1992-VIL-58-SC-DT

Equivalent Citation: Other Citation: [1992] 196 ITR 149 (SC), 1992 AIR 1782, 1992 (2) SCR 1017, 1992 (3) SCC 326

Supreme Court of India

C.A. 2916 OF 1980

Date: 29.04.1992

COMMISSIONER OF INCOME-TAX

Vs

GWALIOR RAYON SILK MANUFACTURING CO. LIMITED

BENCH

N. M. KASLIWAL. and K. RAMASWAMY.

JUDGMENT

Civil Appeal No. 2916 of 1980.

CIT v. GWALIOR RAYON SILK MANUFACTURING Co. LTD.

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 forming part of the cost of the factory building and also claimed development rebate on industrial transport used for transporting raw materials and finished goods within the factory premises. The Income-tax Officer disallowed the claims. The assessee went in appeal. The Appellate Assistant Commissioner dismissed the appeal. On further appeal, the Tribunal, following its earlier order for the assessment year 1962-63 in the case of the assessee, allowed the aforesaid two claims with regard to depreciation on the roads as well as development rebate on the tractors, trailers, etc. The Revenue filed an application under section 256(1). The said application was dismissed by the Tribunal. The Revenue then filed an application under section 256(2)in the High Court. The High Court accepted the application with regard to two questions only and rejected it so far as the question regarding depreciation on roads was concerned. The Revenue filed a special leave petition against the order of the High Court. This court, by order dated December 5, 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 Appellate Tribunal was justified in law in holding that depreciation is admissible on the written down value of the cost of construction of roads in the factory premises on the footing that they constitute building?"

Civil Appeal No. 1194 of 1977.

CIT v. ELECTRO METALLURGICAL WORKS P. LTD.

The Appellate Assistant Commissioner directed the Income-tax Officer to allow depreciation on roads inside the factory compound at appropriate rates. It was claimed before the Appellate Assistant Commissioner that roads within the factory compound constituted Plant and the Income-tax Officer should have allowed depreciation as admissible for buildings it was not clear from the order of the Appellate Assistant Commissioner as to whether depreciation was to be granted on roads at the rates applicable to plant and machinery or at the rates applicable to buildings. 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 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 the Appellate Assistant Commissioner was justified in directing the Income-tax Officer to grant the necessary depreciation. The appeal of the Revenue was dismissed. The Revenue filed petition under section 256(1). Question number one related to calculating the relief under section 80-1 without taking into consideration the development rebate. The second question related to allowance of depreciation on roads inside the factory at appropriate rates. The Tribunal, with regard to the second question, held that the Bombay High Court itself in the case of Colour-Chem Ltd. [1977] 106 ITR 323 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 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 paragraph 7, it has been stated as under :

"So far as question No. 2 is concerned, the Department has since decided not to pursue the 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."

The High Court, by its order dated June 17, 1976, issued a notice as regards question No. 1 only and dismissed the application so far as question No. 2 was concerned. The Revenue, in the above circumstances, filed a special leave petition against the order dated June 17, 1976, and leave was granted.

Civil Appeal No. 2978 of 1989.

CIT v. HINDUSTAN AERONAUTICS LTD.

The Income-tax Officer disallowed the claim for depreciation on roads and drains for the assessment year 1977-78. The Commissioner of Incometax (Appeals) allowed the depreciation following the decision of the Bombay High Court in CIT v. Colour-Chem Ltd. [1977] 106 ITR 323 and the Madras High Court decision in CIT v. Lucas-TVS Ltd. (No. 2) [1977] 110 ITR 346. The Tribunal dismissed the appeal filed by the Revenue. The Tribunal rejected the reference application filed under section 256(1). On a reference application filed by the Revenue under section 256(2), the High Court directed the Tribunal to state the case and refer the question of law for its opinion. The High Court followed its earlier decision in CIT v. Bangalore Turf Club Ltd. [1984] 150 ITR 23 (Kar) and answered the question against the Revenue. The question of law raised was whether, on the facts and in the circumstances 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 roads and drains at the rates applicable to buildings.

Civil Appeal No. 5535 of 1990.

CIT v. HINDUSTAN AERONAUTICS LTD.

The Income-tax Officer allowed depreciation on roads and drains in the original assessment for the assessment year 1973-74. The Commissioner of Income-tax set aside the order of the Income-tax Officer under section 263. Reassessment was made by the Income-tax Officer disallowing the assessee's claim for depreciation on roads and drains to the extent of Rs. 15,50,526. On appeal, the Commissioner of Income-tax (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 answered the question against the Revenue. The High Court, by its order dated October 25, 1983, answered the question in favour of the assessee relying on its earlier decision in CIT v. Bangalore Turf Club Ltd. [1984] 150 ITR 23 (Kar).

Civil Appeal No. 1404 of 1991.

CIT v. I. D. L. CHEMICALS LTD.

The Income-tax Officer rejected the claim for depreciation on roads. The Appellate Assistant Commissioner allowed depreciation on roads treating the same as buildings. The Tribunal, relying on its earlier order, held that depreciation on roads should be allowed by treating them as plant. On reference applications, the Tribunal referred two questions to the High Court for its opinion (1) whether the assessee was entitled to depreciation on roads as part of its plant, (2) whether the assessee was entitled to depreciation for the assessment year 1972-73 on the written down value of the sum of Rs. 3,41,595 referred in question No. 1 and also on the additions to plant and machinery of Rs. 1,52,767 made during the previous year relevant to the assessment year 1971-72. The High Court, by its order dated October 12, 1984, held that the same was covered by 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, the 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 of 1978, dated April 18, 1983. The answer was, therefore, recorded against the assessee and in favour of the Revenue. In the special leave petition, it is stated that both the questions referred were answered in favour of the assessee which is not correct.

Since this bunch of appeals raises common questions of law for decision, they are disposed of by a common judgment. The facts in Civil Appeal No. 2916 of 1980 are sufficient for a decision. Hence, they are extracted. For the assessment year 1963-64, relevant to the previous year ending on March 31, 1963, the respondent-assessee, a company incorporated under the Companies Act, claimed depreciation on the roads constructed by it as forming part of the cost of the factory building. The Income-tax Officer and, on an appeal, the Appellate Assistant Commissioner rejected the claim. On further appeal, following the decision of the Bombay High Court for the previous year, the Tribunal allowed the appeal and held that the assessee is entitled to depreciation. Then the Revenue sought a reference on the question :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that 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 ?"

The High Court, by its impugned order under section 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 is a constructed one as a structure or super-structure on land with walls and roof. According to counsel, since the Act did not give a definition of its own, the dictionary meaning of "building", which means "a house or anything which is built, a structure", is to be adopted, which was made manifest by a subsequent amendment to Appendix I under the Income-tax (Fourth Amendment) Rules, 1983 (for short "the Rules"), having come into force with effect from April 2, 1983, which included roads. Therefore, till April 2, 1983, "roads" did not form part of the building. It is also further contended that the Rules made manifest that they would be applicable only prospectively from April 2, 1983. By necessary implication, till that cut off date, the Legislature excluded roads from the connotation of building. Capital expenditure incurred by an assessee on construction of roads even within factory premises is not entitled to depreciation as a deduction in the computation of profits and gains of the assessee's income of the previous year. Sri Harish Salve, 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, and so the assessee laid roads and incurred expenditure thereon. Therefore, the roads form part of building as a capital asset which is admissible for depreciation under section 32 of the Act. The Rules only regulate the rate of depreciation to which the assessee is entitled. Preceding the Fourth Amendment Rules with effect from April 2, 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 they came into force with effect from April 2, 1983. The subordinate Legislature gave effect to the interpretation given by various High Courts to the word "building" which included roads as well. Sri Manchanda further contended that a 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 should be given a 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.

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 intention. In Raja Jagdambika Pratap Narain Singh v. CBDT [1975] 100 ITR 698, this court held that "equity and income-tax have been described as strangers". The Act, in the very nature of things, cannot be absolutely cast upon logic. It is to be read and understood according to its language. If a plain 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 Jah Bahadur (H. H. Prince) v. ETO [1972] 83 ITR 92 (SC). Logic alone will not be determinative of a controversy arising from a taxing statute. Equally, common sense is a stranger and an incompatible partner to the Income-tax Act. It does not concern 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 intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting a purposive approach. The contextual meaning has to be ascertained and given effect to. A provision for deduction, 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 on the value of the capital assets from the taxable income. Therefore, building which has not been specifically defined to include road in the Act must be taken in a legal sense.

The question emerges, therefore, as to whether roads and drains are included in building under section 32 of the Act. Section 32 provides for depreciation of capital assets in respect of buildings, machinery, plant or furniture. This court, in CIT v. Dewan Bahadur Ramgopal Mills Ltd. [1961] 41 ITR 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 depreciation allowance, therefore, is in respect of such assets as are used in the business and has to be calculated on the written down value. The allowance 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 CIT v. Alps Theatre [1967] 65 ITR 377 (SC), heavily relied on by the Revenue, this court, considering, section 10(2) of the Indian Income-tax Act, 1922, held that section 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 assessable income. There, the question was whether the land on which the theatre was constructed is a building within the meaning of section 10(2) of the Indian Income-tax 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 down could be considered in the light of the purpose of the Act. In CIT v. Taj Mahal Hotel [1971] 82 ITR 44, this court, adopting a purposive approach, held that sanitary and pipeline fittings fell within the definition of plant. The 1922 Act intended to give a wide meaning to the word "plant". Rules are meant only to carry out the provisions of the Act and cannot take away what is conferred by the Act or whittle down its effect. In Municipal Corporation of Greater Bombay v. Indian Oil Corporation Ltd. [1990] 4 JT 533 (SC) ; AIR 1991 SC 686, oil tanks for storage of petrol were held to be buildings exigible to property tax.

The question whether roads would be included within the meaning of the, word "buildings" was considered by various High Courts. The leading decision is that of the Bombay High Court in CIT v. Colour-Chem Ltd. [1977] 106 ITR 323. While negativing the contention that roads are part of the plant, the Bombay 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 (vi) of section 10(2) of the 1922 Act. It was also held that the word "building" cannot be confined to its dictionary meaning of a structure or superstructure having walls and a roof over it. The roads and roadways are adjuncts of the building 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 factory building. The expenditure incurred, therefore, will have to be regarded as expenditure on buildings and depreciation must be allowed. In the appeal filed against the judgment in Colour-Chem Ltd.'s case [1977] 106 ITR 323 (Bom), the leave was refused on the ground of delay. More or less, though for different reasons, on "common sense principle" the same is the ration CIT v. Lucas TVS Ltd. (No. 2) [1977] 110 ITR 346 (Mad). When the appeal was filed, this court dismissed the special leave petition on the ground of delay. Same is the view in Panyam Cements and Mineral Industries Ltd. v. Addl. CIT [1979] 117 ITR 770 (AP), CIT v. Kalyani Spinning Mills Ltd. [1981] 128 ITR 279 (Cal) and CIT v. McGaw Ravindra Laboratories (India) Ltd [1981] 132 ITR 401 (Guj). In CIT v. Bangalore Turf Club Ltd. [1984] 150 ITR 23 (Kar), when the appeal was filed, this court dismissed the same in Special Leave Petitions Nos. 5198 and 5199 of 1985, dated December 16, 1987.

In Permanent Words and Phrases, Vol. 5A, "building", it was defined that everything 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 enacting the Income-tax (Fourth Amendment) Rules, 1983, the rule-making authority accepted this interpretation consistently laid down by various High Courts that building includes roads and also elongated 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 inclusive definition of "building" to include roads, etc., enlarges the scope of section 32 and does not whittle down its effect. It is true that in CIT v. Coromandel Fertilisers Ltd. [1985] 156 ITR 283 (AP), the High Court of Andhra Pradesh interpreted that "roads" fell within the meaning of "plant" and granted depreciation at the rates admissible to plant. CIT v. Sandvik Asia Ltd. [1983] 144 ITR 585 (Bom) took the opposite view and held them to be building. In view of the consistent view of the other High Courts and which, in our view, is the correct one, the view of the High Court of Andhra Pradesh is not correct in law.

It is true, as contended for the Revenue, that the Income-tax (Fourth Amendment) Rules, 1983, were given effect to from April 2, 1983, thereby manifesting that the rates enumerated in the rules would be applicable prospectively from the later assessment years. It could by no means be construed that the Legislature expressed its intention that, for the earlier period, building does not include roads. If it were to be so, it was open to Parliament to have expressly brought out an amendment 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 an integral part of the building. In Bangalore Turf Club Ltd.'s case [1984] 150 ITR 23, the Karnataka High Court held that the amendment was by way of a clarification in conformity with the law laid down by High Courts. It is also 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 reasonably be possible unless the new perceptions and circumstances warrant a fresh look. The ratio in Saharanpur Electric Supply Co. Ltd. v. CIT [1992] 194 ITR 294 (SC) is not in conflict with the above view. It is also settled law that, unless it is expressly 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.

Accordingly, we have no hesitation to hold that the roads laid within the factory premises as links or providing approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activity of the assessee and would be building within the meaning of section 32 of the Act. The capital expenditure incurred thereon is admissible to depreciation on written down value. It has to be worked out for the purpose of depreciation as per the provisions of the Act read with, the Rules in the 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 the written down value of the cost of its construction would equally be entitled to depreciation. It is to be worked out in terms of section 32 of the Act read with the Rules in the Appendix. In view of the settled position, the reference sought for in C. A. No. 2916 of 1980 and C. A. No. 1194 of 1977 is unnecessary, The appeals are, accordingly, dismissed. No costs.

Civil Appeal No. 1404 of 1991:

The appeal is partly allowed. The Income-tax Officer would compute roads as building and depreciation should be given accordingly. In view of the circumstances, the parties are directed to bear their own costs.

Civil Appeals Nos. 2978 of 1989 and 5535 of 1990:

The civil appeals are dismissed. No costs.

 

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