COMMISSIONER OF INCOME TAX vs JAIPUR UDYOG LTD.

V. K. SINGHAL, J. :

In respect of asst. yr. 1967-68 the claim of extra shift allowance equal to normal depreciation has been made by the assessee. The Tribunal vide its order dt. 8th Sept., 1982 referred the following question of law arising out of its order dt. 31st Oct., 1980 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that extra shift allowance equal to normal depreciation should be allowed for the full year in respect of the assets which were used during the year for more than 30 days but less than 180 days ?"

Vide letter dt. 29th Nov., 1971 the revised claim for extra shift allowance was made on the basis of Expln. (1) to the remarks appearing in remarks column against Heading III, machinery and plants in para 1 of Appendix I of the IT Rules, 1962. It was claimed by the assessee that in this Explanation the extra shift allowance equal to normal shift depreciation will be an allowance that should be given in r. 5 of the IT Rules, if the machinery and plant had been put to use for the period of 180 days or more days in the previous year, the extra shift allowance should be allowed at 100%. Since the revised working and extra shift allowance was not submitted, the claim of the assessee was rejected. The claim of the assessee in the year 1965-66 was also rejected on that ground.

In an appeal before the AAC, it was contended that in case of assets which were in use for more than 30 days, but less than 180 days extra shift allowance should have been allowed equal to normal allowance for full year. Since the appeal in the year 1965-66 was rejected and this appeal was also rejected and it was observed that the extra shift allowance can in no circumstance be more that normal allowance for a particular asset.

In second appeal before the Tribunal, it was submitted that the Expln. I appearing in remarks column 3 against item No. III in part I of Appendix I to IT Rules, 1962 as they stood during the accounting period relevant to asst. yr. 1967-68 since the assets were put to use for more than 30 days, but less than 180 days extra shift allowance should have been allowed equal to normal allowance equal to the full year since the concerned work for full year and not at the rate of 50%. Relying on the decision of the Allahabad High Court in the case of J.K. Synthetics Ltd. Vs. Commissioner of Income Tax, the claim of the assessee was allowed and the ITO was directed to recalculate the extra shift depreciation allowance. The decision of Calcutta High Court in the case of Anantapur Textiles Ltd. Vs. Commissioner of Income Tax, was not followed. It was observed in this case that the explanation seeks to give an artificial meaning to the phrase normal allowance for the purpose of calculating the extra allowance for double or triple shift working. For the purpose of calculation of extra allowance, the normal allowance has to be taken as the full depreciation allowance admissible on the footing that the company had worked for 180 days or more, irrespective of the number of days for which it had actually worked.

It was provided in Expln. I that for the purpose of normal allowance the amount of depreciation allowance (other than extra depreciation allowance) that would have been allowed in r. 5 if the machinery and plant had been used during the previous year for a period of 180 days or more. Normal depreciation allowance does not refer to the actual allowance.

We have heard the arguments of the learned counsel for the parties. The claim of the assessee is in respect of the plant and machinery which have been acquired in the year under assessment and have been operated for more than 30 days, but less than 180 days. The extra shift allowance has been claimed on the basis of working of the unit. The Tribunal has referred the decision of J. K. Synthetics, refeed to above, where it was interpreted that if the legislative intent had been to take only the actual normal depreciation allowance admissible in any particular year as criteria, there would be no need for engrafting the Explanation because the main provision begins by saying extra allowance upto 50% of the normal allowance by the ITO where a concern claims such allowance on account of double shift working". The Explanation was considered to give an artificial meaning to the phrase normal amount for calculating the extra allowance for double or triple shift and namely for this purpose and also by the phrase that would have been allowed under r. 5, plant or machinery had been used during the previous year for a period of 180 days or more. The normal allowance referred in Expln. I was interpreted to refer the figure of normal depreciation of plant and machinery for 180 days or more. Sec. 32 provides for depreciation and the provisions are as under :

Depreciation : (1) In respect of depreciation on buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of s. 34, be

(ii) in the case of buildings, machinery, plant or furniture, other than ships covered by cl. (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed.....

Provided that such deficiency is actually written off in the books of the assessee....."

The condition for depreciation allowance and development rebate are contained in s. 34 which are as under :

Conditions for depreciation allowance and development rebate : (1) The deductions referred to in sub-s. (1) of s. 32 shall be allowed only if the prescribed particulars have been furnished..... :

(2) For the purposes of s. 32 - (i) the aggregate of all deduction in respect of depreciation made under sub-s. (1) of s. 32 or under the Indian IT Act, 1922 (11 of 1922), or under any Act repealed by that Act or under the Indian IT Act, 1886 (2 of 1886), shall, in no case, exceed the actual cost to the assessee of the buildings, machinery, plant or furniture, as the case may be....."

The relevant rule is r. 5 of the IT Rules, 1962. Material provisions of the said Rule are as follows :

Depreciation - (1) Subject to the provisions of r. (2), the allowance under cl. (ii) of sub-s. (1) of s. 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year.

(2) Where any new machinery or plant is installed during the previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, for the purpose of business of manufacture or production of any article or thing and such article, or

(a) is manufactured or produced by using any technology (including any process) or other know-how developed in, or

(b) is an article or thing invented in,

a laboratory owned or financed by the Government a laboratory owned by a public sector company or a university or an institution recognised in this behalf by the Secretary, Department of Scientific and Industrial Research, Government of India.

such plant or machinery shall be treated as a part of block of assets qualifying for depreciation at the rate of 40% of written down value, if the following conditions are fulfilled, namely :

(i) the right to use such technology (including any process) or other know-how or to manufacture or produce such article or thing has been acquired from the owner of such laboratory or any person deriving title from such owner :

(ii) the return furnished by the assessee for his income, or the income of any other person in respect of which he is assessable, for any previous year in which the said machinery or plant is acquired, shall be accompanied by a certificate from the Secretary, Department of Scientific and Industrial Research, Government of India, to the effect that such article or thing is manufactured or produced by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory; and

(iii) the machinery or plant is not used for the purpose of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule to the Act.

Explanations 1 and 2 appended to Part I of Appendix I of r. 1 is as under :

Explanation 1 - For the 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 r. 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.

Explanation 2 - For the removal of doubts, it is hereby declared that no extra allowance for double or triple shift working shall be allowed in a case where the machinery or plant has been used for a period of thirty days or less than thirty days during the previous year.

An extra allowance upto a maximum of 50% of the normal allowance is to be allowed on the basis of the double shift working and 100% for triple shift working. The total number of working days for calculation have been prescribed as 300 and if the concern has worked for 100 days on double shift and 100 days for triple shift extra allowance for double shift would be one third of 50% of the normal allowance and for triple shift also it will be one third of 100% of the normal allowance.

For the purpose of extra shift allowance, it was found that the assessee is eligible. The dispute is only with regard to quantum of computation. Under r. 5 it is provided that the plant and machinery which has been used by the assessee in its business for a period of 180 days or more it will be entitled for 100% allowance and where the plant and machinery have been used for less than 180 days, but more than 30 days, the allowance would be 50%. The Tribunal has proceeded that r. 5 has no application to the case of the extra shift allowance in view of the decision of J. K. Synthetics (supra), referred to above as necessary provisions of extra shift allowance have been made in Appendix I, Part I and the only thing which has to be seen is as to whether the concern has worked double shift or triple shift and the working of each item and machinery with regard to number of days it has worked is not to be seen.

The Calcutta High Court in the case of Anantapur Textiles Ltd. vs. CIT (supra), found that for the computation of normal depreciation allowance, the actual working of each plant and machinery is material and depreciation allowance is to be computed on the basis of number of days each plant and machinery worked during the previous year provided the plant or machinery is otherwise qualified to claim the depreciation allowance. After taking into consideration the remarks in Appendix I Part I of the Rules, it was observed that the assessee is entitled to extra shift allowance only when he satisfies that the concern has actually worked double shift or triple shift. The computation of extra allowance separately than double shift and triple shift makes it clear that it is the eligibility of the claim of any concern for extra allowance and not the mode of calculation. It was also found that there is certain machinery and plant which are not eligible as the word NESA is mentioned against them and, therefore, the individual plant and machinery has to be taken into consideration. Expln. 2 refers to a situation where no extra allowance for double or triple shift is available if the plant and machinery has been used for the period of 30 days or less than 30 days. Since, depreciation allowance is to be allowed on each item of plant and machinery on the basis of its working, the form prescribed under s. 34(1) of the Act contains in Appendix I of the IT Rules which requires the details to be filled-in makes it clear that the extra allowance for double shift or triple shift of working of concern has to be calculated on the basis of number of days any plant or machinery has worked and not on the basis of number of days the concern has worked double shift or triple shift.

The Gujarat High Court in the case of Commissioner of Income Tax Vs. Transpek Industry Pvt. Ltd., observed that where a concern has worked double shift or triple shift, extra shift allowance is to be allowed in respect of the entire plant and machinery used by the concern. The allowance does not depend upon the number of days on which each machine actually worked double or triple shift during the relevant assessment year and for this purpose the letter of CBDT No. 10/83/69-II (A-II) dt. 28th Sept., 1970 was relied.

The decision of J. K. Synthetics Ltd. vs. CIT (supra) was followed by Allahabad High Court in the case of L.H. Sugar Factories and Oil Mills (P.) Ltd. Vs. Commissioner of Income Tax,

The Madras High Court in South India Viscose Ltd. vs. CIT (1982) 135 ITR 206 has observed that the extra shift allowance is to be worked out in respect of each machinery depending on number of shifts worked by such machinery. This decision was given on the reasoning that there are several items of machinery which were excluded from the scope of extra shift allowance by the use of the words NESA. The ITO had to apply his mind and examine which machinery owned by the assessee had been used by him in extra shift and so long as the particular machinery had worked extra shift it would be eligible for extra shift allowance on the basis of the number of days it had worked provided NESA did not apply to it.

This judgment was followed in the case of Commissioner of Income Tax Vs. South India Viscose Ltd.,

The Kerala High Court in the case of Commissioner of Income Tax Vs. Punalur Paper Mills Limited, referred to the circular of CBDT No. 10/83/63-ITA(II) dt. 28th Sept., 1970. The benefit of extra shift allowance was allowed on the entire machineries.

The decision of Allahabad High Court in the case of L. H. Sugar Mills Pvt. Ltd., referred to above, was overruled by the Full Bench of Allahabad High Court in the case of Dhampur Sugar Mills Ltd. Vs. Commissioner of Income Tax, and it was observed that the extra allowance is to be computed for each plant and machinery that has actually worked on double or triple shift. The allowance is not to be given to the assessee as such. The reduction is to be allowed only if the prescribed particulars are furnished as required by s. 34(1) of the IT Act, 1961 in Form No. 1 of Appendix II of the IT Rules, requiring the assessee to specifically state the number of days for which extra shift worked. Therefore, extra shift allowance is to be calculated in proportion to the number of days the plant or machinery has actually worked and not as amount equal to the full amount of normal depreciation. This decision was followed by Allahabad High Court in Commissioner of Income Tax Vs. J.K. Cotton Spinning and Weaving Mills Co. Ltd.,

The Delhi High Court in the case of Raza Sugar Co. Ltd. and Buland Sugar Co. Ltd. Vs. Commissioner of Income Tax (Central), and Buland Sugar Co. Ltd. Vs. Commissioner of Income Tax, has also taken the view in respect of seasonal factory that they are entitled for double shift and triple shift allowance on the proposition of the number of days worked. The Full Bench of Andhra Pradesh High Court in the case of Additional Commissioner of Income Tax, Andhra Pradesh Vs. Sarvaraya Sugars Ltd., observed that the plant and machinery other than those used in seasonal factories, are entitled to depreciation on the basis of the number of days for which the plant and machinery has been used during the previous year.

We have considered over the matter. The Appendix I has been issued in r. 5 of the IT Rules, 1962 and the use of the plant and machinery for different period have been prescribed therein. There are certain plants and machineries which are having inscription of letters NESA. In the example given, it has been stated as to how the extra allowance has to be worked out if the plant and machinery has not worked for the full year. Though the view of the decisions are in respect of seasonal factories, but appendix to the rules has not made a distinction between the seasonal factory and other factories which have not worked. Under s. 34 the particulars have to be given in the prescribed proforma on the basis of which the ITO has to apply his mind as to whether the machinery at all is entitled for extra allowance or not and, therefore, the proper interpretation which could be taken on the basis of the provisions of s. 32 and r. 5 and Appendix I is that the assessee is entitled for the extra shift allowance only on the number of actual days it has worked and not on the basis of unit worked.

The reference is accordingly answered in favour of the Revenue and it is held that the Tribunal was not justified in holding that extra shift allowance equal to normal depreciation should be allowed for the full year in respect of the assets which were used during the year for more than 30 days but less than 180 days.

The reference is answered in favour of Revenue and against the assessee.