1998 (10) TMI 62 - HC - Income Tax

Summary

Issues:
1. Depreciation on roads, culverts, and sewage lines under section 32(1)(iv) of the Income-tax Act, 1961.
2. Classification of roads, culverts, and sewage lines as buildings for depreciation purposes.
3. Eligibility for depreciation if the construction is carried out within or outside the factory premises.

Analysis:
1. The primary issue in this case is whether depreciation can be claimed on roads, culverts, and sewage lines under section 32(1)(iv) of the Income-tax Act, 1961. The dispute arose when the Income-tax Officer disallowed the depreciation claimed by the assessee, arguing that these constructions were not solely used by employees earning less than a specified amount. The Commissioner of Income-tax later directed the allowance of depreciation in a specific ratio, leading to an appeal before the Appellate Tribunal.

2. The second issue revolves around the classification of roads, culverts, and sewage lines as buildings for the purpose of depreciation under section 32(1)(iv) of the Act. The Appellate Tribunal accepted the assessee's argument that these constructions were primarily for the benefit of lower-grade employees and, therefore, qualified for depreciation. The Tribunal held that if incidental benefits were available to others, it did not negate the claim for depreciation.

3. The final issue concerns the eligibility for depreciation based on the location of the construction, whether within or outside the factory premises. The High Court emphasized that if roads, culverts, and sewage lines were constructed within the vicinity of the factory, exclusively owned and used for factory purposes, depreciation could be allowed. The court referred to the decision in CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd., where it was established that roads within the factory premises, serving business activities, qualified as buildings for depreciation purposes.

In conclusion, the High Court ruled in favor of the assessee, allowing depreciation on the expenditure incurred for constructing roads, culverts, and sewage lines within the factory area or in the vicinity for the exclusive use of factory workers. The judgment clarified the interpretation of "building" under section 32(1)(iv) and highlighted the importance of ownership and purpose in determining eligibility for depreciation on such constructions.