference to the concern or establishment. In a hotel which
works twenty four hours a day, there is bound to be two or
more sets of workers working during different periods of the
day. If so, the concept of shift cannot be said to be
inapplicable or irrelevant in the case of a hotel. We are,
therefore, of the opinion that a hotel is also entitled to
claim extra shift depreciation allowance on the machinery
and plant under clause (iv) of Item III (after 1.4.1970). So
far as the extra depreciation allowance provided by clause
(iii) is concerned, it is a special and an additional
allowance provided for ’approved hotels’ only. It does not,
however, mean that an approved hotel, to which the
depreciation provided in clause (iii) is allowed, is
deprived of the depreciation provided in clause (iv). If the
argument of Revenue is accepted, a strange consequence would
follow: a hotel which is not approved may get extra shift
depreciation allowance (for three shifts) under clause (iv)
while an approved hotel will get only the depreciation
provided by clause (iii) which would be less than the
depreciation allowance provided by clause (iv). We are,
therefore, of the opinion that plant and/or machinery
installed in a hotel is entitled to extra shift depreciation
allowance provided by clause (iv) of Item III in Appendix-I
and that an approved hotel is entitled, in addition, tn
extra depreciation, allowance provided by clause.
For the above reasons, question No.2 is answered in the
affirmative i.e., in favour of the assessee and against the
Revenue. Consequently, question No.1 is also answered in
favour of the assessee and against the Revenue. The civil
appeal is allowed accordingly. No costs.