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Dhampur Sugar Mills Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 360 of 1977
Judge
Reported in[1980]126ITR648(All)
ActsIncome Tax Act, 1961 - Sections 34(1); Income Tax Rules, 1962 - Rule 5
AppellantDhampur Sugar Mills Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateA.N. Mahajan and ;R.S. Agrawal, Advs.
Respondent AdvocateR.K. Gulati and ;A. Gupta, Advs.
Excerpt:
- - this view was upheld in appeal as well as by the tribunal in further appeal. 8. the note requires that the ito be satisfied that the concern has actually worked double or triple shift. 12. learned counsel for the assessee invited us to extend the method of computation specified in the second proviso to rule 5 to the working out of the extra shift allowance as well. for this purpose, recourse cannot be had to the second proviso to rule 5. 15. for the assessee, it was stressed that the yardstick of 300 working days cannot possibly apply to a seasonal factory like a sugar factory because it can never work for 300 days in a year. cit [1979]116itr851(cal) as well as by the gujarat high court in cit v......days. it claimed 100% of the normal depreciation allowance for the triple shifts. the ito allowed extra shift allowance to the extent of 105 to 300 of the normal depreciation allowance. this view was upheld in appeal as well as by the tribunal in further appeal.2. at the instance of the assessee, the tribunal referred the following question of law for the opinion of this court:'whether, on the facts and in the circumstances of the case, and having regard to the second proviso to rule 5 of the income-tax rules, 1962, the tribunal was right in holding that the extra shift depreciation allowance for double and triple shift working in the case of the assessee-company was to be calculated with reference to the actual number of days on which the extra shifts worked and not at 100% of the.....
Judgment:

Satish Chandra, C.J.

1. M/s. Dhampur Sugar Mills Ltd., the assessee, owns and runs a sugar factory. It woiks seasonally. For the assessment year 1964-65. it worked triple shift for 105 days. It claimed 100% of the normal depreciation allowance for the triple shifts. The ITO allowed extra shift allowance to the extent of 105 to 300 of the normal depreciation allowance. This view was upheld in appeal as well as by the Tribunal in further appeal.

2. At the instance of the assessee, the Tribunal referred the following question of law for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, and having regard to the second proviso to Rule 5 of the Income-tax Rules, 1962, the Tribunal was right in holding that the extra shift depreciation allowance for double and triple shift working in the case of the assessee-company was to be calculated with reference to the actual number of days on which the extra shifts worked and not at 100% of the normal depreciation allowance for the relevant previous year ?'

3. When the case came up for hearing before a Division Bench, it found that on this matter there was a conflict of opinion in this court. It referred the following question of law for decision by a larger Bench :

'Whether having regard to Rule 5 read with entry III of Appendix I, Part I, of the Income-tax Rules, 1962, as applicable in the assessment year 1964-65, depreciation allowance for multiple shift working has to be allowed in proportion to the number of days on which the machinery or plant was used or an amount equal to the full allowance of normal depreciation ?'

4. Section 32 of the I.T. Act, 1961, deals with depreciation. Under Clause (ii) of Sub-section (1), in the case of buildings, machinery, plant or furniture, the allowable deduction is such percentage on the written down value thereof as may, in any case or class of cases, be prescribed. The computation of depreciation allowance is to be done according to the Rules, Rule 5 refers to depreciation. We shall refer to its provisions as they were in operation for the period relevant to the assessment year 1964-65. Sub-rule (1) of Rule 5provided the method of computation of depreciation generally. The second proviso referred to a seasonal factory. It stated :

'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.'

5. This was the normal depreciation allowance. Rule 5 or its second proviso did not refer to or lay down the criteria for computing the extra shift allowance. This aspect has been dealt with by Part I of Appendix I to the Rules and at serial number III, which is headed as 'Machinery and plant', the remarks in column No. 3 are :

' An extra allowance up to a maximum of 50% of the normal allowance shall be allowed by the Income-tax Officer where a concern claims such allowance on account of double shift working and satisfies the Income-tax Officer that the concern has actually worked double shift. An extra allowance up to a maximum of 100% of the normal allowance, instead of 50%, shall be allowed in computing the total income assessable for any assessment year commencing on or after the first day of April, 1964, where a concern proves that it has worked triple shift. The calculations of the extra allowances for double shift working and for triple shift working shall 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. For this purpose, the normal number of working days throughout the previous year shall be taken as 300, and if, for example, a concern has worked only double shift for 100 days and triple shift for another 100 days, the extra allowance for double shift shall be one-third of 50% of the normal allowance and that for triple shift shall be one-third of 100% of the normal allowance. This applies to all concerns whether the general rate or any special rate of depreciation applies to them, but does not apply to an item of machinery or plant which has been specifically excepted by the inscription of the letters *'N.E.S.A.' against it.

Explanation 1.--For this purpose, the normal allowance means the amount of depreciation allowance (other than 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..........'

6. It is noticeable that the extra allowance is only for machinery and plant, unlike the normal allowance which extends to buildings or furniture in addition to machinery and plant. Then the remark in column 3 of the Appendix exclusively provides the method for computing the extra allowance for double and triple shift working. Its Explanation 1 lays down the method of calculating the normal allowance for purposes of computing the extra allowance for double or triple shift working.

7. The note in the remarks column of the Appendix is hence a self-contained code for determining the extra allowance for double and triple shift working.

8. The note requires that the ITO be satisfied that the concern has actually worked double or triple shift. For double shift the maximum extra allowance is 50% of the normal allowance. For triple shift the extra allowance runs up to 100% of the normal allowance. The note specifically provides that the calculation of the extra allowance shall be made in the proportion which the number of days for which the concern worked double or triple shift, as the case may be, bears to the normal number of working days throughout the previous year. The normal number of working days for this purpose shall be taken as 300.

9. Not content with such a specific provision for computation, the note goes on to give an illustration. If a concern has worked triple shift for 100 days, the extra allowance shall be one-third of 100% of the normal allowance.

10. The note does not leave its application in doubt. It says 'this applies to all concerns......'

11. The method of computation of extra allowance as given in the remarks column No. 3 of the Appendix will obviously be applicable to seasonal factories also. In the present case the assessee-company worked triple shift for 105 days. The extra allowance will be 105/300 of the normal allowance. This is what the revenue authorities have granted.

12. Learned counsel for the assessee invited us to extend the method of computation specified in the second proviso to Rule 5 to the working out of the extra shift allowance as well. Learned counsel stressed that the note in the remarks column of the Appendix does not specifically provide for a seasonal factory. The second proviso to Rule 5 is the only provision applicable to a seasonal factory. For this reason, it should be applicable. There are several difficulties in accepting this submission.

13. In the first place, the note in the remarks column expressly says 'this applies to all concerns'. This will include a seasonal factory.

14. In the second place, the second proviso specifies the method of working out the normal allowance for building, machinery, plant and furniture. The extra shift allowance is given only to machinery and plant. Then the first Explanation is a special provision. It will exclude the applicability of the general provision contained in the second proviso to Rule 5 for computing the normal allowance. The first Explanation applies also to a seasonal factory. The normal allowance for a seasonal factory for computing the extra shift allowance has to be worked out according to the first Explanation to the note in the remarks column. For this purpose, recourse cannot be had to the second proviso to Rule 5.

15. For the assessee, it was stressed that the yardstick of 300 working days cannot possibly apply to a seasonal factory like a sugar factory because it can never work for 300 days in a year. Therefore, the method provided in the second proviso that if it has worked throughout the working season it should get 100% extra allowance for triple shift working, ought to apply. We are unable to agree. The opening part of the note in the remarks column provides for the eligibility to extra allowance, the condition being that the concern has actually worked double or triple shift to the satisfaction of the ITO. If so, the maximum allowance is 50% in case of double shift and 100% for triple shift of the normal allowance. Thereafter, the note lays down the mode or method of computation of the extra allowance. The extra allowance is computed for each plant or machinery that has been worked double or triple shift. The allowance is not given to the assessee as such. It is confined to the actual or triple shift working of the plant or machinery. The form prescribed under Rule 34(1) (sic) of the Rules and referred to in Appendix II of the I.T. Rules requires the assessee to specifically state the number of days for which extra shifts worked. This makes it abundantly clear that the extra shift allowance has to be calculated on the basis of the number of days the plant or machinery has actually worked.

16. The note in the remarks column of Appendix I was modified with effect from April 1. 1970. For calculating the extra shift allowance the normal number of working days, which, till then, was 300, was changed. In the case of a seasonal factory or concern, the normal number of working days were to be treated as 180 irrespective of the number of days on which the factory or concern actually worked during the whole year. In other cases, the figure was 240 days. Thus, the number of normal working days was reduced from 300 to 240 generally and 180 in the case of seasonal factories. This change no doubt liberalized the grant of extra shift allowance. But this change was not made retrospective. Further, even according to this change, the normal number of working days have been artificially fixed. There is no co-relation with the provision in the second proviso to Rule 5 where the criteria is that the concern worked throughout all the working season irrespective of the number of days. For this reason also the second proviso to Rule 5 cannot be utilized.

17. This view has been accepted by this court in several cases; Raza Sugar Co. v. CIT : [1970]76ITR541(All) , Shadi Lal Sugar and General Mills Ltd. v. CIT : [1976]103ITR748(All) , Kundan Sugar Mills v. CIT : [1977]106ITR704(All) . The same view has been accepted by the Calcutta High Court in Ganesh Sugar Mills Ltd. v. CIT : [1969]73ITR395(Cal) and in Ananta-pur Textiles Ltd. v. CIT : [1979]116ITR851(Cal) as well as by the Gujarat High Court in CIT v. Khedut Sahakari Khand Udyog Mandli : [1976]104ITR206(Guj) .

18. A discordant note was, however, struck by this court in L.H. Sugar Factories and Oil Mills (P.) Ltd. v. CIT : [1979]118ITR985(All) . It was observed in this case (p. 988) :

'In relation to the fifth question, the position is that in J.K. Synthetics Ltd. v. CIT : [1979]118ITR629(All) this court has held that the normal allowance referred to in Explanation I under 'Machinery and plant' in Appendix I, relating to Rule 5 of the Income-tax Rules, 1962, refers to the figure of normal depreciation had the machinery and plant worked for a period of 180 days or more and not the hypothetical figure of normal depreciation.'

19. Having said so, the Bench went on to hold (p. 988) :

'For double and triple shift working, 100% of such normal depreciation allowance is admissible. The actual number of days on which the factory worked such extra shifts is immaterial. In view of this decision, the fifth question is liable to be answered in favour of the assessee.'

20. In J.K. Synthetics case : [1979]118ITR629(All) , the only question raised and decided by this court related to the method of computing the normal depreciation allowance. It was held that the method provided in the first Explanation to the note in the Appendix was applicable to compute the normal depreciation for calculating the extra shift allowance. In that case there was no dispute as to the method of calculating the extra shift allowance. The Bench erroneously held that J.K. Synthetics case : [1979]118ITR629(All) decided that for double and triple shift working 100% of such normal depreciation allowance is admissible and that the actual number of days on which the factory worked such extra shifts, is immaterial In respect of this matter, the decision in L.H. Sugar Factories and Oil Mills (P) Ltd. : [1979]118ITR985(All) does not lay down the correct law. The same is the position in the case of Dhampur Sugar Mills Ltd v. CIT [1980] UPTC 915.

21. The question of law referred to the Full Bench is accordingly answered by holding that the extra shift allowance has to be computed in proportion to the number of days on which the machinery or plant was used and not the amount equal to the full amount of normal depreciation. Let the papers be laid before the Bench concerned with this opinion and answer.

ORDER

R.R. Rastogi, J.

22. The Income-tax Appellate Tribunal has referred the following question of law for our opinion :

'Whether, on the facts and in the circumstances of the case, and having regard to the second proviso to Rule 5 of the Income-tax Rules, 1962, the Tribunal was right in holding that the extra shift depreciation allowance for double and triple shift working in the case of the assessee-company was to be calculated with reference to the actual number of days on which the extra shifts worked and not at 100% of the normal depreciation allowance for the relevant previous year ?'

23. In view of the conflict of opinion between two Division Bench decisions of this court we had referred the following question for decision to the Full Bench :

'Whether having regard to Rule 5 read with entry III of Appendix I, Part I, of the Income-tax Rules, 1962, as applicable in the assessment year 1964-65, depreciation allowance for multiple shift working has to be allowed in proportion to the number of days on which the machinery or plant was used or an amount equal to the full allowance of normal depreciation '

24. The Full Bench has now answered the question by saying that the extra shift allowance has to be computed in proportion to the number of days on which the machinery or plant was used, and not at an amount equal to the full amount of normal depreciation.

25. In view of the above, we answer the question referred in favour of the department, and against the assessee. There shall be no order as to costs.


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