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Additional Commissioner of Income-tax, Andhra Pradesh Vs. Sarvaraya Sugars Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Judge
Reported in[1981]129ITR538(AP)
ActsIncome Tax Rules, 1962 - Rule 5; Income Tax Act, 1961 - Sections 32(1)
AppellantAdditional Commissioner of Income-tax, Andhra Pradesh
RespondentSarvaraya Sugars Ltd.
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateS. Parvatha Rao, Adv.
Excerpt:
direct taxation - basis for depreciation - rule 5 of income tax rules, 1962 and section 32 (1) of income tax act, 1961- whether assessee entitled to extra shift allowance without reference to normal number of working days in previous year that is 300 days and days for which plant and machinery worked such extra shift - extra depreciation allowance is not same as normal depreciation - neither any provision in act nor rule 5 supports contention that basis for calculating normal depreciation allowance and extra depreciation allowance to be one and same - nor is there any basis for contention that if for purpose of allowing normal depreciation allowance distinction is made between seasonal factory and non seasonal concern - same distinction to be maintained for purpose of admitting extra.....madhava reddy, j. 1. in these two cases referred under s. 256(1) of the i. t. act, 1961, the question for decision is : 'whether, on the facts and in the circumstances of the case and on a correct interpretation of part i, appendix i of rule 5 of the income-tax rules, 1962, the assessee was entitled to extra shift allowance without reference to the normal number of working days in the previous year, viz., 300, and the days for which the plant and machinery worked such extra shift ?' 2. there is no pronouncement of this court one way or the other on this question. as the decision on this question would affect a large number of seasonal factories, the matter has been referred to the full bench. 3. for appreciating the issues involved and for the disposal of the question referred, it would.....
Judgment:

Madhava Reddy, J.

1. In these two cases referred under s. 256(1) of the I. T. Act, 1961, the question for decision is :

'Whether, on the facts and in the circumstances of the case and on a correct interpretation of Part I, Appendix I of rule 5 of the Income-tax Rules, 1962, the assessee was entitled to extra shift allowance without reference to the normal number of working days in the previous year, viz., 300, and the days for which the plant and machinery worked such extra shift ?'

2. There is no pronouncement of this court one way or the other on this question. As the decision on this question would affect a large number of seasonal factories, the matter has been referred to the Full Bench.

3. For appreciating the issues involved and for the disposal of the question referred, it would be sufficient to notice the facts giving rise to R. C. No. 230/76.

4. The assessee in both these references is Sarvaraya Sugars Ltd., which runs a seasonal factory for manufacturing sugar. Section 32 of the I. T. Act, 1961, provides for allowing deductions, among others, in respect of depreciation on machinery and plant at such percentage of the written down value thereof as may be prescribed. Under r. 5 of the I. T. Rules, 1962, read with s. 32 of the I. T. Act, 1961, where the plant or machinery has been used by an assessee in his business or profession during the previous year for a period of 180 days or more, the assessee would be entitled to deduction of depreciation at 100 per cent. of the number shown in the corresponding entry in the second column of the statement in Pt. I, App. I, of the Rules (hereinafter referred to as the 'full normal allowance'). Under the proviso to the said rule, in the case of a seasonal factory worked by the assessee during all the working seasons of the previous year, depreciation shall be allowed as if the machinery or plant had been in use throughout the period, the assessee was the owner thereof during the previous year. Apart from the normal depreciation allowance, extra depreciation for double shift working and for triple shift working is admissible on machinery and plant as laid down in the remarks column of item III of App. I, Pt. I, of the Rules. For the previous year relevant to the assessment years 1965-66, 1966-67 and 1967-68, the assessee's seasonal factory, worked for 142 days, 218 days and 172 days, respectively and the assessee claimed full normal allowance as a seasonal factory and also extra allowance at 50% and 100% respectively of the normal allowance for double and triple shifts, respectively, without any reference to the actual number of days for which the factory worked double and triple shifts. The ITO allowed full normal depreciation to the assessee for all the three assessment years but in respect of extra shift allowance claimed by the assessee, the ITO admitted the claim at the proportion which the number of working days on which the machinery and plant worked double and triple shifts bore to the normal number of working days throughout the previous year which was taken to be 300 days. The AAC confirmed the said method of computation. The Income-tax Appellate Tribunal, however, was of the view that 'there is no requirement under the provisions that a year should be treated as consisting of 300 days, the actual requirement is that the number of days worked should be taken and worked out as a proportion of the actual number of days in a year to grant shift allowance, double or triple shift. Reference to 300 days and 100 days working are only illustrative; if it be held otherwise that would lead to absurd results whereby a factory can be regarded as working double or triple shift for certain number of days but not the normal first shift'. Accordingly, it held that the assessee was entitled 'as a seasonal factory, to the full benefit of the proviso to s. 5 in respect of double and triple shift allowances' and directed extra allowance to be granted treating the normal number of working days in the relevant previous years to be, respectively, 142, 218 and 172 days and accordingly allowed the appeals.

5. Section 32 of the I. T. Act, 1961, provides for allowing deduction in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business or profession. In the case of buildings, machinery, plant or furniture other than ships, covered by clause (1) depreciation is allowed at such percentage on the written down value therof as prescribed. That provision, in so far as it is relevant for our present purpose, reads as follows :

'32. (1) In respect of depreciation of buildings, machinery, plant of 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 building, 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 where the actual cost of any machinery or plant does not exceed seven hundred and fifty rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purpose of his business or profession......'

'Prescribed' means 'Prescribed by rules made under the Act'.

6. Rule 5 of the I. T. Rules, 1962, prescribes as follows :

'5. Depreciation. -(1) Subject to the previous of sub-rules (2) and (3), the allowance under clause (i) or clause (ii) of sub-section (1) of section 32 in respect of depreciation of buildings, machinery, plant or furniture shall be at a percentage of the actual cost or the written down value, as the case may be, equal to (i) 100 per cent., (ii) fifty per cent. or (iii) nil per cent. of the number shown in the corresponding entry in the second column of the statement in Part I of Appendix I to these rules according as the buildings, machinery, plant or furniture have been used by the assessee in his business or profession during the previous year (i) for a period of 180 days or more, (ii) for a period of less than 180 days but more than thirty days, or (iii) for a period of thirty days or less than thirty days, respectively......

Provided further that in the case of a seasonal factory worked by the assessee during all the working seasons of the previous year, depreciation shall be allowed as if the buildings, machinery, plant or furniture had been in use throughout the period the assessee was the owner thereof during the previous year.'

7. It is item III of Pt. I of App. I referred to in r. 5 which is relevant for our present purpose and it reads as follows :

---------------------------------------------Class of Rate RemarksassetNumber on the basisof which the percen-tage is to be calcu-lated on the w. d. v.except where otherwise indicated in thecase of ocean-goingsteamers.-----------------------------------------------III. Machinery and plant(i) General Rate 7An extra allowance up to amaximum of 50 per cent.of the normalallowance shall be allowed by theIncome-tax Officer where aconcern claims such allowance onaccount of double shift working andthe concern has actually worked doubleshift. An extra allowance up to amaximum of 100 percent. of the normalallowance, instead of 50 percent.shall be allowed in computing thetotal income assessable for anyassessment year commencing on or afterthe 1st day April,1964, where aconcern proves that it has workedtriple shift. The calculationsof the extra allowances for doubleshift working and for triple shiftshift working shall be made separatelyin the proportion which the number ofdays for which the concern workeddouble shift or triple shift, as thecase may be, bears to the normalnumber of working days throughout theprevious year. For this purpose, thenormal number of working daysthroughout the previous year shall betaken as 300, and if for example, aconcern has worked only double shiftfor 100 days and triple shift foranother 100 days, the extra allowancefor double shift shall be one thirdof 50% of the normal allowance andthat for triple shift shall be onethird of 100 percent. of the normalallowance. This applies to allconcerns whether the general rate orany special rate of depreciationapplies to them, but does not applyto an item of machinery or plantwhich has been specially exceptedby the inscription of the letters'N. E. S. A.' against it.Explanation 1. - For thispurpose, the normal allowance meansthe amount of depreciation allowance(other than the extra depreciationallowance for multiple shift working)that would have been allowed underrule 5 if themachinery or plant had been usedduring the previous year for aperiod of 180 days or more, or in thecase of a seasonal factory, if thatfactory had been worked by theassessee during all the workingseasons of the previous year.Explanation 2. - For the removal ofdoubts, it is hereby declared thatno extra allowance for double ortriple shift working shall be allowedin a case where the machinery oror plant has been used for a periodof thirty days or less than thirtydays during the previous years.'

8. It would be seen that s. 32 except laying down that depreciation on buildings, machinery, and plant or furniture shall be allowed, does not itself lay down the rate at which the deduction would be allowed or the manner in which it should be calculated. It merely lays down that it should be at such percentage of the written down value as may be prescribed. Rule 5 of the I. T. Rules prescribes that depreciation shall be at a percentage of the actual cost or the written down value, as the case may be, equal to (1) 100 per cent, (2) 50 per cent. or (3) nil per cent. of the numbers shown in the corresponding entry in the second column of the statement in Pt. 1 of App. 1 of the I. T. Rules, 1962, depending upon the length of the period for which they are used by the assessee during the previous year. If the machinery or plant was used for a period of 180 days or more, depreciation allowance shall be 100 per cent. If it is used for a period of less than 180 days but more than 30 days, it shall be 50 per cent. and if it be for a period of 30 days or less than 30 days, it should be nil per cent. of the number shown in entry III of the second column of thestatement in Pt. 1 of App. I. The number shown in col. 2 of item III of Pt. I of App. I which relates to machinery and plant is '7'. Thus, if the plant and machinery have been used by the assessee during the previous year for his business or profession for 180 days or more, the depreciation allowance deductible shall be 7 per cent. ; if it is used for less than 180 days but more than 30 days, it shall be 3 1/2% per cent. and if it had been used for a period of 30 days or less than 30 days. no depreciation allowance shall be deductible. This is the rate at which depreciation allowance is deductible, in the case of all assessees using machinery and plant for their business or profession; this is the normal allowance. Proviso to r. 5, however, makes an exception in favour of the seasonal factories. That proviso lays down that an assessee working a seasonal factory would be entitled to full normal allowance of depreciation if the seasonal facotry worked 'during all the working seasons of the previous year' as if the buildings, machinery and plant or furniture had been in use throughout the period, the assessee was the owner thereof during the previous year. In other words, in order that an assessee may claim full normal depreciation allowance of 7% in respect of buildings, machinery or furniture of a seasonal factory, the machinery and plant need not have been used by the assessee during the previous year for a period of at least 180 days; it is enough if the seasonal factory had worked during all the working seasons of the previous year and the assessee was the owner therof duriong that period. Thus, the percentage of normal depreciation allowance deductible in respect of machinery and plant of a seasonal factory does not vary with the number of days it has been used during the previous year. If the seasonal factory worked during all the working seasons of the previous year, If the seasonal factory worked during all the seasons of the previous year, it would be entitled to the deduction of full normal depreciation allowance.

9. Part I of App. I makes provision as stated in the remarks column, not only for normal depreciation allowance on machinery and plant at a general rate of 7 per cent. but also makes provision for deduction of an extra allowance for double shift working and for triple shift working of the machinery and plant by the assessee. Explanation I in the ' Remarks' column relating to item III of Pt. I of App. I states what 'normal allowance' means. According to it, whatever depreciation allowance is admisible under r. 5, if the machinery or plant has been used during the previous year for a period of 180 days or more would, in the case a of a seasonal factory, be admissible, if that factory had been worked by the assessee during all the working seasons of the previous year. In other words, while a seasonal factory would be entitled to full normal depreciation allowance on machinery and plant if it had been worked by the assessee during all the working seasons of the previous year-not necessarily for a minimum period of 180 days or more-machinery or plant of any other factory should have been used during the previous year for a period of 180 days or more to earn deduction of full normal depreciation allowance. What is stated in the Explanation is thus relevant for admitting normal allowance and not for arriving at extra allowance deductible for double shift and triple shift working. Extra allowance upto a maximum of 50% of the normal allowance is deductible for double shift working and 100% of the normal allowance is deductible for triple shift working in computing the total income assessable for any assessment year commencing on or after 1st day of April, 1964. As laid down in the remarks column, extra allowance for double shift working and for triple shift working shall have to be made separately in the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days throughout the previous year. It further prescribes that the normal number of working days throughout the previous year 'for this purpose' shall be taken as 300, and then proceeds to explain that if a concern has worked double shift for only 100 days and triple shift and another 100 days, the extra allowance for double shift working shall be 1/3rd of 50% of the normal allowance and the extra allowance for triple shift working shall be 1/3rd of 100% of the normal allowance.

10. The argument of the learned counsel for the assessee, however, runs thus :

For allowing full normal allowance on machinery and plant in a nonseasonal factory, it is enough it if has been used during the previous year for a period of 180 days or more and the seasonal factory is allowed full normal depreciation allowance of 7% even though it has worked for less than 180 days provided it has worked during all the working seasons of the previous year. When that is the basis for admitting full normal allowance, it could never have been the intention the rule making authority for the purpose of admitting extra allowance for double shift and triple shift, that the normal number of working days throughout the previous years should be taken as 300. According to him, once it is established that the seasonal factory has worked during all the working seasons of the previous year and that is taken as entitling it to full normal allowance, the primary submission is that extra allowance should be allowed for all the days the seasonal factory worked double shift and triple shift. Alternatively, it is urged that it is the proportion which the number of days on which the seasonal factory worked double shift or triple shift bears to the actual number of working days of that seasonal factory throughout the previous year, that should form the basis for allowing the extra allowance. For example, if during the previous year, seasonal factory has worked for 150 days and during all these days it has worked double shift and triple shift, it would be entitled to the full normal allowance of 7% and for working double shift, it would be entitled to extra allowance at 50% of the full normal allowance and for working triple shift 100% of the full normal allowance for the previous year. If it has worked double shift and triple shift only for 100 days out of 150 days it worked during all the working seasons of the previous year, according to the primary submission, the seasonal factory would be entitled to extra allowance at 50% of normal allowance for all the 100 days of double shift working and at 100% of normal allowance for all the 100 days of triple shift working. According to the alternative submission in the above example, the seasons factory would be entitled to 100/150 of 50% of the full normal allowance for double shift and 100/150 of 100% for the triple shift and not 100/300 of 50% of normal allowance for double shift working. and 100/300 of 100 of normal allowance for triple shift working. The calculation of the extra allwance should not be based on the proportion of the actual number of double shift and triple shift working days of the seasonal factory bears to 300 days which is stated to be the normal number of working days in the remarks against item III of Pt. I of App. I.

11. It is also urged, in view of Expln. 1, that when for purpose of deducting normal depreciation allowance in the case of seasonal factories working during all the working seasons of the previous year irrespective of the number of days it worked is deemed as working throughout the previous year, the extra allowance for double shift and triple shift also should be allowed on that basis and 50 per cent. of the normal allowance should be allowed for triple shift.

12. It is contended for the assessee that a on plant and machinery of a seasonal factory full normal depreciation allowance is allowed if the seasonal factory was worked by the assessee during all the working season of the previous year and not necessarily for 180 days or more, then there is no reason why for the purpose of allowing extra allowance for double shift and triple shift, the proportion which the number of days for which the concern worked double shift or triple shift bears to the normal number of working days calculated at 300 days during the previous year should be taken the basis.

13. This contention of the assessee ignores that depreciation allowance is deductible only in accordance with the prescribed rules and the normal allowance and the extra allowance is admissible only in accordance with what is contained in the Rulers read with Pt. 1 App. I. The rate of normal allowance for buildings, furniture and fittings is different from the rate of normal allowance admissible for machinery and plant. In the case of buildings, furniture and fittings, no extra allowance is admissibile; while for machinery and plant, apart from normal allowance is admissible; while for machinery and plant, from normal allowance of depreciation, extra allowance is deductible for double shift and triple shift working. While for machinery and plant, other than the one used in seasonal factories, the basis for allowing 100% or 50% of the number shown in the second column of entry III of Pt. I of App. I is the number of days for which the plant and machinery has been used during the previous year for the seasonal factories, it is working of the factory during the previous year for the seasonal factories, it is working of the factory during all the working seasons of the previous year that is the basis. Further, the extra allowance is admissible to all the factories and concerns irrespective of whether they are seasonal or not as per the remarks in column 3 against Item III of pt. I of App. I. For the prupose of calculating extra allowance what is normal allowance has been explained in Expln. 1. 50 per cent. of the normal allowance calculated in the light of Expln. 1 is admissible as extra allowance if the concern has actually worked double shift and 100 percent. of the normal allowance if the concern has worked triple shift. For the purpose of calculating the extra allowance for double shift working and for triple shift working, another factor required to be taken into account is the proportion which the number of days for which the concern worked double shift or triple shift, as the case may be, bears to the normal number of working days throughout the previous year. What are the normal number of working days has not been laid down either in s. 32 or in r. 5; nor is it stated in Expln. 1 or 2 occurring in col. 3 of item III of Pt. 1 of App. I. What is stated in Expln. 1 is 'what normal allowance means' and not what is meant by 'normal number of working days'. While a seasonal factory would be entitled to normal allowanceon machinery and plant if it is worked during all the working seasons of the previous year, plant and machinery of other concerns should have been used during the previous year for 180 days or more for earning the normal allowance. The Explanation does not state that either 180 days or 300 days constitute normal number of working days for the purpose of admitting normal number allowance or extra allowance for a seasonal factory or for anyother concern. Hence, what is stated in Expln. 1 can only be relevant for ascertaining what is normal allowance. It does not explain how many days constitute 'normal number of working days' throughout the previous year for the purpose of determining the proportion which the actual number of days a seasonal factory worked double shift or triple shift bears to the normal number of working days. For the specific purpose of calculating the extra allowance admissible for double shift working and triple shift working the normal number of working days throughout the previoys year is expressly stipulated to be 300. thus, after fixing the normal number of working days at 300. Thus, after fixing the normal number of working days at 300, an example as to how the extra allowance has to be calculated is mentioned as follows :

'........ and if, example, a concern has worked only double shift for 100 days and triple shift for another 100 days, the extra allowance for triple shift shall be one-third of 50% of the normal allowance and that for triple shift shall be one-third of 100 per cent of the normal allowance.'

14. If as prescribed therein 300 days is to be taken as the number of working days then, if for example a concern has worked double shift for 100 days and triple shift for another 100 days, the extra allowance for double shift shall be 1/3rd of the 50%, i.e., 100 days for which it has actually worked double shift divided by 300 days, which is stated to be the 'normal number of working days'. In the case of triple shift, it is stated to be 1/3rd of 100%, i.e., 100 days it actually worked triple shift divided by 300 days which is stated to be 'the normal number working days' for the concern.

15. The contention of the assessee that this can logically apply only to non-seasonal concerns and cannot apply to seasonal factories ignores the specific provision contained in col. (3) of Pt. I of App. I in relation to item III by virtue of which alone extra allowance is admissible. The express words therein make it applicable 'to all concerns' whether the general rate or any special rate of depreciation applies to them, only such item of machinery or plant which has been specifically exhibited by the inscription of letters N. E. S. A. against it is excluded therefrom. This leaves one in no doubt that the method of calculation mentioned in col. (3) applies to machinery and plant used in seasonal or non-seasonal concerns. In other words, for purpose of calculating extra depreciation allowance in the case of a concern, which has worked double shift of triple shift, no distinction is made on the footing that the factory is a seasonal or non-seasonal one. That applies uniformly to all concerns. For the purpose of calculating the extra allowance the normal number of working days throughout the previous year would thus have to be taken as 300 days for all factories, irrespective of whether they are seasonal or non-seasonal factories. And it is the proportion which the number of days the concern has worked double shift or triple shift, as the case may be, to 300 days which are stated to be 'the normal number of working days' throughout the previous year, shall be the basis for admitting extra allowance. In so providing for calculation of extra allowance for duble shift and triple shift working, the rule does not violate any provision of the Act.

16. It is urged that though mode of calculation may not violate any specific provision of law, it is opposed to equity. But as ladi down in CITv. Madho Pd. Jatia there is no equity about tax. It is only virtue of the provision contained in Pt. I of App. I that extra depreciation allowance is admissible on plant and machinery. There is no independent right in an assessee to the deduction of extra allowance for double shift and triple shift working of a factory, seasonal or otherwise. Hence, any considerations of equity are wholly irrelevant in the matter of admitting extra depreciation allowance for double shift or triple shift working of a concern.

17. It is next argued that by the proviso to r. 5 of the Rules Expln. 1 occurring in col. (3), item III of Pt. I of App. I in respect of seasonalfactories, which may not have worked for a period of 180 days or more but have worked during all the working seasons of the previous years, a fiction is created that the factory has worked throughout the period the assessee was the owner therof during the previous year. It must be pointed out at the outset that the assumption that such a fiction has been created is not correct. So far as the proviso to r. 5 goes, it merely lays down that if a seasonal factory was worked by the assessee during all the working seasons of the previous year, depreciation would be allowed 'as if the plant and machinery had been in use throughout the period, the assessee was the owner therof during the previous year '. No fiction is created that the machinery and plant have been is use throughout the previous year. If at all any fiction is created, it is that the plant and machinery had been in use throughout the period the assessee was the owner thereof during the previous year; the explanation does not create a fiction with regard to the seasonal factory having worked throughout the previous year or for the 300 days or for the normal number of working days. In fact, in respect of the seasonal factory, for the purpose of admitting normal depreciation allowance, no particular number of working days are prescribed as the normal number of working days of the seasonal factory. The working of the seasonal factory during all the working seasons of the previous year by itself entitles it to normal allowance irrespective of the number of days it has worked-of course that should not be less than thirty days. That fiction does not extend any further. It is limited to the granting of depreciation allowance on the assumptionthat it has worked throughout the previous year and does not extend to the granting of extra depreciation allowance for which the basis is the working of the plant and machinery, double shift or triple shift.

18. A seasonal factory or for that matter any factory may not work on all the 365 days of the year. Hence, some criteria had to be evolved for the purpose of allowing normal depreciation allowance. That criteria is laid down in r. 5. That rule which prescribes that the machinery and plant of any concern should have worked for a minimum period of 180 days to earn full normal allowance lays down working during all the working seasons of the previous year as sufficient in the case of a seasonal factory for admitting normal depreciation allowance. The Act nowhere lays down and there is no overriding principle of law which enjoins that extra allowance also should be deducted on the same basis. Whatever may have been the position, if no criteria or mode of calculation of extra allowance were ladi down in col. (3) of Pt. I of App. I, then for admitting extra allowance for double shift and triple shift, a particular mode of calculation is specified and no distinction is made in that regard between seasonal factories and other concern, s then there is no ostensible reason why the proportion mentioned therein should not be aplicable to seasonal factories.

19. Mr. Parvatha Rao, learned counsel for the assessee, strenuously contended that when once a fiction is created by law, the same must be given full effect and must not be boggled down when it comes to giving effect to the consequence of the legal fiction and relied upon the decisions of the Supreme Court in CIT v. S. Teja singh : [1959]35ITR408(SC) and Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum : [1981]129ITR440(SC) and East End Dwellings Co. Ltd. v. FinsburyBorough Council [1952] AC 109. For the principle laid bown in these decisions, suffice to refer to what is stated in CIT v S. Teja Singh : [1959]35ITR408(SC) , which runs thus :

'It is a rule of interpretation well settled that in construing the scope of a legal fiction it would be proper and even necessarytp assume all those facts on which alone the fiction can operate.'

20. In that context the following statement of Lord Asquith in East End Dwellings co. Ltd. v. Finsbury Borough Council [1952] AC 132 was referred in the above decision as apposite and was strongly relied upon by Sri Parvatha Rao, learned counsel for the assessee :

'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it....... The statute says that you must imagine a certain state of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'

21. The decisions do not help in solving the issue now before us. The fiction that is created under the proviso to r. 5 is merely for the purpose of enabling the assessee working a seasonal factory during all the working seasons of the previous year to claim normal allowance of depreciation as if the machinery had been the use throughout the period, the assessee was the owner therof during the previous year even though in fact he has not worked the seasonal factory for 180 days or more. Rule 5 does not speak of ther normal depreciation allowance or of extra allowance. The fiction is created for the purpose of allowing depreciation allowance to seasonal factories without insisting upon its working for 180 days or more. To what extent normal allowance should be allowed and how extra allowance for double shift and triple shift should be calculated with respect to the buildings, furniture and fittings, machinery and plant for which depreciation is allowable under r. 5 is stated in Appendix I of Part I of the I. T. Rules, 1962. That lays down that with respect to machinery and plant, for the purpose of normal allowance, working of a seasonal factory during all the working seasons of the previous year is sufficient to entitle it to normal allowance of 7 per cent. But for admitting extra allowance for double shift and triple shift, the calculation has to be made as stated in col. (3) thereof. Merely because, normal allowance of 7 per cent. is allowed for a seasonal factory even though it has not worked for 180 days or more, it does not follow that extra allowance also should be alllowed in full without reference to the actual number of working days. For the purpose of admitting extra allowance for double shift and triple shift the Appendix specifically lays down that the normal number of working days throughout the previous year shall be taken as 300. No distinction is made between a seasonal and non-seasonal factory in this regard. No exception is made in favour of or concession is given to seasonal factories in this behalf. By specifying 300 days to be the normal number of working days during the previous year, the rule-making authority as tried to give a quietus to any argument as to what is menat by 'normal number of working days' in a year. Any scope for extending the fiction supposedly created in favour of seasonal factories for the purpose of admitting normal depreciation allowance, even for purposes of calculating extra allowance is wholly eliminated by specifying the normal number of working days to be 300. Whatever fiction is created for admitting normal depreciation allowance in the case of seasonal factories does not, as a corollary, compel deduction of extra depreciation allowance for double whether the normal number of working days ina year fixed as 300 applies to all factories including seasonal factories, it is clearly stated in the remarks column that this applies to all concerns.

22. The Calcutta High Court in Ganesh Sugar Mills Ltd. v. CIT [1970] 73 ITR 395 dealing with r. 8 of the Indian I.T. Rules, 1922, and the corresponding entry in the second column thereof, which is in pari material on the aspect with which we are now concerned, held (headnote)

'Under the note to clause III of rule 8 of the Income-tax Rules, 1922, the maximum of the extra shift depreciation allowable for working double shift is 50 per cent., while that of triple shift is 100 per cent. of the normal depreciation calculated for the whole year and to this maximmum the proportion of the actual number of days for which the plant and machinery had been working extra shift to 300 which is taken as the normal number of working days in a year, has to be applied. As this principle would apply to all concerns, whether the general rate or any special rate applies, there is no scope for the application of the principle of the second proviso to teh main rule 8 in the calculating the allowances for extra shift deprciation in the case of seasonal factories.'

23. The High Court upheld the decision of the departmental authorities and the Tribunal disallowing the assess's claim to the full amount of the 50%of the normal depreciation as the extra deperciation in respect of of assessee's seasonal sugar factories which worked during that part of the year when sugarcane was available.

24. The same view was taken by the Allahabad High Court in Raza Sugar CO. v. CIT : [1970]76ITR541(All) . The Allahabad High Court consistently adhered to that view in Shadi Lal Sugar Mills v. CIT : [1977]106ITR704(All) . In the last-mentioned case, the assessee-company was declared entitled to 50% of the normal depreciation on plant and machinery on account of the double shift allowance proportionately to the actual number of days it worked. In the first two cases, Raza Sugar Co. v. CIT : [1970]76ITR541(All) and Shadi Lal Sugar and General Mills Ltd. v. CIT : [1976]103ITR748(All) also it was held that as the factory had worked extra shift only during that part of the year when sugarcane was available and has not worked for the full year (300 days), the assessee was not entitled to the full amount of 50% of the normal depreciation as extra depreciation.

25. Rule 5 itself directly case up for consideration before the Gujarat High Court in CIT v. Khedut Sahakari Khand Udyog Mandli : [1976]104ITR206(Guj) . The Bench, repelling the contention that the seasonal sugar factory was enttled to full 50% extra depreciation allowance for the double shift it worked during all the seasons of the previous year and not in proportion to the actual number of days it worked double shift bear to 300 days, held (p. 211) :

'On a pure interpretation of the remarks column, it is obvious that this special allowance is meant for machinery and plant only whereas the second proviso (rule 5 of the Income-tax Rules, 1962), applies to depreciation of all types of assets including buildings, machinery and plant or furniture. Therefore, the second proviso deals with the calculation of depreciation allowance for seasonal factories in respect of all the assets and not merely for the particular asset, namely, plant and machinery, for which only the double shift allowance or triple shift allowance has to be calculated. This is a clear indication that what is stipulated in the remarks column for allowing double shift or triple shift allowance is a special provision regarding machinery and plant only and that has to be worked out or calculated in the manner provided in the remarks column.'

26. The court also repelled the contention that since the seasonal factories are not specially mentioned in the remarks column, the normal number of working days which is stated to be 300 days cannot apply to seasonal factories by pointing out that it referred 'to all concerns' which include seasonal factories.

27. The above accord with our view that extra allowance also, though constituting depreciation allowance, is not the same as normal depreciation allowance. Neither any provision in the Act nor r. 5 supports the contention that the basis for calculating normal depreciation allowance and extra depreciation allowance should be one and the same. Nor is there any basis for the contention that if for the purpose of allowing normal depreciation allowance a distinction is made between a seasonal factory and a non-seasonal concern, the same distinction should be maintained for the purpose of admitting extra depreciation allowance as well. Extra depreciation allowance being different and distinct from normal depreciation allowance and extra depreciation allowance for double and triple shift being admissible only with respect to plant and machinery and not with respect to other assets, the rule-making authority was certainly justified in laying down the cirteria for admitting extra depreciation allowance for all concerns. It could validly provide a different basis for admitting extra depreciation allowance than the one provided for admitting normal allowance. There is no law which enjoins the Legislature or the rule-making authority to deal with the seasonal factories and non-seasonal factories on a different footing for the pupose of admitting extra allowance merely because for the purpose of admitting normal depreciation allowance it has not prescriped 180 days as the minimum number of working days in an year as in the case of non-seasonal factories. And as for the Principles of equity, it is well settled, as observed in CIT v. Madho Pd. jatia , 'there is no equity about tax'. No provision of the Act or the Rule is violated in so prescribing. The principle that a fiction created for the one purpose should not be boggled down when it comes to the question of giving effect to the inevitable consequences or corollaries of that fiction is neither applicable to such a case nor is it violated in this regard.

28. In view of the above discussion, we hold that the assessee was not entitled to extra shift allowance without reference to the normal number of working days, viz., 300 and the days for which the plant and machinery worked for such extra shift. The reference is answered accordingly in favour of the revenue and against the assessee. Advocate's fee Rs. 250. No costs.


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