Judgment sc-1992-2-1017-1030

The Judgment of the Court was delivered by

K. RAMASWAMY, J. The assessee claimed depreciation on the written down value of roads constructed by it as formmg part of the cost G of the factory building and also claimed development rebate on industrial transport use for transporting raw materials and L1ished goods within the factory premises. The l.T.O. disallowed the claims. The assessee went in appeal. The A.A.C. dismissed the appeal. On a further appeal the Tribunal following its earlier order for assessment year 1962-63 in the case of the H

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A assessee, allowed the aforesaid two claims with regard to depreciation on the roads as well as rebate on the Tractors, Trailors etc. The revenue filed an application under Section 256(1). The said application was dismissed by the Tribunal. The revenue then filed application under Section 256{2) in the High Court. The High Court accepted the application with regard two questions only and rejected it so far as the quesiton regarding depreciation B on roads is concerned. The revenue filed SLP against the order of the High Court. This Court by order dated 5.12.1980 granted special leave confined to question No. 1 only which reads as under: - , "Whether on the facts and in the circumstances of the case, the c Appellate Tribunal was justified in law in holding that deprecia- tion is admissible on the W.D.V. of the cost of construction of roads in the factory premises on the footing that they constitute building?"

Civil Appeal No. 1194 of 1977 D C.I.T., Bombay .... Appellant

M/s Electro Mettalurgical Works Pvt. Ltd. ..... Respondent E The Appellate Assistant Commissioner directed the l.T.O. to allow depreciation on roads inside the factory compound at appropriate rates. It was claimed before the A.A.C. that roads within the factory compound constituted plant and the I.T.O. should be allowed depreciation as admis- F sible for buildings. It was not' clear from the order of the A.A.C. whether depreciation was to be granted on roads at the rates applicable to plant and machinery or at the rates applicable to building. The Tribunal while deciding the appeal filed by the revenue observed that it was not concerned with the above aspect regarding the rates. The Department's claim was that no depreciation at all should be given on roads. The Tribunal held that G different benches of the Tribunal at Bombay had taken the view that depreciation on roads inside the factory compound connecting different factory buildings and connecting the factory to the outer road should be allowed either on the footing that such roads are a part of the buildings or alternatively that they constituted plant. The Tribunal thus held that A.A.C. H was justified in directing the I.T.O. to grant the necessary depreciation.

C.l.T. v. GWALIOR SILK MFG. CO. [RAMASWAMY, J.) . 1023

The appeal of the revenue was dismissed. The revenue filed a petition. A under Section 256(1). The question number one related to calculating the reliefs under Section 80-1 without taking into consideration the develop- ment rebate. The second question related to allowing of depreciation on roads inside the factory at appropriate rates. The Tribunal with regard to second questior.. held that the Bombay High Court itself in the ~e of B Colour Chem Ltd. had taken the view that depreciation should be granted on the roads. The Tribunal in these circumstances did not consider it worthwhile to refer the second question. As regards the first question also with which we are not concerned the Tribunal did not consider it worthwhile for referring the same to the High Court. The revenue then filed a petition under Section 256 (2) in the High Court. In this petition in C paragraph 7 it has been stated as under: -

"So far as question No., 2 is concerned, the department has sinte decided not to pursuelthe matter further. In the prayer clause also the direction to the Tribunal to state the case and refer the question of law was made in respect of question No. 1 only." D

The High Court by order dated June 17, 1979 issued notice as regards question No. 1 only and dismissed the application so far as ques- tion No. 2 is concerned. The revenue in the above circumstances filed SLP against the order dated June 17, 1979 and leave was granted. E

Civil Appeal No. 2978 of 1989

-- C.I.T.

v. ... Appellant

M/s. Hindustan Aeronautics Ltd. ... Respondent

l.T.O. disallowed the claim for depreciation on roads and drains for the assessment year 1977-78. The Commissioner Income-tax (Appeals) allowed the depreciation following the decision of the Bombay High Court G in C./. T. v. Colour Chem Ltd., (106 ITR 323) and Madras High Court decision in C./. T. v. Loockers TVs Ltd., (110 ITR :w;). The Tribunal A dismissed the appl!al filed by the revenue. The Tribunal -rejected the reference application filed under Section 256 (1). On a reference applica- tion filed by the revenue under Section 256(2), the High Court directed the H

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A TribUnal to state the case and refer the quest.ton of law ;>r its opinion. The High Court followed its earlier decision in C./. T. v. Bangalore Turf Club )- case, (150 ITR 23) and answered tlie question against the revenue. The question of law raised was whether on the facts and in the circumstai:.ces of the · case, the Appellate Tribunal is right in law in holding that the assessee is entitled to depreciation on the written down value of road'i and B drains at the rates applicable to buildings. _,J\ Civil Appeal No. 5553 of 1990

C.I.T., Bangalore ... Appellant __.... c v. ~

M/s. Hindustan Aeronautics Ltd. ... Respondent '~ LT.O. allowed depreciation on roads and drains in the original D assessment for the assessment year 1973-74. C.l.T. set aside the order of the ·I.T.O. under Section 263. Reassessment by the I.T.O. disallowing the assessee's claim for depreciation on roads and drains to the extent of Rs. 15,50,526. On appeal the C.I.T. {Appeals) allowed the assessee's claim for depreciation. The Tribunal dismissed the appeal of the revenue. At the instance of the revenue on a reference under Section 256{1) the High Court E answered the question against the revenue. The High Court by order dated October 25, 1983 answered the question in favour of the assessee relying , -4:; on its earlier decision reported in C./. T. v. Bangalore Turf Club Ltd., (150 I.T.R. 23).

Civil Appeal No. 1404 of 1991 F The Commissioner of Income Tax ....Appellant

I.D.L. Chemicals Ltd. .... Respondent G l.T.O. rejected the claim for depreciation on roads. A.A.C. allowed depreciation on roads treating the same as buildings. The Tribun~I relying on its earlier order held that depreciation on roads should be allowed by treating them as plant. On reference applications, the Tribunal referred -"' H two questions to the High Court for its opinion (1) whether the assessee

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was entitled to depreciation on roads as part of the plant, (2) whether the A assessee was entitled to depreciation for the assessment year 19n~73 on the written down value of the sum of Rs. 3,41,595 referred in question No. 1 and also on the questions to plant and machinery of Rs. 1,52,767 made during the previous year relevant for the assessment year 1971-72. The High Court by order dated 12.10.1984 held that the same was covered by B a consolidated order passed on June 15, 1983 in favour of the assessee. The question was, therefore, answered against the revenue and in favour of the assessee. As regards the second question, High Court held that it was covered as a result of. an amendment to the Act which has been noted in R.C. No. 80/78 dated April 18, 1983. The answer was therefore recorded against the assessee and in favour of .the revenue. In the SLP, it is stated C ~

that both the questions referred to were answered in favour of the assesset!' which is not correct.

Since this bunch of appeals raised common· questions of law for decision, they are disposed of by a common judgment. The facts in Civil Appeal No. 2916/80 are sufficient for decision. Hence they are extratt:ted. D For the assessment year 1963-64 for the previous year ending 31st March, 1963, the respondent assessee, a company incorporated under the Company's Act claimed depreciation on the roads constructed by it as forming part of cost of the factory building. The Income-tax Officer and on an appP-al the Asstt. Appellate Commissioner rejected the claim. On E further appeal, following the decision of the Bombay High Court for previous year, the Tribunal allowed the appeal and held that the assessee is entitled to depreciation. Then the revenue sought for reference on the question:

"Whether on the facts and in the circumstances of the case the F Appellate Tribunal was justified in law in holding that the depreciation was applicable on the written down value of the cost of construction of roads in the factory premises on the footing that they constitute building ?" G The High Court by its impugned order under s. 256(2) of the Income-tax Act, 1961 for short 'the Act' declined to call for a reference.

The contention of Sri Manchanda, learned counsel for the Revenue, is that the word "building" in its connotation is referable to something that a constructed one as a structure or super-structure on land with walls and H

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A roof. According to the counsel since the Act did not give a definition of its own, the dictionary meaning of the "building" which means "a house or anything which built a structure" is to be adppted which was made manifest by subsequent amendment to appendix I under Income-tax, 4th Amend- ment Rules, 1983 for short 'the Rules' having come into force with effect from 2nd April, 1983 which includes roads. Therefore, till 2nd April, 1983 B the roads did not form part of the building. It is also further contended that the Rules made manifest that they would be applicable only prospec- tively from 2nd April, 1983. By necessary implication till that cut off date the legislature excluded roads from the connotation of the building. The capital expenditure incurred hy an assessee on construction of road even c within factory premises is not entitled to depreciation as a deduction in the computation of profits and gains of assessee's income of the previous year. Sri Harish Salve, the learned senior counsel and other counsel appearing for the assessees resisted the contention. Sri Salve contended that the purpose of allowing depreciation is to compute the net taxable income; unless roads are laid it is not possible for the convenient carrying on of the business activity, the assessee laid roads and incurred expenditure thereon. Therefore, the roads form part of building as capital asset which is admis- sible for depreciation under s. 32 of the Act. The Rules only regulate the rate of depreciation at which the assessee is entitled to. Preceding the 4th Amendment Rules with effect from 2nd April, 1983, the rates were variable and the assessees were entitled to claim either as plant or building etc. To set at rest that part of the controversy the rules were amended and came into force with effect from 2nd April, 1983. The subordinate legislature gave effect to the interpretation given by various High Courts to the word

F building which included roads as well. Sri Manchanda further contended that taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play. The words in the taxing statute ~hould be given literal interpretation. Nothing is to be read - in, nothing is to be implied; one can only look fairly at the language used and nothing more and nothing less.

G , It is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation. In Raja Jagadambika Pratap Narain Singh v. C.B.D. T., [1975] 100 ITR 698, this Court held that "equity and income-tax have been described as strangers". H The Acl from the very nature of things cannot absolutely cast upon logic.

C.l.T. v. GWALIOR SILK MFG. CO. (RAMASWAMY, J.) 1027

It is to be read and understood according to its language. If the plain A ......, reading of the language compels the court to adopt an approach different from that dictated by any rule of logic the court may have to adopt it, vide Azam !ah Bahadur (H.H. Prince) v. E. T.O., [1983) 72 ITR 92. Logic alone will not be determinative of a controversy arising from a taxing statute. Equally, common sense is stranger and incompatible partner to the In- B come-tax Act. It is not concerned itself with the principles of morality or ,\-- ethics. It is concerned with the very limited question as to whether the amount brought to tax constitutes the income of the assessee. It is equally settled law that if the language is plain and unambiguous one can only look

-- ~ fairly at the language used and interpret it to give effect to the legislative animation. Nevertheless tax laws have to be interpreted reasonably and in cunsonance with justice adopting purposive approach. The contextual meaning has to be ascertained and given effect to. A provision for deduc- c )..-' tion, exemption or relief should be construed reasonably and in favour of the assessee. The object being that in computation of the net income, the statute provides deductions, exemptions or depreciation of the value of the capital assets from taxable income. Therefore, building which have not been specifically defined to include road in the Act must be taken in the legal sense.

The question emerges, therefore, whether roads and drains include building under s. 32 of the Act. Section 32 provides depreciation of capital assets in respect of buildings, machinery, plant or furniture. This Court in C.l. T. v. Ram Gopal Mills Ltd., (41 I.T.R. 280), held that "the basic and normal scheme of depreciation under the Act is that it decreases every year being a percentage of the written down value which in the first year is the actual cost and in succeeding years the actual cost less all depreciations actually allowed under the act or any act repealed thereby". The deprecia-

- ).__-~ tion allowance, therefore, is in respect of such assets as are used in the business and each to be calculated on the written down value. The al- lowance towards depreciation is for the continuation of the use of the assets wholly or in part during the accounting year and its contribution to

- the earning of the income. The object is to determine net income liable to tax. In C.I. T. v. Alps Theatre, [1967) 65 ITR 377, heavily relied on by the revenue, this Court considerings. 10(2) of the Income-tax Act, 1922 held that s. 10(2) provides that such profits or gains shall be computed after ;..._ making certain allowances. The object .of giving these allowances is to determine the assessible income. Therein the question was whether the H

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A land on which the theatre was constructed is a building within the meaning of s. 10(2) of the Income-true Act, 1922. This court held that land is not a building and, therefore, depreciation allowance for land separately is not >-- admissible. The ratio therein has no application but the principle laid would be considered in the light of the purpose of the Act. In C./. T. v. Taj Mahal Hote4 [1971] 82 ITR 44, this court adopting purposive approach B held that sanitary and pipeltlie fittings fell within the definition of plant. 1922 Act intended to give wide meaning to the word "plant". The rules are A, meant only to carry out the prqvisions of the Act and cannot take away what is conferred by the Act or whittle down its effect. In the Municipal Corporation of Greater Bombay & Ors. v. Indian Oil Corporation Ltd., JT c (1990) 4 SC 533, the oil tanks for storage of petrol were held to be buildings ___...... exigible to property true. ~

The question whether the roads would include within the meaning of '~ the word buildings was considered by various High Courts. The leading D decision is of the Bombay High Court in C./. T. v. Colour Chem Ltd., {1977) 106 ITR 323. While negativing the contention that roads are part of the plant, the Bomaby High Court held that the roads within the factory premises are used for the purpose of carrying raw materials, finished products and workers. Therefore, it must be regarded as building or buildings within the meaning of sub-clause (iv) of s.10(2) of 1922 Act. It E was also held that dictionary meaning of the word "building" cannot be confined to a structure or superstructure having walls and roof over it. The ,~ roads and roadways are adjuncts of the buildings lying within the factory area linking them together and are being used for carrying on its business by the assessee. Therefore, they must be regarded as forming part of the F factory building. The expenditure incurred, therefore, will have to be regarded as expenditure on buildings and the depreciation must be al- lowed. The appeal filed against the judgment in Colour Chem Ltd. case the leave was refused on .the grounds of delay. More or less though for different reasons on "common sense principle" same is the ratio in C./. T. v. Locas-TVS Ltd., [1977] 110 ITR 346 (Mad.). When the appeal was filed, )...-----" - G this court dismissed the Special Leave Petition on the ground of delay. Same is the view in Panyem Cement and Chemical Industries Ltd. v. Addi. C.l. T., [1979) 117 ITR 770 (A.P.); C.l.T. v. Kalyani Spinning Mills Ltd., [1981] 128 ITR 279 (Cal.); C./. T. v. Mee. Gaw Laboratories India (Ltd.), 1 - [1981) 132 ITR 401 (Guj.). In C./. T. v. Bangalore Turf Club Ltd., 150 ITR H 23, when the appeal wa'i filed this court dismissed the same in Special

C.i.T. v. GWALIOR SILK MFG. CO. [RAMASWAMY, J.J 1029

Leave petition Nos. 5198-99/85 dated December 16, 1987. A

In Permanent Words and Phrases, Vol. SA 'building' was defined that every thing that is necessary to perfect a manufacturing establishment and fit for use designed as a part of it is a building. The roads would serve as necessary links between the raw material and finished products in the business activity. The roads are liable to wear and tear and need constant repairs or relaying the road afresh.

While amending Income-true 4th Amendment Rules 1983, the rule

-- making authority accepted this interpretation consistently laid by various High Courts that building includes roads and also alongated bridges, culverts, wells and tubewells as building but prescribed fixed rates of . depreciation setting at rest the variable rates claimed by the assessee. Rules validly made have the same force as the sections in the Act. The contention of the respondents that unless the Act itself is amended, the rules would not cut down the meaning of the word 'building' is without substance. The D inclusive definition of the b~ilding to include roads etc. enlarges the scope of s. 32 and does not whittle down its effect. It is true that in C.J. T. v. Coromandel Fertilisers Ltd., ·(1985) 156 ITR 283, (A.P.), the High Court of Andhra Pradesh interpreted that roads fell within the meaning of "Pl~t" · and granted depreciation at the rates admissible to plant. In C.J. T. v. Sanavik Asia Ltd., (1983] 144 ITR 585 (Born.), took opposite view and held E to be building. In view of the consistent view of the other High Courts and in our view which is the correct one, the view of the High Court of A.P. is not correct in law.

It is true, as contended for the Revenue that the Income-true 4th F Amendment Rliles 1983 were given effect from 2nd April, 1983 thereby manifested that the rates enumet:ated in the. rules would be applicable ... prospectively from the later assessment years. It by no means be construed that the legislature expressed its intention that for the earlier period building does not include roads. If it we~e to be so it was open to the G

... Parliament to expressly brought out an aanendment to the Act to that ·effect. On the other hand we are of the view that the subordinate legislature .accepted the interpretation given .by the High Courts and included roads as integral part of the building. In Bangalore Tuif Club Ltd. case 150 ITR 23, the Karnataka High Court held that the amendment was by way of clarification in confumity with the law laid by the High Courts. It is also H

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A equally settled law that an interpretation consistently given over years and accepted and acted upon by the department may not normally be upset even though a different view of law may r.easonably be possible unless the new perceptions and circumstances warrant fresh look. The ratio in Saharanpur Electric Supply Co. Ltd. v. C.I. T., [1992] 194 ITR 294, is not in conflict with the above view. It is also settled law that, unless it is expressly B stated or by necessary implication arises, a statute should always be read as prospective. The ratio therein is also in consonance with the view we are taking.

C Accordingly we have no hesitation to hold that the roads laid within the factory premises as links or provided approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activity. - of the assessee would be building within the meaning of s. 32 of the Act. The capital expenditure incurred thereon is admissible to depreciation of written down value. It has to be worked out for the purpose of depreciation as per the provision of the Act read with the Rules in appendix. Equally the drains also would be an integral part of building for the convenient enjoyment of the factory. The expenditure incurred in laying the drains or written down value of the cost of its construction would equally be entitled to depreciation. It is to be worked out in terms ?f s. 32 of the Act read with the rules in the Appendix. In view of the settled position the reference sought for in CA No. 2916/80 and CA No. 1194/77 is unnecessary. The appeals are accordingly dismissed. No costs.

F CIVIL APPEAL NO. 1404/91 - The appeal is partly allowed. The I.T.O. would compute roads as building and depreciation should be given accordingly. In view of the circumstrances the parties are directed to bear their own costs.

G Civil Appeal Nos. 2978/89 & 5535/90

The Civil Appeals are dismissed. No costs.

N.V.K. Appeals dismissed.