1989-VIL-548-MAD-DT

Equivalent Citation: [1989] 177 ITR 38, 75 CTR 120, 43 TAXMANN 144

MADRAS HIGH COURT

Date: 13.01.1989

MYSORE DASAPRAKASH

Vs

COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : BAKTHAVATSALAM., RATNAM 

JUDGMENT

The judgment of the court was delivered by

RATNAM J. -The assessee is a registered firm carrying on a hotel business. For the assessment year 1975-76, relevant for the accounting year ending on March 31, 1975, the assessee filed a return admitting an income of Rs. 15,820. The Income-tax Officer disallowed depreciation claimed by the assessee under the proviso to section 32(1)(ii) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), at the rate of 100% on electrical switch boards, distribution boards, etc., and sanitary pipeline installations in respect of thirteen new rooms constructed in the existing building on the ground that such installations should be considered as an integrated unit and depreciation allowed at 10% and that it was not correct to work out separately the cost of individual items of materials used and then to ascertain whether the cost did not exceed Rs. 750. On appeal by the assessee before the Appellate Assistant Commissioner, it was held that though switch boards, distribution boards, verandah lights, etc., could be regarded as items of plant or machinery, yet the expenditure incurred on the electrical system has to be treated as related to one integrated unit and cannot be split up into thirteen individual units and likewise, the sanitary pipelines and fittings should also be regarded as constituting an integrated part of the basic water supply system. In that view, the Appellate Assistant Commissioner declined to allow 100% depreciation as claimed by the assessee in relation to the switch boards, distribution boards, sanitary pipelines and other fittings. On further appeal to the Tribunal, the claim of the assessee for relief under the proviso to section 32(1)(ii) of the Act was rejected with reference to the cost of main switch board, distribution board, verandah lights, etc., and sanitary pipelines and fittings on the view that there was no scope whatever for breaking up the aggregate expenditure incurred on an integral plant to provide electricity and water supply to the rooms.

At the instance of the assessee, under section 256(1) of the Act, the Tribunal has referred the following questions of law for the opinion of this court :

1. Whether, on the facts and circumstances of the case, the Tribunal was right in its view that the items like switch boards, verandah lights, distribution board, etc., making up the electricity system and the sanitary pipelines and fittings have to be considered as one integrated whole and not as an individual plant ?

2. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the depreciation on electrical system and pipe fittings be restricted to 10% and not entitled to 100% depreciation on the ground that the aggregate value of the installation was to be taken ?"

Learned counsel for the assessee submitted that the question of depreciation on the electrical installations as well as sanitary pipelines and fittings provided for the rooms, constituting plant or machinery, has to be viewed separately with reference to each of the rooms put up and there was no justification for considering the switch boards, distribution boards, etc., making up the electrical system and the sanitary pipelines and fittings, etc., as an integral whole, to deny the assessee the benefit of the proviso to section 32(1)(ii) of the Act. On the other hand, learned counsel for the Revenue drew our attention to the method worked out by the assessee in claiming depreciation on the basis of the total cost of the electrification and the sanitary pipelines, etc., and divided by the number of points and connections, as the case may be, and submitted that that established that the assessee considered the electrical and sanitary installations as an integrated whole, so that the claim fell outside the proviso to section 32(1)(ii) of the Act. Attention was also drawn to section 43(1) of the Act and emphasis was laid on "capital cost" in relation to individual assets therein and it was submitted that there is no question of actual cost of an individual asset at all arising in this case.

We have carefully considered these rival contentions. In so far as the electrical switch boards, distribution boards, etc., and fittings are concerned, they form constituent parts of the entire electricity supply system as a whole and there is no scope for cutting up the aggregate expenditure into several parts roomwise, as claimed by the assessee. The benefit arising out of the installation of electricity switch boards, distribution boards, verandah lights is not confined to any particular room. Such installations are intended to regulate, distribute and make available electricity to all the rooms as a whole. The verandah lights are also intended to illuminate the entire verandah and not only that part of it along or opposite to a particular room. To break up the expenditure in relation to the electrical system roomwise as claimed by the assessee, would, in our view, be too unreal and a wholly artificial approach as well. Thus, considering the electrical system as an integrated whole, the expenditure incurred on that has also to be treated as such and there is no scope for dissecting the electrical system into different component parts with reference to each one of the rooms and working out the depreciation in accordance with the proviso to section 32(1)(ii) of the Act. Similarly, the sanitary pipelines and fittings (with the exception of commodes, seat covers, flush tanks, etc., in each individual room, for which depreciation at 100% has been allowed) are intended to serve all the rooms as a whole and not only a particular room and have also to be regarded as one integrated unit and there is thus no possibility of apportioning the expenditure relating to that with reference to each room for purposes of the proviso to section 32(1)(ii) of the Act and to allow depreciation in terms of the said proviso as claimed by the assessee. We, therefore, hold that as the electrical system and the sanitary pipelines and fittings, excepting those mentioned already, have to be considered as an integrated whole pertaining to the electricity and water supply to all the rooms and not individually, the Tribunal was quite right in holding that the allowance of depreciation thereon has to be restricted to 10%. We answer the questions referred to us in the affirmative and against the assessee. The Revenue will be entitled to the costs of this reference. Counsel's fee Rs. 500.

 

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