Raasi Cements Ltd. vs Commissioner of Income Tax (No. 2)

M.H.S. Ansari J.

Heard learned counsel for the respective parties.

The instant reference is at the instance of the assessee. For the assessment year 1985-86, the Income Tax Appellate Tribunal (the ITAT) disposed of the appeal in I. T. A. No. 1238/Hyd of 1998 and referred the following question said to be arising out of its order for the opinion of this court.

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the assessee was not entitled for initial depreciation u/s 32(1)(iv) of the Income Tax Act with respect to the quarters to the employees ?

After having heard learned counsel for the respective parties, we are of the view that the question requires to be answered in the affirmative, i.e., in favour of the Revenue and against the assessee. For the said purpose, reference to a few facts as noticed in the order of the Income Tax Appellate Tribunal may be stated.

The assessee constructed buildings worth Rs. 23,95,223 during the accounting year relevant to the assessment year in question. These buildings included non-factory building of temporary sheds. The assessee claimed initial depreciation at the rate of 40 per cent. under the provisions of Section 32(1)(iv) of the Income Tax Act (for short "the Act"). The Income Tax Officer disallowed the claim of Rs. 13,20,840 after having found that the employees who were allotted quarters were drawing a salary of more than Rs. 1,000 per month. The learned Commissioner of Income Tax (Appeals), concurred with the view of the Income Tax Officer. The Income Tax Appellate Tribunal, on appeal preferred by the assessee, upheld the said view.

The contention of the assessee-appellant before the learned Tribunal was that some of the employees who are drawing less than Rs. 10,000 per annum are also staying in the quarters. The learned Tribunal has noticed in its order that it was conceded before it that no details of such employees could be furnished. The only contention therefore, was that the provision being a staff welfare measure, a taxpayer should be encouraged to provide quarters to the employees and, therefore, the deduction u/s 32(1)(iv) of the Act should not be denied to the assessee. The same was repelled by the Income Tax Appellate Tribunal relying upon the provisions contained in Clause (iv) of Section 32(1) before it was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1988. The said provision, to the extent relevant, for the sake of convenience is extracted hereunder.

"in the case of any building which has been newly erected after the 31st day of March, 1961, where the building is used solely for the purpose of residence of persons employed in the business and the income of each such person chargeable under the head ''Salaries'' is ten thousand rupees or less ..."

As rightly held by the Income Tax Appellate Tribunal, the expression "solely" in the above clause indicates that such buildings should be occupied by employees drawing a salary of Rs. 10,000 per annum or less. The assessee-company, it was held, did not fulfil this condition.

In view of the conclusion as above of the final fact-finding authority, we are inclined to uphold the view of the Income Tax Appellate Tribunal that the assessee is not entitled to the initial depreciation as it does not fulfil the conditions prescribed for such deduction.

In the result, the question as posed for our consideration is answered in the affirmative, i.e., in favour of the Revenue and against the assessee.

The reference is answered accordingly.